PETROLEUM
DEVELOPMENT CORPORATION
120
Genesis Boulevard
Bridgeport,
West Virginia 26330
____________________
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
August
28, 2007, at 10:00 a.m., Local Time
____________________
Bridgeport Conference Center
300
Conference Way
Bridgeport,
WV 26330
To
the
Shareholders:
Notice
is hereby given that the
Annual Meeting of Shareholders of Petroleum Development Corporation (the
"Company") will be held at the Bridgeport Conference Center, 300 Conference
Way,
Bridgeport, West Virginia 26330, on August 28, 2007, at 10:00 a.m., local
time,
for the following purposes, all as more fully described in the accompanying
Proxy Statement:
|
(1)
|
To
elect two directors to serve three-year terms or until their successors
shall be elected and shall qualify.
|
|
(2)
|
To
ratify the selection of PricewaterhouseCoopers LLP by the Audit
Committee
of the Board of Directors as the Company's independent registered
public
accounting firm for the fiscal year ending December 31,
2007.
|
|
(3)
|
To
consider such other business as may properly come before the meeting
and
at any and all adjournments or postponements
thereof.
|
The
Board of Directors has fixed the
close of business on July 24, 2007, as the record date for determining the
shareholders having the right to vote at the annual meeting or any adjournment
or postponement thereof. The presence in person or by proxy of the
holders of a majority of the outstanding shares of the Company's common stock
entitled to vote is required to constitute a quorum.
Each
shareholder is cordially
invited to attend and to vote at this meeting in person. Shareholders
who do not expect to attend are requested to sign and date the accompanying
proxy card and return it promptly in the enclosed postpaid
envelope.
By
Order of the Board of
Directors,
Steven
R. Williams,
Chairman
Bridgeport,
West Virginia
July
31, 2007
PETROLEUM
DEVELOPMENT CORPORATION
120
Genesis Boulevard
Bridgeport,
West Virginia 26330
____________________
PROXY
STATEMENT
ANNUAL
MEETING OF SHAREHOLDERS
TO
BE HELD AUGUST 28, 2007
____________________
The
accompanying proxy is solicited by the Board of Directors ("Board") of Petroleum
Development Corporation ("PDC" or the "Company") for use at the Annual Meeting
of Shareholders of the Company to be held on Tuesday, August 28, 2007, at
10:00
a.m., and at any and all adjournments or postponements of the meeting, for
the
purposes set forth in this Proxy Statement and the attached Notice of Annual
Meeting of Shareholders. This Proxy Statement and the enclosed form
of proxy are first being mailed to the shareholders of the Company on or
about
July 31, 2007.
The
Company will bear the cost related to the solicitation of
proxies. The Company will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable and appropriate expenses
incurred by them in sending proxy materials to the beneficial owners of the
Company's common stock. In addition to solicitations by mail,
directors, officers and employees of the Company may solicit proxies by
telephone and, to the extent necessary, by telegraph, or other electronic
communication, and personal interviews without additional
compensation.
Who
May Vote
Shareholders
of Petroleum Development Corporation ("PDC" or the "Company"), as recorded
in
the Company's stock register on July 24, 2007, may vote at the
meeting. The outstanding voting securities of the Company as of June
30, 2007, consisted of 14,887,912 shares of common stock. Each share
is entitled to one vote on each matter considered at the meeting.
How
to Vote
You
may
vote in person at the meeting or by proxy. The Board recommends you
vote by proxy even if you plan to attend the meeting. You can always
change your vote at the meeting.
How
Proxies Work
The
Board
is asking for your proxy. Giving the Board your proxy means you
authorize the Board to vote your shares at the meeting in the manner you
direct. You may vote for all, either or both director candidates, or
you may withhold your vote from either or both of the director
candidates. You may also vote for or against the other proposals, or
abstain from voting. Cumulative voting is not permitted by the
Company's By-Laws in the election of directors.
If
your
shares are held in your name, you can vote by completing, signing and dating
your proxy card and returning it in the enclosed envelope.
If
you
give the Board your signed proxy but do not specify how to vote, they will
vote
your shares in favor of their director candidates and in favor of the
ratification of the appointment of the Independent Registered Public Accounting
Firm.
If
you
hold shares through someone else, such as a stockbroker, you will receive
material from that firm asking how you want to vote. Check the voting
form used by that firm to see what voting options you have
available.
Revoking
a Proxy
You
may
revoke your proxy before it is voted by:
|
·
|
Submitting
a new signed proxy with a later
date;
|
|
·
|
Notifying
PDC's Secretary in writing before the meeting that you wish to
revoke your
proxy; or
|
|
·
|
Appearing
at the meeting, notifying the Inspectors of the Election that you
wish to
revoke your proxy, and voting in person at the
meeting.
|
If
you
hold your shares through someone else, such as a stockbroker, you will need
to
follow the directions they give you to revoke a proxy or otherwise vote at
the
meeting.
Quorum
In
order
to carry on the business of the meeting, there must be a quorum. This
means at least a majority of the outstanding shares eligible to vote must
be
represented at the meeting, either by proxy or in person. Treasury
shares, which are shares owned by PDC itself, are not voted and do not count
for
this purpose.
Votes
Needed
The
director candidates who receive the most votes will be elected to fill the
available seats on the Board. Approval of other proposals requires
the favorable vote of a majority of the votes cast. Only votes for or
against a proposal count. Abstentions and broker non-votes count for
quorum purposes but not for voting purposes. Broker non-votes occur
when a broker returns a proxy but does not have authority from the owner
of the
stock to vote on a particular proposal. Although there are no
controlling precedents under Nevada law regarding the treatment of broker
non-votes in certain circumstances, the Company intends to apply the principles
presented herein.
Attending
in Person
Only
shareholders or their proxy holders and PDC's guests may attend the annual
meeting. For safety and security reasons, no cameras, audio or video
recording equipment, large bags, briefcases or packages will be permitted
in the
meeting. In addition, each shareholder and guest may be asked to
present valid, government-issued picture identification, such as a driver's
license, before being admitted to the meeting.
If
your
shares are held in the name of your broker, bank, or other nominee, you must
bring to the meeting an account statement or letter from the nominee indicating
that you beneficially owned the shares on July 24, 2007, the record date
for
voting. Shareholders who do not present proxies at the meeting will
be admitted upon verification of ownership at the admissions
counter.
The
Chairman has broad authority to conduct the annual meeting in an orderly
and
timely manner. This authority includes establishing rules for
shareholders who wish to address the meeting. Copies of these rules
will be available at the meeting. The Chairman may also exercise
broad discretion in recognizing shareholders who wish to speak and in
determining the extent of discussion on each item of business. In
light of the need to conclude the meeting within a reasonable period of time,
there can be no assurance that every shareholder who wishes to speak on an
item
of business will be able to do so. The Chairman may also rely on
applicable law regarding disruptions or disorderly conduct to ensure that
the
meeting is conducted in a manner that is fair to all shareholders.
Contact
Information
If
you
have questions or need more information about the annual meeting, write to
or
call:
Corporate
Secretary
Petroleum
Development
Corporation
120
Genesis
Boulevard
P.O.
Box
26
Bridgeport,
WV
26330
(304)
842-3597
For
information about
shares registered in your name, call PDC at 1-800-624-3821. You are
also invited to visit PDC's internet site at www.petd.com. Internet
site materials are not part of this proxy solicitation.
As
of the
date of this proxy statement, the Company's Board of Directors ("Board")
has
seven members divided into three classes. Directors are elected for
three-year terms. The terms for members of each class end in
successive years. Unless the Board determines otherwise, directors
elected to fill vacancies hold office for a term expiring at the annual meeting
when the term for their class expires.
The
Board
of Directors has nominated two directors, Vincent F. D'Annunzio and Thomas
E.
Riley, whose terms expire in 2007, to stand for election to the board for
a
three-year term expiring in 2010. Mr. D'Annunzio has served on the
Board since 1989 and currently serves as the Chair of the Nominating and
Governance Committee of the Board as well as a member of the Compensation
and
Executive Committees. Mr. Riley, President of PDC, currently serves
as a member of the Executive and Planning and Finance Committees of the
Board.
The
appointed proxies will vote your proxy for the election of the two nominees
unless you withhold your authority to vote for either or both of
them. The Board does not contemplate that any of the nominees will
become unavailable for any reason; however, if any director is unable to
stand
for election, the Board may reduce its size or choose a
substitute. Proxies cannot be voted for a greater number of persons
than the number of nominees named.
|
NOMINEES
FOR A THREE YEAR TERM EXPIRING IN 2010
|
||
|
Name,
Principal
Occupation
for Past Five Years
and
Other Directorships
|
Age
|
Year
First
Elected
Director
|
|
VINCENT
F. D'ANNUNZIO has served as president of Beverage Distributors,
Inc.
located in Clarksburg, West Virginia since 1985.
|
54 |
1989 |
|
THOMAS
E. RILEY assumed the position of President in December
2004. Previously, Mr. Riley served as Executive Vice President
of Production, Natural Gas Marketing and Business Development since
November 2003. Prior thereto, Mr. Riley served as Vice
President Gas Marketing and Acquisitions of the Company since April
1996. Prior to joining the Company, Mr. Riley was president of
Riley Natural Gas Company, a natural gas marketing company which
the
Company acquired in April 1996.
|
54
|
2004
|
|
Continuing
Directors with Terms Expiring in 2008
|
||
|
DAVID
C. PARKE is a managing director in the investment banking group
of
Boenning & Scattergood, Inc., West Conshohocken, Pennsylvania, a
full-service investment banking firm. Prior to joining Boenning
& Scattergood in November 2006, he was a director with Mufson Howe
Hunter & Company LLC, Philadelphia, Pennsylvania, an investment
banking firm, from October 2003 to November 2006. From 1992
through 2003, Mr. Parke was director of corporate finance of Investec,
Inc., and its predecessor Pennsylvania Merchant Group Ltd., investment
banking companies. Prior to joining Pennsylvania Merchant
Group, Mr. Parke served in the corporate finance departments of
Wheat
First Butcher & Singer, now part of Wachovia Securities, and Legg
Mason, Inc., now part of Stifel Nicolaus. Mr. Parke serves as a
member of the board of directors of Zunicom, Inc., a public company
providing business communication services to the hospitality
industry.
|
40
|
2003
|
|
JEFFREY
C. SWOVELAND is the chief operating officer of Coventina Healthcare
Enterprises, a medical device company specializing in therapeutic
warming
and multi-modal treatment systems used in the treatment, rehabilitation
and management of pain. Previously, Mr. Swoveland served as the
chief financial officer of Body Media, a life-science company specializing
in the design and development of wearable body monitoring products
and
services, from September 2000 to May 2007. Prior thereto, Mr.
Swoveland held various positions, including vice president of finance,
treasurer and interim chief financial officer, with Equitable Resources,
Inc., a diversified natural gas company, from 1997 to September
2000. Mr. Swoveland serves as a member of the board of
directors of Linn Energy, LLC, a public, independent natural gas
and oil
company.
|
52
|
1991
|
|
Continuing
Directors with Terms Expiring in 2009
|
||
|
KIMBERLY
LUFF WAKIM, an
attorney and certified public accountant, is a partner with the
law firm
Thorp, Reed & Armstrong LLP. Ms. Wakim joined Thorp Reed
& Armstrong LLP in 1990.
|
49
|
2003
|
|
STEVEN
R. WILLIAMS was elected Chairman and Chief Executive Officer in
January
2004. Mr. Williams served as President from March 1983 until
December 2004.
|
56
|
1983
|
|
ANTHONY
J. CRISAFIO is a certified public accountant and serves as an independent
business consultant, providing financial and operational advice
to
businesses since 1995. He owned two small businesses during the
period of 1991 to 2002. Additionally, Mr. Crisafio served as
the chief operating officer of Cinema World, Inc. from 1989 until
1993 and
was a partner with Ernst & Young from 1986 until 1989.
|
54
|
2006
|
Each
non-employee director received an annual retainer of $40,000 during
2006. Additionally, non-employee directors receive a fee for being a
member of certain committees. During the third quarter of 2006, the
audit committee chairperson began receiving an annual fee of $13,000, payable
quarterly, and the other audit committee members began receiving an annual
fee
of $8,000 each, payable quarterly. The compensation committee
chairperson received an annual fee of $2,500 and the nominating committee
chairperson received an annual fee of $2,500. Non-employee directors
also receive restricted stock compensation. Pursuant to the
shareholder approved Non-Employee Director Restricted Stock Plan (the
“Restricted Stock Plan”), as of the date of each annual shareholders meeting of
the Company each non-employee director will be awarded a specified number
of
shares of restricted stock as determined by the Board. Directors
receiving restricted stock under the Restricted Stock Plan will have all
of the
rights of a shareholder including the right to vote the shares and receive
cash
dividends and other cash distributions. Restricted stock will be
subject to the restrictions for the restricted period commencing on the date
the
stock is awarded.
Each
non-employee director can choose to defer a portion or all of their annual
cash
compensation by participating in the Non-Employee Director Deferred Compensation
Plan. The plan's trustee will invest all cash deposits received
exclusively in the common stock of the Company.
For
the
2007-2008 Board term, each non-employee director will be paid an annual fee
of
$55,000 and will receive 2,000 shares of restricted stock, which will be
awarded
on the date of the annual meeting. Additional fees will be paid to
the Presiding Independent Director of $27,500, the Audit Committee Chair
of
$22,500, Audit Committee members of $10,000, Chairs of the Compensation,
Planning and Finance and Nominating and Governance Committees of $7,500 for
each
committee for which he or she serves as Chair, and members of the Compensation,
Executive, Planning and Finance and Nominating and Governance Committees
of
$2,500 for service on each committee on which he or she serves.
2006
Director Compensation Table
|
Fees
Earned/
|
Stock
|
Option
|
All
Other
|
|||||||
|
Name
|
Paid
in Cash
|
Awards
(1)
|
Awards
|
Compensation
|
Total
|
|||||
|
Kimberly
Luff Wakim
|
$ 46,500
|
(2)
|
$ 26,310
|
$ -
|
$ -
|
$ 72,810
|
||||
|
Vincent
F. D'Annunzio
|
42,500
|
(3)
|
41,464
|
-
|
-
|
83,964
|
||||
|
David
C. Parke
|
44,500
|
23,088
|
-
|
-
|
67,588
|
|||||
|
Jeffrey
C. Swoveland
|
45,250
|
23,088
|
-
|
-
|
68,338
|
|||||
|
Donald
B. Nestor
|
35,750
|
(4)
|
19,996
|
-
|
-
|
55,746
|
||||
|
Anthony
J. Crisafio
|
12,000
|
2,882
|
-
|
-
|
14,882
|
|
(1)
|
Represents
compensation expense recorded by the Company pursuant to FAS
123(R).
|
|
(2)
|
Includes
amounts deferred (20%) pursuant to stock purchase
election.
|
|
(3)
|
Includes
amounts deferred (100%) pursuant to stock purchase
election.
|
|
(4)
|
Retired
from directorship on September 1, 2006; Mr. Nestor received a prorated
annual retainer and fees for three quarters of the year based on
his time
of service.
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES TO THE BOARD
OF
DIRECTORS SET FORTH IN THIS PROPOSAL 1.
The
Audit
Committee has the authority to appoint and discharge the independent registered
public accounting firm. On
May 24, 2007, the Audit Committee recommended and the Board ratified the
engagement of PricewaterhouseCoopers LLP ("PwC") as the Company’s independent
registered public accounting firm with respect to its year ending December
31,
2007. The Board is submitting the appointment of PwC to the
shareholders for ratification. If the appointment of PwC is not
ratified, the Board will require the Audit Committee to reconsider its
selection. A representative of PwC is expected to be present at the
meeting, will have an opportunity to make a statement if he or she so desires,
and will also be available to respond to appropriate questions. It is
not expected that representatives of KPMG LLP ("KPMG"), the Company’s
independent registered public accounting firm for 2006, will be present at
the
annual meeting of shareholders.
During
the Company’s two most recent fiscal years ended December 31, 2006 and 2005, and
through May 24, 2007, the Company did not consult with PwC regarding either
(i)
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on
the Company’s financial statements, and neither a written report was provided to
the Company nor oral advice was provided that PwC concluded was an important
factor considered by the Company in reaching a decision as to any of the
accounting, auditing or financial reporting issues; or (ii) any matter that
was
either the subject of a disagreement, as that term is defined in paragraph
304(a)(1)(iv) of Regulation S-K, or a reportable event required to be reported
under paragraph 304(a)(1)(v) of Regulation S-K.
On
May
24, 2007, the Audit Committee recommended, and the Board ratified, the dismissal
of KPMG as its principal accountants. The audit reports of KPMG on
the consolidated financial statements of the Company as of December 31, 2006
and
2005, and for the three years ended December 31, 2006, contained no adverse
opinion or disclaimer of opinion, nor were such reports qualified or modified
as
to uncertainty, audit scope or accounting principles, except as
follows:
The
audit
report of KPMG on the Company’s consolidated financial statements as of December
31, 2006 and 2005, and for the three years ended December 31, 2006, dated
May
22, 2007, indicated that, as described in Note 1 to such consolidated financial
statements, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment, and the Company
changed its method of quantifying errors based on SEC Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements, in
2006.
The
audit
reports of KPMG on management's assessment of the effectiveness of internal
control over financial reporting and the effectiveness of internal control
over
financial reporting as of December 31, 2006 and 2005, did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified
as
to uncertainty, audit scope, or accounting principles, except that:
|
(1)
|
KPMG's
report as of December 31, 2006, includes an explanatory paragraph
stating
that “the Company acquired Unioil on December 6, 2006, and management
excluded from its assessment of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2006,
Unioil’s internal control over financial reporting associated with total
assets of $26.1 million and total revenues of $0.3 million included
in the
consolidated financial statements of the Company as of and for
the year
ended December 31, 2006. Our audit of internal control over
financial reporting of the Company also excluded an evaluation
of the
internal control over financial reporting of
Unioil.”
|
|
(2)
|
KPMG’s
reports indicate that the Company did not maintain effective internal
control over financial reporting as of December 31, 2006 and 2005,
because
of the effect of material weaknesses on the achievement of the
objectives
of the control criteria as described
below:
|
Material
Weaknesses as of December 31, 2006, Identified in KPMG’s
Report
|
·
|
The
Company did not have effective policies and procedures to ensure
the
timely reconciliation, review and adjustment of significant balance
sheet
and income statement accounts. As a result, material
misstatements were identified during the Company's closing process
in
certain significant balance sheet and income statement accounts
of the
Company’s 2006 consolidated financial statements. This
deficiency resulted in a more than remote likelihood that a material
misstatement of the Company’s annual or interim financial statements would
not be prevented or detected.
|
|
·
|
The
Company did not have effective policies and procedures, or personnel
with
sufficient technical expertise to ensure proper accounting for
derivative
instruments. Specifically, the Company’s internal control
processes did not ensure the completeness of all derivative contracts
related to oil and gas sales, and also did not ensure the determination
of
the fair value of certain derivatives. As a result,
misstatements were identified in the fair value of derivatives
and related
income statement accounts of the Company’s 2006 consolidated financial
statements. This deficiency resulted in a more than remote
likelihood that a material misstatement of the Company’s annual or interim
financial statements would not be prevented or
detected.
|
|
·
|
The
Company did not have effective policies and procedures to ensure
proper
accounting for oil and gas properties. Specifically, the
Company’s review procedures were not sufficient to ensure that the
calculations of depreciation and depletion were performed accurately
and
that the capitalization of costs was performed in accordance with
the
applicable authoritative accounting guidance. As a result,
misstatements were identified in 2006 in depreciation, depletion
and
amortization expense of the Company’s consolidated financial
statements. This deficiency resulted in a more than remote
likelihood that a material misstatement of the Company’s annual or interim
financial statements would not be prevented or
detected.
|
Material
Weaknesses as of December 31, 2005, Identified in KPMG’s
Report
The
Company did not have effective policies and procedures, and was not adequately
staffed with accounting personnel possessing an appropriate level of technical
expertise in U.S. generally accepted accounting principles, as further described
below:
|
·
|
The
Company did not have effective policies and procedures, or personnel
with
sufficient technical expertise, to properly account for derivative
transactions in accordance with generally accepted accounting
principles. Specifically, the Company's policies and procedures
relating to derivatives transactions were not designed effectively
to
ensure that each of the requirements for hedge accounting was evaluated
appropriately with respect to the Company's commodity based
derivatives. Additionally, the Company's policies and
procedures relating to the derivative transactions entered into
on behalf
of affiliated partnerships were not adequate to ensure these transactions
were recorded properly in the financial statements. As a
result, a misstatement was identified in the fair value of derivatives
and
the oil and gas price risk management loss accounts that was corrected
prior to the issuance of the Company's 2005 consolidated financial
statements. This deficiency results in more than a remote
likelihood that a material misstatement of the Company's annual
or interim
consolidated financial statements would not be prevented or
detected.
|
|
·
|
The
Company did not have effective policies and procedures, or personnel
with
sufficient technical expertise, to ensure compliance with appropriate
accounting principles for its oil and gas
properties. Specifically, the Company's policies and procedures
were not designed effectively to ensure that the calculation of
depreciation and depletion and the determination of impairments
were
performed in accordance with the applicable authoritative accounting
guidance. As a result, misstatements were identified in the
accumulated depreciation, depletion and amortization and the depreciation,
depletion and amortization expense accounts that was corrected
prior to
the issuance of the Company's 2005 consolidated financial
statements. This deficiency results in more than a remote
likelihood that a material misstatement of the Company's annual
or interim
consolidated financial statements would not be prevented or
detected.
|
|
·
|
The
Company did not have effective policies and procedures, or personnel
with
sufficient technical expertise, to ensure proper accounting and
disclosure
for income taxes. Specifically, the Company's policies and
procedures did not provide for appropriate control documentation
or
supervisory review of permanent and temporary differences, or assessment
of tax reserves to ensure that they were properly reflected and
disclosed
in the Company's financial statements. As a result,
misstatements were identified in the deferred income tax liability
and
income tax expense accounts in the Company's preliminary 2005 consolidated
financial statements. This deficiency results in more than a
remote likelihood that a material misstatement of the Company's
annual or
interim consolidated financial statements would not be prevented
or
detected.
|
|
·
|
The
Company did not have effective policies and procedures, or personnel
with
sufficient technical expertise, to ensure that its accounting for
asset
retirement obligations complied with generally accepted accounting
principles. Specifically, the Company's policies and procedures
regarding the estimate of the fair value of the asset retirement
obligations were not designed effectively to ensure that it was
estimated
in accordance with FAS No. 143, Asset Retirement
Obligations. This deficiency results in more than a remote
likelihood that a material misstatement of the Company's annual
or interim
consolidated financial statements would not be prevented or
detected.
|
|
·
|
The
Company did not have effective policies and procedures, or personnel
with
sufficient technical expertise, to provide for adequate monitoring
and
assessment of the application of accounting principles, standards
or rules
as it relates to proportionate consolidation in a timely
manner. As a result of this control deficiency, the Company did
not appropriately eliminate its proportionate share of transactions
with
the Company sponsored limited partnerships, which resulted in the
restatement of the Company's financial statements for the first
three
quarters of 2005, the years ended December 31, 2004, 2003, 2002,
and 2001
and each of the quarters in 2004 and
2003.
|
During
the two years ended December 31, 2006, and the subsequent interim period
through
May 24, 2007, there were no: 1) disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure that, if not resolved to KPMG’s satisfaction, would have
caused KPMG to make reference to the subject matter of the disagreement in
connection with its audit reports on the Company’s financial statements for such
years, or 2) reportable events, except for the material weaknesses described
above.
KPMG
has
been authorized to respond fully to the inquiries of the successor independent
registered public accounting firm concerning the subject matter of the
foregoing.
In
connection with its change in independent registered public accounting firm,
the
Company provided KPMG with a copy of the foregoing statements and requested
that
KPMG furnish the Company with a letter addressed to the Securities and Exchange
Commission stating whether KPMG agreed with the foregoing statements, and,
if
not, stating the respects in which KPMG did not agree. KMPG furnished
the Company with such a letter, addressed to the SEC. A copy of
KPMG's letter was filed as an Exhibit to a Current Report on Form 8-K filed
with
the SEC on May 31, 2007.
Principal
Accountant Fees and Services
The
following table presents the aggregate fees billed to the Company by PwC
and
KPMG for services in 2006 and 2005 as of June 30, 2007.
|
PwC
|
KPMG
|
|||||||
|
2006
|
2005
|
2006
|
2005
|
|||||
|
Audit
fees
|
$ -
|
$ -
|
$ 3,261,822
|
$ 2,457,423
|
||||
|
Audit
related fees
|
-
|
-
|
983,701
|
394,543
|
||||
|
Tax
fees
|
346,743
|
258,131
|
-
|
-
|
||||
|
Total
fees(1)
|
$ 346,743
|
$ 258,131
|
$ 4,245,523
|
$ 2,851,966
|
||||
_______________
|
(1)
|
There
were no other fees for services rendered to the Company during
either of
the years by either PwC or
KPMG.
|
Audit
Fees. Include amounts billed for professional services rendered
by KPMG for audit procedures performed with regard to the Company's annual
consolidated financial statements and the report on management's assessment
of
internal control over financial reporting and the effectiveness of the Company's
internal control over financial reporting for the years ended December 31,
2006
and 2005, including reviews of the condensed consolidated financial statements
included in the Company's quarterly reports on Form 10-Q during the years
ended
December 31, 2006 and 2005. The 2005 audit fees also include fees
billed for professional services rendered by KPMG for the audit of the
consolidated financial statements included in the Company's Form 10-K/A for
the
year ended December 31, 2004.
Audit
Related Fees. Include amounts billed for professional services
rendered by KPMG for the audits of the annual financial statements of the
Company-sponsored drilling partnerships for which the Company acts as managing
general partner. The aggregate billings for those professional
services rendered during 2006 primarily represent audits for years ended
December 31, 2005 and prior. Total audit related fees for the year
ended December 31, 2006, includes $39,450 related to due diligence services
provided for the acquisition of Unioil and for the year ended December 31,
2005,
includes $140,977 related to due diligence services provided for a contemplated
transaction.
Tax
Fees. Include amounts billed for professional services rendered
by PwC primarily for partnership tax services. The Audit Committee
has considered the nature of such services provided to the Company by PwC
prior
to its engagement of PwC as the Company's Independent Registered Public
Accounting Firm, and believes that such services did not create any real
or
perceived conflicts, independence issues, or other impediments to retaining
the
services of PwC as the Company's auditors for 2007.
Audit
Committee Pre-Approval Policies and Procedures
The
Sarbanes-Oxley Act of 2002 requires that all services provided to the Company
by
its Independent Registered Public Accounting Firm be subject to pre-approval
by
the Audit Committee or authorized members of the Committee. The Audit
Committee has adopted policies and procedures for pre-approval of all audit
services and non-audit services to be provided by the Company's Independent
Registered Public Accounting Firm. Services necessary to conduct the
annual audit must be pre-approved by the Audit Committee annually at a
meeting. Permissible non-audit services to be performed by the
independent accountant may also be approved on an annual basis by the Audit
Committee if they are of a recurring nature. Permissible non-audit
services, which are not eligible for annual pre-approval, to be conducted
by the
independent accountant must be pre-approved individually by the full Audit
Committee or by an authorized Audit Committee member. Actual fees
incurred for all services performed by the independent accountant will be
reported to the Audit Committee after the services are fully
performed. The duties of the Committee are described in the Audit
Committee Charter, which is available at the Company's website under Corporate
Governance.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 2. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
VOTE. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON
STOCK CAST AT THE MEETING REPRESENTED IN PERSON OR BY PROXY AND ENTITLED
TO VOTE
AT THE MEETING IS REQUIRED FOR APPROVAL OF THIS PROPOSAL
2.
The
Audit
Committee of the Board is composed of four directors and operates under a
written charter adopted by the Board of Directors. Each member of the
committee meets the independence requirements of Rule 4200(a)(15) of the
NASDAQ's listing standards. The duties of the Committee are
summarized in this proxy statement under "Committees of the Board of Directors"
and are more fully described in the charter, which is available at the Company’s
website under “Corporate Governance.”
Management
is responsible for the Company's internal controls and preparation of the
consolidated financial statements in accordance with generally accepted
accounting principles. The Company's Independent Registered Public
Accounting Firm is responsible for performing an independent audit of
consolidated financial statements in accordance with the standards of the
Public
Company Accounting Oversight Board (United States) and issuing a report
thereon. The Committee's responsibilities include monitoring and
overseeing these processes.
The
Committee met 23 times during 2006, and has continued to meet frequently
during
2007. In addition to normal meetings to accomplish the work of the
Committee, the Committee also held numerous meetings with the management
of the
Company and KPMG LLP to review the progress on the implementation of improved
internal controls early in the year, and regarding the causes, impacts and
corrective measures related to the Company's historical accounting errors
and
financial statements at various times throughout 2006 and into early
2007.
In
this
context, the Committee reviewed and discussed the Company's audited consolidated
financial statements for the year ended December 31, 2006 (the "audited
financial statements") with management and the Company's Independent Registered
Public Accounting Firm for 2006, KPMG LLP. The Committee also
discussed with KPMG LLP the matters required to be discussed by Statement
of
Auditing Standards No. 61, as amended (Communication with Audit
Committees), and KPMG LLP directly provided reports on significant matters
to the Committee.
The
Committee has received the written disclosures and the letter from KPMG LLP
required by Independence Standards Board Standard No. 1 (Independence
Discussion with Audit Committees), and has discussed with KPMG LLP its
independence from the Company.
The
Committee has discussed with management and KPMG LLP such other matters and
received such assurances from them as the Committee deemed
appropriate.
Based
on
the foregoing review and discussions and relying thereon, the Committee
recommended that the Board of Directors include the audited financial statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
2006.
On
May
24, 2007, the Committee dismissed KPMG LLP as the Company's Independent
Registered Public Accounting Firm, and appointed PricewaterhouseCoopers LLP
("PwC") to serve as the Company's Independent Registered Public Accounting
Firm
for 2007. In connection therewith, the Audit Committee considered
whether the provision of non-audit services by PwC prior to their engagement
was
compatible with maintaining the Independent Registered Public Accounting
Firm’s
independence. This appointment is subject to ratification by the
Company's shareholders.
|
Jeffrey
C. Swoveland, Chair
|
|
Kimberly
Luff Wakim
|
| David C. Parke |
| Anthony J. Crisafio |
| AUDIT COMMITTEE |
| of the Board of Directors |
As
of the
date of this proxy statement, the Board is not aware of any matters to be
brought before the 2007 annual meeting other than the matters set forth in
this
proxy statement. However, if other matters properly come before the
meeting, it is the intention of the proxy holders named in the enclosed form
of
proxy to vote in accordance with their discretion on such matters pursuant
to
such proxy.
The
following table sets forth certain information regarding ownership of the
Company's common stock as of June 30, 2007, by (a) each person known by the
Company to own beneficially more than 5% of the outstanding shares of common
stock; (b) each director of the Company; (c) each executive officer; and
(d) all
directors and executive officers as a group. As of June 30, 2007,
14,887,912 common shares of the Company were issued and
outstanding.
|
Name and Address of Beneficial Owner |
Number
of
Shares
Beneficially
Owned
|
Percent
of
Shares
Beneficially
Owned
|
|||
|
FMR
Corp.
|
|||||
|
82
Devonshire Street
|
|||||
|
Boston,
MA 02109
|
2,420,360
|
(1)
|
16.3%
|
||
|
Steinberg
Asset Management, LLC
|
|||||
|
12
East 49th Street
|
|||||
|
New
York, NY 10017
|
2,085,868
|
(2)
|
14.0%
|
||
|
Kayne
Anderson Rudnick
|
|||||
|
Investment
Management, LLC
|
|||||
|
1800
Avenue of the Stars, 2nd Floor
|
|||||
|
Los
Angeles, CA 90067
|
1,078,093
|
(3)
|
7.2%
|
||
|
Barclays
Global Investors, NA
|
|||||
|
45
Fremont Street
|
|||||
|
San
Francisco, CA 94105
|
1,029,403
|
(4)
|
6.9%
|
||
|
Steven
R. Williams
|
310,931
|
(5)
|
2.1%
|
||
|
Thomas
E. Riley
|
104,605
|
(6)
|
*
|
||
|
Eric
R. Stearns
|
56,828
|
(7)
|
*
|
||
|
Richard
W. McCullough
|
-
|
(8)
|
*
|
||
|
Darwin
L. Stump
|
26,540
|
(9)
|
*
|
||
|
Vincent
F. D'Annunzio
|
21,042
|
*
|
|||
|
Jeffrey
C. Swoveland
|
12,916
|
*
|
|||
|
Kimberly
Luff Wakim
|
4,479
|
*
|
|||
|
David
C. Parke
|
4,129
|
*
|
|||
|
Anthony
J. Crisafio
|
1,035
|
*
|
|||
|
All
directors and executive officers
|
|||||
|
as
a group (10 persons)(10)
|
542,505
|
(11)
|
3.6%
|
||
_______________
*
Less
than 1%
|
(1)
|
According
to the Schedule 13G filed by FMR Corp. with the SEC on February
14,
2007.
|
|
(2)
|
According
to the Schedule 13G filed by Steinberg Asset Management with the
SEC on
February 9, 2007.
|
|
(3)
|
According
to the Schedule 13G filed by Kayne Anderson Rudnick Investment
Management
with the SEC on February 5,
2007.
|
|
(4)
|
According
to the Schedule 13G filed by Barclays Global Investors, NA with
the SEC on
January 23, 2007.
|
|
(5)
|
Includes
4,814 shares subject to options exercisable within 60 days of June
30,
2007; excludes 19,561 restricted shares subject to
vesting.
|
|
(6)
|
Includes
3,179 shares subject to options exercisable within 60 days of June
30,
2007; excludes 13,971 restricted shares subject to
vesting.
|
|
(7)
|
Includes
2,928 shares subject to options exercisable within 60 days of June
30,
2007; excludes 12,597 restricted shares subject to
vesting.
|
|
(8)
|
Excludes
4,256 restricted shares subject to
vesting.
|
|
(9)
|
Includes
2,605 shares subject to options exercisable within 60 days of June
30,
2007; excludes 9,316 restricted shares subject to
vesting.
|
|
(10)
|
Address: 120
Genesis Boulevard, Bridgeport, WV
26330.
|
|
(11)
|
Includes
13,526 shares subject to options exercisable within 60 days of
June 30,
2007; excludes 59,701 restricted shares subject to
vesting.
|
Section
16(a) of the Exchange Act
requires the Company's officers and directors, and persons who own more than
10%
of the Company's equity securities, to file reports of ownership and changes
in
ownership with the Securities and Exchange Commission. Officers,
directors and holders of more than 10% of the common stock are required by
regulations promulgated by the Commission pursuant to the Exchange Act to
furnish the Company with copies of all Section 16(a) forms they
file. The Company assists officers and directors, and will assist
beneficial owners, if any, of more than 10% of the common stock, in complying
with the reporting requirements of Section 16(a) of the Exchange
Act.
Based
solely on its review of the copies of such forms received by it, the Company
believes that since January 1, 2006, all Section 16(a) filing requirements
applicable to its directors, officers and greater than 10% beneficial owners
were met.
Corporate
Governance Guidelines
The
Board
has adopted Corporate Governance Guidelines that govern the structure and
functioning of the Board and establish the Board's policies on a number of
governance issues. The Guidelines are posted under “Governance
Policies” in the Corporate Governance section of the Company's internet site at
www.petd.com. They are also available to any shareholder on
request; see "Contact Information" above.
The
Company's By-Laws provide that the number of members of the Board of Directors
shall be designated from time to time by a resolution of the Board; and,
in the
absence of such designation, the number of directors shall be
seven. The By-Laws provide that the Board shall be divided into three
separate classes of directors which are required to be as nearly equal in
number
as practicable. At each annual meeting of shareholders one class of
directors, whose term expires, will be elected to a term of three
years. The classes are staggered so that the term of one class
expires each year. There is no family relationship between any
director or executive officer and any other director or executive officer
of the
Company. There are no arrangements or understandings between any
director or officer and any other person pursuant to which the person was
selected as an officer.
Subject
to some exceptions and transition provisions, the NASDAQ standards generally
provide that a director will not be independent if:
|
(A)
|
the
director is, or at any time during the past three years was, employed
by
the Company;
|
|
(B)
|
the
director or a member of the director's immediate family has received
from
the Company compensation of more than $100,000 during any period
of 12
consecutive months within the three years preceding the determination
of
independence other than for service as a
director;
|
|
(C)
|
the
director is a family member of an individual who is, or at any
time during
the past three years was, an executive officer of the
Company;
|
|
(D)
|
the
director or a member of the director's immediate family is a partner
in,
or a controlling person of, or an executive officer of any organization
to
which PDC made, or from which PDC received, payments for property
or
services in the current or any of the three past fiscal years that
exceed
5% of the recipient’s consolidated gross revenues for that year, or
$200,000, whichever is more;
|
|
(E)
|
the
director or a member of the director's immediate family is employed
as an
executive officer of another entity where at any time during the
past
three years any of the Company’s executive officers serves on the
compensation committee of the other entity;
or
|
|
(F)
|
the
director or a member of the director's immediate family is a current
partner of PwC, the Company's independent registered public accounting
firm, or during the past three years was a partner or employee
of either
PwC or KPMG, the Company's former independent registered public
accounting
firm.
|
Additionally,
Audit Committee members are subject to additional, more stringent NASDAQ
and
Exchange Act requirements.
The
Board has
reviewed business and charitable relationships between the Company and each
non-employee director to determine compliance with the NASDAQ standards
described above and to evaluate whether there are any other facts or
circumstances that might impair a director's independence. The Board
has determined that all non-employee directors are independent under NASDAQ
Marketplace Rule 4200 and the Exchange Act.
The
Board met
10 times in 2006. Each of PDC's directors attended at least 75% of
the aggregate Board and committee meetings during 2006.
As
specified
in the Company's Corporate Governance Guidelines, directors are strongly
encouraged to attend the annual meeting of shareholders. All
directors attended last year's meeting.
The
following
table identifies the current membership and chair of the five standing
committees of the Board.
|
Name
|
Audit
|
Compensation
|
Executive
|
Nominating/
Corporate Governance
|
Planning/
Finance
|
|||||
|
Jeffrey
C. Swoveland
|
Chair
|
–
|
Member
|
–
|
Member
|
|||||
|
Kimberly
Luff Wakim
|
Member
|
–
|
–
|
Member
|
–
|
|||||
|
Vincent
F. D'Annunzio
|
–
|
Member
|
Member
|
Chair
|
–
|
|||||
|
David
C. Parke
|
Member
|
Chair
|
–
|
Member
|
Chair
|
|||||
|
Anthony
J. Crisafio
|
Member
|
Member
|
–
|
–
|
–
|
|||||
|
Steven
R. Williams
|
–
|
–
|
Chair
|
–
|
–
|
|||||
|
Thomas
E. Riley
|
–
|
–
|
Member
|
–
|
Member
|
|||||
The non-employee directors meet in "executive sessions" without the presence of employee directors, Messrs. Williams and Riley, generally in connection with each regularly scheduled board meeting. Mr. Swoveland serves as Presiding Independent Director at these sessions; however, the other non-employee directors may, in the event of his absence, select another director to preside over a particular session.
Audit
Committee
The
Audit
Committee, which met 23 times in 2006, is comprised entirely of persons whom
the
Board has determined to be independent under NASDAQ Rule 4200(a)(15), Section
301 of the Sarbanes-Oxley Act of 2002 and Section 10A(m)(3) of the Exchange
Act.. Mr. Swoveland chairs the committee; other audit committee
members are Ms. Wakim, Mr. Parke and Mr. Crisafio. The Board has
determined that Mr. Swoveland and the other Audit Committee members, with
the
exception of Mr. Parke, qualify as audit committee financial experts as defined
by SEC regulations and are all, without exception, independent of
management. The audit committee’s purpose is to assist the Board in
monitoring the integrity of the financial reporting process, systems of internal
controls and financial statements of the Company, and compliance by the Company
with legal and regulatory requirements. Additionally, the committee
is directly responsible for the appointment, compensation and oversight of
the
independent auditors employed by the Company for the purpose of preparing
or
issuing an audit report or related work and to assess the need for an internal
audit function and recommend its establishment when deemed
appropriate.
In
performing
its responsibilities, the Audit Committee monitors the integrity of the
Company's financial reporting process and systems of internal controls regarding
finance, accounting and legal compliance; monitors the independence of the
Independent Registered Public Accounting Firm; and provides an avenue of
communications among the Independent Registered Public Accounting Firm,
management and the Board of Directors. The Board has adopted a
Charter of the Audit Committee which is posted on the Company's
website. The Board continues to assess the adequacy of the Charter
and will revise it as necessary.
Compensation
Committee
The
Board has
determined that all members of the Compensation Committee are independent
of the
Company under Rule 4200(a)(15) of the NASDAQ's listing standards. The
Compensation Committee met nine times in 2006. The Board has adopted
a Compensation Committee Charter which is posted on the Company's
website.
The
purpose
and functions of the Compensation Committee are to (1) oversee the development
of a compensation strategy for the Company subject to approval by the Board,
(2)
oversee the administration of the Company's compensation programs, (3) evaluate
the performance of and set compensation for the Chief Executive Officer,
(4)
review and approve the elements of compensation for other executive officers
of
the Company, (5) negotiate the terms of employment agreements with executive
officers of the Company, (6) review the compensation of the Company's Directors
and recommend changes in compensation levels to the Board of Directors, (7)
recommend equity-based incentive programs necessary to implement the Company's
compensation strategy, and (8) administer all equity-based incentive programs
of
the Company.
Compensation
Committee Interlocks and Insider Participation. There are no
Compensation Committee interlocks.
Executive
Committee
The
purpose
and functions of the Executive Committee are to exercise the powers and duties
of the Board between Board meetings and, while the Board is not in session,
implement the policy decisions of the Board. The Board has adopted an
Executive Committee Charter which is posted on the Company's
website.
Nominating
and Governance Committee
The
Board has
determined that all members of the Nominating and Governance Committee are
independent of the Company under Rule 4200(a)(15) of the NASDAQ's listing
standards. The Nominating and Governance Committee met five times in
2006. The purpose and functions performed by the Committee are to (1)
assist the Board by identifying individuals qualified to become Board members
and to recommend to the Board the director nominees for the next annual meeting
of shareholders or fill any vacancies; (2) recommend to the Board corporate
governance guidelines applicable to the Company; (3) lead the Board in its
annual review of the Board's performance and (4) recommend to the Board director
nominees for each committee. The Board has adopted a Charter for the
Nominating and Governance Committee. The Charter has been posted on
the Company's website.
Director
Qualifications and Selection
The
Board has
adopted Director Nomination Procedures that prescribe the process the Nominating
and Governance Committee will use to select the Company’s nominees for election
to the Board. The Nominating and Governance Committee evaluates each
candidate based on the candidate's level and diversity of experience and
knowledge (specifically within the industry and relevant industries in which
the
Company operates, as well as his or her general overall experience and
knowledge), skills, education, reputation and integrity, professional stature
and other factors that may be relevant depending on the particular
candidate. Additional factors considered by the Committee include the
size and composition of the Board at a particular time, allowing the Company
to
benefit from having a broad mixture of skills, experience and perspectives
on
the Board. Accordingly, one or more of these factors may be given
more weight in a particular case at a particular time, no single factor would
be
viewed as determinative, and the Committee has not specified any minimum
qualifications that the Committee believes must be met by any particular
nominee. The Company's Director Nomination Procedures are posted on
the Company's website.
The
Committee identifies director candidates primarily through recommendations
made
by the non-employee directors. These recommendations are developed
based on the directors' own knowledge and experience in a variety of fields,
and
research conducted by PDC staff at the Committee's direction. The
Committee also considers recommendations made by the employee directors,
employees, shareholders, and others, including search firms. All
recommendations, regardless of the source, are evaluated on the same basis
against the criteria contained in the guidelines. The Committee has
the authority to engage consultants to help identify or evaluate potential
director nominees but has not done so recently.
Shareholder
Recommendations
The
Company's Nominating and Governance Committee will consider director candidates
recommended by shareholders of the Company. Any shareholder who
wishes to recommend a prospective Board nominee for the Committee to consider
should notify the Nominating and Governance Committee of their recommendation
by
writing to the Committee at the Company's headquarters, or by sending the
information via email to board@petd.com. All recommendations
will be received by the Nominating and Governance Committee.
A
submission recommending a candidate should include:
|
·
|
Sufficient
biographical information to allow the Committee to evaluate the
candidate
in light of the guidelines;
|
|
·
|
An
indication as to whether the proposed candidate will meet the requirements
for independence under the NASDAQ
guidelines;
|
|
·
|
Information
concerning any relationships between the candidate and the shareholder
recommending the candidate; and
|
|
·
|
Material
indicating the willingness of the candidate to serve if nominated
and
elected.
|
Shareholder
Nominations
Shareholders
who wish to may nominate candidates for election to the Board. The
Company's By-Laws require shareholders who wish to submit nominations of
persons
for election to the Board of Directors at the annual meeting of shareholders
to
follow certain procedures. The shareholder must give written notice
to the Corporate Secretary at Petroleum Development Corporation, 120 Genesis
Boulevard, Bridgeport, West Virginia 26330 or may email notice to
board@petd.com, not later than 80 days or earlier than 90 days prior to
the first anniversary of the preceding year's annual meeting. The
shareholder must be a shareholder of record at the time the notice is
given. The written notice must set forth (a) as to each nominee all
information relating to that person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest,
or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934 (including such person's written consent to being named
in
the proxy statement as a nominee and to serving as a director if elected);
(b)
as to the shareholder giving the notice and the beneficial owner, if any,
on
whose behalf the nomination is made (1) the name and address of the shareholder,
as they appear on the Company's books, and of such beneficial owner and (2)
the
class and number of shares of the Company's securities that are beneficially
owned by such shareholder and the beneficial owner; and (c) any material
interest of such shareholder and such beneficial owner in such
nomination.
Planning
and
Finance Committee
The
purpose
of the Planning and Finance Committee is to oversee the responsibilities
of the
Board relating to planning and finance, including: (1) to organize and oversee
the Board’s participation in the development of the Strategic Plan and the risk
assessment and management process; (2) to follow the progress in the
implementation of the Strategic Plan and to advise the Board if additional
Board
action appears to be needed to assure successful implementation of the plan
or
if a need exists to revise the plan in the face of changing conditions or
other
factors; (3) to assure that management is addressing the personnel requirements
for the successful implementation of the Strategic Plan; (4) to assure that
a
talent-rich organization is being developed to address both current and future
leadership needs; (5) to assure that robust management development and
succession planning processes are developed and implemented for management
at
all levels in the Company; and (6) work with the CFO and other executive
management regarding corporate financial matters including operating and
capital
budgets, capital structure, dividends, and other significant financial and
capital issues. The Board has adopted a charter for the Planning and
Finance Committee which is posted on the Company’s website.
Regarding
the
announced intention of the Company's CEO, Mr. Williams, to retire by the
end of
2008, the Committee has commenced with its succession plan, which includes
the
search for and evaluation of qualified candidates as well as a period for
training and transition for the new CEO. Since this is a planned
succession, there are no changes in management responsibilities or to the
Company's ongoing strategic efforts. The Company
anticipates having a qualified candidate in place upon Mr. Williams'
departure.
Shareholders
wishing to communicate with the Board or a committee may do so by writing
to the
attention of the Board or Committee at the corporate headquarters or by emailing
the Board at board@petd.com, with "Board" or appropriate committee in the
subject line.
In
January 2003, the Company adopted its Code of Business Conduct and Ethics,
as
amended (the “Code of Conduct”) applicable to all directors, officers,
employees, agents and representatives of the Company and
consultants. The Company's principal executive officer, principal
financial officer and principal accounting officer are subject to additional
specific provisions under the Code of Conduct. The Company's Code of
Conduct is posted on its website at www.petd.com. In the event
of an amendment to, or a waiver of, including an implicit waiver, the Code
of
Conduct, the Company will disclose the information on its internet
website.
The
Board
has adopted a policy for the review, approval and ratification of transactions
that involve related parties and potential conflicts of interest.
The
related party transaction policy applies to each director and executive officer
of the Company, any nominee for election as a director, any security holder
who
is known to own more than five percent of the Company's voting securities,
any
immediate family member of any of the foregoing persons and any corporation,
firm or association in which one or more of the Company's directors are
directors or officers, or have a substantial financial interest.
Under
the
related party transaction policy a related person transaction is a transaction
or arrangement involving a related person in which the Company is a participant
or that would require disclosure in the Company's filings with the SEC as
a
transaction with a related person.
The
related persons must disclose to the Audit Committee any potential related
person transactions and must disclose all material facts with respect to
such
interest. All related person transactions will be reviewed by the
Audit Committee. In determining whether to approve or ratify a
transaction, the Audit Committee will consider the relevant facts and
circumstances of the transaction which may include factors such as the
relationship of the related person with the Company, the materiality or
significance of the transaction to the Company and the business purpose and
reasonableness of the transaction, whether the transaction is comparable
to a
transaction that could be available to the Company on an arms-length basis,
and
the impact of the transaction on the Company's business and
operations.
During
the year ended December 31, 2006, there was no transaction or series of
transactions, or any currently proposed transaction, in which the amount
involved exceeds $120,000 and in which any director, executive officer, holder
of more than 5% of the Company's common stock or any member of the immediate
family of any of the foregoing persons had or will have a direct or indirect
material interest.
The
Company's By-Laws provide that the Company shall indemnify any director,
officer, employee, or other agent of the Company who is or was a party, or
is
threatened to be made a party, to any proceeding (other than an action by
or in
the right of the Company to procure a judgment in its favor) by reason of
the
fact that such person is or was an agent of the Company, against expenses,
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with such proceeding, if that person acted in good
faith
and in a manner that person reasonably believed to be in the best interest
of
the Company, and in the case of a criminal proceeding, had no reasonable
cause
to believe the conduct of that person was unlawful.
The
Company has entered into separate indemnification agreements with each of
its
directors and officers whereby the Company has agreed to indemnify the director
or officer against all expenses, including attorneys' fees, and other amounts
reasonably incurred by the officer or director in connection with any
threatened, pending or completed civil, criminal, administrative or
investigative action or proceeding to which such person is party by reason
of
the fact that he is or was a director or officer, as the case may be, of
the
Company, if the person acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, the person had no reasonable cause
to
believe such conduct to be unlawful. The agreements provide for the
advancement of expenses and that the Company has the right to purchase and
maintain insurance on behalf of the director or officer against any liability
or
liabilities asserted against him, whether or not the Company would have the
power to indemnify the person against such liability under any provision
of the
agreement. The Company has agreed to indemnify such person against
expenses actually and reasonably incurred in connection with any action in
which
the person has been successful on the merits or
otherwise. Indemnification must also be provided by the Company
(unless ordered otherwise by a court) only as authorized in the specific
case
upon a determination that the indemnification of the person is appropriate
because he has met the applicable standard of conduct described in the agreement
made by (i) the Board of Directors, by a majority vote of a quorum consisting
of
directors who are not parties to such action or proceeding, (ii) independent
legal counsel in a written opinion or (iii) the shareholders of the
Company.
The
Corporate Governance section of the Company's internet site contains additional
information, including PDC's Certificate of Incorporation and By-Laws; written
charters for each Board committee; and Board policy statements.
The
executive officers of the Company, their principal occupations for the past
five
years and additional information is set forth below.
|
Director
|
Directorship
|
|||||||
|
Name
|
Age
|
Position(s)
|
Since
|
Term
Expires
|
||||
|
Steven
R. Williams
|
56
|
Chairman,
Chief Executive Officer and Director
|
1983
|
2009
|
||||
|
Thomas
E. Riley
|
54
|
President
and Director
|
2004
|
2007
|
||||
|
Richard
W. McCullough
|
55
|
Chief Financial
Officer and Treasurer
|
–
|
–
|
||||
|
Darwin
L. Stump
|
52
|
Chief Accounting Officer
|
–
|
–
|
||||
|
Eric
R. Stearns
|
49
|
Executive
Vice President, Exploration and Production
|
–
|
–
|
||||
Steven
R. Williams was elected Chairman and Chief Executive Officer in January
2004. Mr. Williams served as President from March 1983 until December
2004. As reported on July 12, 2007, Mr. Williams announced his
intention to retire at the end of 2008. The Company is using the
18-month period between his announcement and his planned departure to implement
its Board-led CEO succession plan. Since this is a planned
succession, there are no changes in management responsibilities.
Thomas
E. Riley assumed the position of President in December
2004. Previously Mr. Riley was appointed Executive Vice President of
Production, Natural Gas Marketing and Business Development in November
2003. Prior thereto, Mr. Riley served as Vice President Gas Marketing
and Acquisitions of the Company since April 1996. Prior to joining
the Company, Mr. Riley was president of Riley Natural Gas Company, a natural
gas
marketing company which the Company acquired in April 1996.
Richard
W. McCullough was appointed Chief Financial Officer and Treasurer in
November 2006. Prior to joining the Company, Mr. McCullough served as
president and chief executive officer of Gasource, LLC, Dallas, Texas, a
marketer of long-term, natural gas supplies. From 2001 to 2003, Mr.
McCullough served as an investment banker with J.P. Morgan Securities, Atlanta,
Georgia, and served in the public finance utility group supporting bankers
nationally in all natural gas matters. Additionally, Mr. McCullough
has held senior positions with Progress Energy, Deloitte and Touche, and
the
Municipal Gas Authority of Georgia. Mr. McCullough, a CPA, was a
practicing certified public accountant for eight years.
Darwin
L. Stump was appointed Chief Accounting Officer in November
2006. Mr. Stump has been an officer of the Company since April 1995
and held the position of Chief Financial Officer and Treasurer from 2003
until
November 2006. Previously, Mr. Stump served as Corporate Controller
from 1980 until November 2003. Mr. Stump, a CPA, was a senior
accountant with Main Hurdman, Certified Public Accountants prior to joining
the
Company.
Eric
R. Stearns was appointed Executive Vice President of Exploration and
Production in December 2004. Prior to his current position, Mr.
Stearns was Executive Vice President of Exploration and Development since
November 2003, having previously served as Vice President of Exploration
and
Development since April 1995. Mr. Stearns joined the Company as a
geologist in 1985 after working for Hywell, Incorporated and for Petroleum
Consultants.
The
Compensation Committee has met to review and discuss with the Company’s
management the specific disclosure contained under the heading “Compensation
Discussion and Analysis.” Based on its review and discussions with
management, the Compensation Committee has recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in this proxy
statement and in the Company's Annual Report on Form 10-K for the year ended
December 31, 2006.
This
report has been provided by the Compensation Committee of the Board of Directors
of the Company.
David
C.
Parke, Chairman
Vincent
F. D'Annunzio
Anthony
J. Crisafio
COMPENSATION
COMMITTEE
of the Board of Directors
***
The
Compensation Committee of the Board of Directors ("Board") of Petroleum
Development Corporation (the “Committee”), which consists of three independent
Board members, developed and recommended for Board approval the compensation
program for 2006 for the Chief Executive Officer ("CEO") and the other executive
officers listed in the “2006 Summary Compensation Table” (collectively, the
"named executive officers" or "executive officers") appearing
below. The Committee’s recommendations of compensation for the
executive officers were approved by the Board. For 2007 executive
compensation, the Board authorized the Committee to make final determinations
for all elements of compensation for the executive officers, which the Committee
did after reviewing its proposals with all other independent board members
who
are not part of the Committee. The Committee also negotiates terms of
employment agreements with the executive officers. Prior to
determining executive compensation, the Compensation Committee consults with
the
CEO for his evaluation of performance and recommendation for compensation
of the
other executive officers.
The
Compensation Committee utilized the compensation consulting service of Towers
Perrin ("Consultant") in recent years. Over the past 18 months, the
Consultant: conducted a competitive benchmarking of the Company's executive
and
non-employee director compensation programs, helped the Committee in its
redesign of the Long-Term Incentive ("LTI") program in 2007 as described
below,
and led an educational session focused on new SEC pay disclosure
rules. The Consultant also assisted the Company with the design of a
retention-based stock plan for non-officers. The Committee
periodically assesses the effectiveness and competitiveness of the Company’s
executive compensation structure with the assistance of the Consultant, and
utilizes the assistance of the Consultant in assessing the value and cost
of
various proposed compensation arrangements. The Consultant is engaged
by, and reports directly to, the Committee.
The
Committee considers many factors in establishing the compensation packages
for
the executive officers of the Company. The ultimate goal is to
provide compensation that is fair to both the Company and the executive
officers, that motivates behavior that will enhance the value of the Company,
that avoids encouraging behavior that does not serve the best interests of
the
Company and that will allow the Company to attract and retain executive
officers.
The
Committee’s philosophy is to provide compensation packages that will attract,
motivate and retain executive talent and deliver rewards for superior
performance and consequences for underperformance. Specifically, the
objectives of the Committee’s executive compensation practices are
to:
|
·
|
Offer
a total compensation program that is competitive with the compensation
practices of those peer companies with which the Company competes
for
talent;
|
|
·
|
Tie
a significant portion of executive compensation to the Company’s
achievement of pre-established financial and operating objectives
and to
personal objectives established for each executive
individually;
|
|
·
|
Provide
a significant portion of overall compensation in the form of equity-based
compensation in order to align the interests of the Company’s executives
with those of the Company’s shareholders;
and
|
|
·
|
Structure
a significant proportion of total compensation in a fashion that
promotes
executive retention.
|
The
Committee seeks to attract executive talent by offering competitive base
salaries, annual performance incentive opportunities under the Company’s
Short-Term Incentive (“STI”) program and the potential for long-term rewards
under the Company’s equity-based LTI program. The Committee believes
that to attract and retain a highly-skilled executive team, the Company’s
compensation practices must be competitive with those of other employers
with
which the Company competes for talent.
The
Committee believes that significant portions of executive compensation should
be
closely linked to both the Company’s and the individual’s
performance. The Committee’s pay-for-performance philosophy is
reflected in the Company’s compensation practices, which tie a significant
portion of executive compensation to the achievement of financial and operating
objectives of the Company and also to take into account personal objectives
and
performance. The Committee believes that using solely financial
objectives could unduly reward or punish executives for financial performance
resulting from issues beyond the executive’s control, such as changes in energy
prices. On the other hand, using solely operating measures could
result in compensation practices that did not align the executive’s interests
with those of the shareholders. As a result, the Committee has chosen
to use a combination of financial and operating measures as determinants
for STI
compensation. This philosophy is reflected in annual incentive
awards, which are directly linked to the achievement of short-term financial
and
operating objectives, set by the Committee and have potential payouts ranging
from zero to 200% of target for each of the three components. During
2006, the targets were increases in diluted earnings per share, increases
in
production, and the Committee’s assessment of other factors related to the
individual’s performance and development. The following table
summarized the criteria used in determining the bonus amount.
|
Criteria
|
Lower
Threshold Amount
|
Target
Bonus
|
Maximum
Bonus
|
Percent
of Total Maximum Bonus
|
||||
|
Production
increase based on Mcfe
|
6%
|
10%
|
14%
|
40%
|
||||
|
Diluted
earnings per share
|
$2.42
|
$2.66
|
$3.03
|
30%
|
||||
|
Discretionary
evaluation
|
Compensation
Committee Determination
|
30%
|
||||||
The
Committee also ties
compensation to performance through equity-based LTI awards that are designed
to
motivate executives to meet the Company’s long-term performance goals and to tie
their interests to those of the shareholders. In 2006, the LTI awards
consisted of restricted stock and stock options that vest 25% per year over
a
period of four years. For 2007, all of the LTI awards are restricted
stock, a portion of which vest over time. The balance of the
restricted stock awards will be long-term incentive performance shares (“LTIP
shares”). The LTIP shares will vest only if certain minimum
thresholds of stock price appreciation are met. One-half of the
LTIP shares will vest and be issued based upon an annual stock price increase
of
approximately 12%. An additional 25% of the awarded LTIP shares will
vest and be issued at annualized increased hurdles of 16% and an additional
25%
at 20%. The stock price will be measured based on the average daily
closing price for each of the three monthly periods: December 2009, 2010
and
2011. Any shares not vested in 2009 or 2010 will remain eligible to
be vested in future years; however, any unvested shares at December 31, 2011
will be forfeited. The Committee decided to use three measurement
dates to take into account the volatility of energy prices and their impact
on
the stock price of the Company.
As
a result of the structure of the STI and LTI compensation, a significant
amount
of variable compensation under the Company’s compensation program is contingent
on the achievement of key financial and operating objectives of the Company
and
on increasing the value of the shares of the Company’s stock.
For
2006,
30% of the Company’s STI compensation program also accounts for individual
performance through individual objectives and evaluation of individual executive
performance by the Committee, which enables the Committee to differentiate
among
executives and emphasize the link between personal performance and
compensation. For 2007, 100% of Mr. Stump's STI is discretionary and
for the other executive officers, their STI performance based award percentages
remain unchanged from 2006.
The
Company’s LTI program is an integral part of the Company’s overall executive
compensation program. The LTI program is intended to serve a number
of objectives. These include aligning the interests of executives
with those of the Company’s shareholders, and focusing senior executives on the
achievement of well-defined, long-term performance objectives that are aligned
with the Company’s corporate strategy, thereby establishing a direct
relationship between compensation and shareholder value. The program
also furthers the goal of executive retention, since the executive officer
will
forfeit any unvested awards in the event the officer voluntarily terminates
employment with the Company without "good reason."
In
making
long-term incentive awards, the Committee uses a pre-determined market-based
value approach. The Committee determines the dollar value of awards
in the marketplace using a valuation methodology. The Committee
establishes the desired dollar value for each executive officer relative
to the
market. The corresponding number of equity instruments to be awarded
is then determined using the same valuation methodology, based on prevailing
factors in advance of the award date. The valuation for financial
statement purposes is subsequently re-calculated based on the prevailing
factors
at the time of the award.
The
value-based approach can cause the number of equity instruments needed to
be
granted from year to year to vary, even though the awards may have the same
dollar value. This can be caused by, among other things, fluctuations
in the Company’s common stock price at the time of grant. This issue
is further addressed in the Long-Term Incentives section.
In
furtherance of its compensation objectives, the Committee compared the Company’s
compensation levels with those of a group of 14 companies in 2006, and 15
companies in 2007, in setting compensation targets. These groups,
collectively, are referred to as the “Peer Group.” This benchmarking is done
with respect to each of the key elements of the Company’s executive compensation
programs discussed above (salary, STI and LTI compensation), as well as the
compensation of individual executives based on their position in the overall
compensation hierarchy. The Committee uses data from the Peer Group
to establish a dollar target level for each key element to deliver compensation
to each executive at approximately the 50th percentile of the Peer Group,
with
adjustments made based on the executive’s individual
performance. Targeting the 50th percentile helps ensure that the
Company’s compensation practices will be competitive in terms of attracting and
retaining executive talent, while performance based compensation provides
for
variations due to superior or sub-par performance. Because
compensation for the Peer Group is for prior periods, the Committee attempts
to
anticipate future movements in compensation levels when it sets compensation
targets. For example, when setting compensation for 2006, the most
recent compensation information available was from the 2005 proxy statements
for
compensation paid in 2004. As more up to date information becomes
available, it is reviewed by the Committee to evaluate whether future
compensation plans should be adjusted to take unanticipated changes in actual
compensation of the Peer Group into account.
The
2006
Peer Group was comprised of the following companies:
|
•
Unit Corporation
|
• St.
Mary Land & Exploration Company
|
• Cabot
Oil & Gas Corporation
|
|
•
Penn Virginia Corporation
|
• Whiting
Petroleum Corporation
|
• Range
Resources Corporation
|
|
• Encore
Acquisition Company
|
• Berry
Petroleum Company
|
• KCS
Energy Incorporated
|
|
•
Quicksilver Resources Inc
|
• Clayton
Williams Energy Incorporated
|
• Brigham
Exploration Company
|
|
•
Magnum Hunter Resources Incorporated
|
• Cimarex
Energy Company
|
For
2007,
Forest Oil Corporation, Comstock Resources Incorporated and Bill Barrett
Corporation were added to the Peer Group. Cimarex acquired Magnum
Hunter in 2005 and these companies were removed from the Peer Group as they
were
no longer comparable due to size. The Committee believes that the
Peer Group represents companies with similar operations, of similar complexity,
and with which the Company believes it competes for executive
talent.
The
Committee reviews for each of the executive officers the total dollar value
of
the officer’s annual compensation, including salary, STI, LTI compensation,
perquisites, deferred compensation accruals and other
compensation. The Committee also reviews shareholdings and
accumulated unrealized gains under prior equity-based compensation awards,
and
amounts payable to the executive officer upon termination of the executive’s
employment under various different circumstances, including retirement and
termination in connection with a change in control. See 2006 Summary
Compensation Table below in section titled Executive Compensation.
While
the
Committee considers all compensation previously paid to the executive officers,
including amounts realized or realizable under prior equity-based compensation
awards, the Committee believes that current compensation practices must be
competitive to retain the executives in light of prevailing market practices
and
to motivate the future performance of the executive
officers. Accordingly, wealth accumulation through superior past
performance of the Company should not be punished through reductions in current
compensation levels.
To
accomplish the objectives of the executive compensation program, the Committee
uses four elements of compensation in varying proportions for the different
executive officers. These elements are base salary, STI, LTI, and
other benefits. The Committee uses cash payments (base salary and
STI), awards tied to the Company's stock (LTI, which is also referred to
as
“equity-based compensation”) and non-cash benefits in its overall compensation
packages. The Committee balances salary and performance-based
compensation, and cash and non-cash compensation, in a manner it believes
best
serves the objectives of the Company’s compensation program. The
Committee allocates among the different elements of compensation in a manner
similar to the median allocation of the Peer Group, based on the level of
the
executive's position. Generally, it is the policy of the Committee
that, as income levels increase, a greater proportion of the executive’s income
should be in the form of STI and LTI compensation. For example the
CEO of the Company receives a higher percentage of his compensation in the
form
of short and long term incentives compared to other executives, as is the
case
of CEOs in the Peer Group. The following table shows the breakdown of
target compensation among the three elements for 2006 and 2007 for each
executive officer.
|
|
Target
Compensation for Elements
|
|||||||||||
|
|
as
a Percentage of Total Target Compensation
|
|||||||||||
|
2006
|
2007
|
|||||||||||
|
Name
|
Base
Salary
|
Bonus
Target
|
Equity
Target
|
Base
Salary
|
Bonus
Target
|
Equity
Target
|
||||||
|
Steven
R. Williams
|
31%
|
23%
|
46%
|
33%
|
24%
|
43%
|
||||||
|
Thomas
E. Riley
|
36%
|
18%
|
46%
|
36%
|
22%
|
42%
|
||||||
|
Eric
R. Stearns
|
37%
|
19%
|
44%
|
36%
|
23%
|
41%
|
||||||
|
Richard
W. McCullough(1)
|
–
|
–
|
–
|
40%
|
20%
|
40%
|
||||||
|
Darwin
L. Stump
|
39%
|
19%
|
42%
|
44%
|
22%
|
34%
|
||||||
|
(1)
|
Mr.
McCullough was appointed as CFO in November 2006. The initial
contract period runs through
2008.
|
The
Committee annually reviews the base salaries of the Chief Executive Officer
(“CEO”) and other executive officers. Salaries are also reviewed in
the case of promotions or other significant changes in
responsibilities. In each case, the Committee takes into account the
results achieved by the executive, his or her future potential, scope of
responsibilities and experience, and competitive salary practices of the
Peer
Group. Base salary is intended to provide a baseline of compensation
that is not contingent upon the Company’s performance.
After
reviewing the Peer Group salary levels and considering individual performance,
the Committee established Base Salary increases for 2006 of 8.5% for the
CEO and
between 5% and 8.7% for the other executive officers. The total
compensation of the executive officers approximated the mean of the Peer
Group,
although the spread between the highest and lowest is less than the Peer
Group. This is consistent throughout the elements of compensation,
and reflects the goal of the Committee to encourage a strong team among the
executive officers. For 2007, the Committee established Base Salary
increases of 7.2% for the CEO and between 0% and 8.2% for the other executive
officers. Mr. McCullough, the Company’s CFO, will receive the
compensation established in his employment contract, executed in November
2006. Annual base salaries for the executive officers for 2006 and
2007 are shown in the following table:
|
|
Annual
Base Salaries
|
|||
|
Name
|
2006
|
2007
|
||
|
Steven
R. Williams
|
$ 345,000
|
$ 370,000
|
||
|
Thomas
E. Riley
|
272,000
|
292,500
|
||
|
Eric
R. Stearns
|
251,000
|
271,500
|
||
|
Richard
W. McCullough
|
–
|
235,000
|
||
|
Darwin
L. Stump
|
220,500
|
220,500
|
||
Short-Term Incentives
Annual
STI are tied to the Company’s overall performance for the fiscal year, as
measured against objective criteria set by the Committee, as well as the
Committee’s assessment of individual performance of each
executive. For 2006, at least 70% of the target STI payments are
performance based awards measured against objective criteria established
early
in the fiscal year. The remainder may include additional awards based
on performance goals, or may be awarded at the discretion of the Committee
based
on its assessment of the executive’s performance. For 2007, 100% of
Mr. Stump's STI is discretionary and for the other executive officers, their
STI
performance based award percentages remain unchanged from 2006. The
Compensation Committee has decided to maintain discretion over STI bonus
amounts
for Mr. Stump to emphasize the focus of his role in 2007 on the continued
development of the accounting functions of the Company rather than on production
targets and overall financial performance. The Committee, comprised
entirely of independent directors, believes that some discretion with respect
to
individual awards is desirable to compensate for unusual and unexpected
events.
Target
STI payments, expressed as a percentage of base salary, are set for each
executive officer prior to the beginning of the fiscal year based on job
responsibilities. STI payments for the year may range from zero up to
150% of the executive officer’s base salary, based on the achievement of the
objective criteria for performance based payments and the assessment by the
Committee for individual goals. For fiscal year 2006 and again in
2007, target STI awards for the executive officers ranged from 50% to 75%
of
salary.
With
respect to the executive officers, the Committee establishes formulae to
determine the percentage of the target annual incentive payment that may
be
payable for the fiscal year. The Committee does not have the
discretion to change any objective criteria once they have been
established. However, the Committee does retain discretion over 30%
(in 2007, 100% for Mr. Stump) of the total target STI to allow some flexibility
to award superior, or reflect the effect of sub-par, personal performance
that
may not be captured by the financial and operating criteria. In
addition, the Committee has the authority to recommend to the Board compensation
for unusual events. In 2006, Eric Stearns, the Executive Vice
President of Exploration and Production, received a special bonus for his
key
role in the $354 million acreage sale to Marathon. The following
table sets forth the STI threshold, target and maximum levels for 2006 and
2007
for the executives expressed as a percentage of base salary.
|
Short-Term
Incentive Compensation
|
||||||||||||
|
2006
|
2007(1)
|
|||||||||||
|
%
of Base Salary
|
%
of Base Salary
|
|||||||||||
|
Name
|
Threshold
|
Target
|
Maximum
|
Threshold
|
Target
|
Maximum
|
||||||
|
Steven
R. Williams
|
0%
|
75%
|
150%
|
0%
|
75%
|
150%
|
||||||
|
Thomas
E. Riley
|
0%
|
50%
|
100%
|
0%
|
62.5%
|
125%
|
||||||
|
Eric
R. Stearns
|
0%
|
50%
|
100%
|
0%
|
62.5%
|
125%
|
||||||
|
Richard
W. McCullough(2)
|
–
|
–
|
–
|
0%
|
50%
|
100%
|
||||||
|
Darwin
L. Stump
|
0%
|
50%
|
100%
|
–
|
–
|
–
|
||||||
|
(1)
|
In
2007, the target percentages apply to Messrs. Williams, Riley,
Stearns and
McCullough. For Mr. Stump, 100% of his STI is
discretionary.
|
|
(2)
|
Mr.
McCullough was appointed as CFO in November 2006. The initial
contract period runs through
2008.
|
Historically,
the primary form of equity compensation awarded by the Company was qualified
and
non-qualified stock options. This form was selected because of the
favorable individual and corporate accounting and tax treatments provided
by the
accounting and tax rules prevalent at the time, and the widespread use of
stock
options in executive compensation. In 2004, the Committee began
utilizing a combination of restricted stock and options for executive
compensation, believing that the restricted stock was better appreciated
by
employees and resulted in less dilution for the
Shareholders. Beginning in 2006, the accounting treatment for stock
options changed as a result of the applicability of Statement of Financial
Accounting Standards No. 123(R), making the use of stock options less
attractive. As a result, the Committee assessed the desirability of
granting only shares of restricted stock to executives, and concluded that
shifting entirely to restricted stock would provide an equally motivating
form
of incentive compensation, while permitting the issuance of fewer shares,
thereby reducing potential dilution to other shareholders. The
Committee did want to tie the value received by executives to performance
for a
portion of the equity compensation, thereby providing executives with a greater
incentive to focus on the long-term appreciation of the stock. To
accomplish this, a portion of the LTI for each executive consists of LTI
performance shares (“LTIP shares”), which require both the passage of time and
specified increases in the stock price to become vested.
The
Committee’s practice has been to determine the dollar amount of equity
compensation and to then grant a number of shares of restricted stock and
options that have a fair value equal to that amount on the date of
grant. The 2007 awards were determined using the fair value of the
awards based on the average daily closing price of the Company's stock in
December 2006. The Consultant calculated the fair value utilizing
methods they have developed for use with these types of equity valuations,
including taking into account the probability and/or timing of vesting under
the
performance criteria for the LTIP shares and the other restricted
stock. For the purpose of recording an expense for financial
reporting purposes, the awards will be revalued based on the prevailing capital
markets factors at the time of the award.
In
April
2007, the Company corrected an administrative error in the stock option exercise
price of shares awarded the executive officers in March 2006, none of which
were
exercised. The administrative error related to the use of the closing
price of the Company's common stock on the day prior to the award, rather
than
the closing price on the day of the award in accordance with the Company's
2004
Long-Term Equity Compensation Plan. The need for the correction was
identified by the Company and the effect of the correction was not material
to
the fair value of the awards, either at the time of the award or the time
of the
correction.
For
2006, the fair value of all Long-Term Incentive (“LTI”) awards was divided as
follows: 70% for time vesting restricted stock and 30% for stock
options (with both types of awards vesting 25% per year over a four year
period). In 2007, a percentage of the equity-based compensation
awards are LTIP shares with the percentage increasing for more highly
compensated executives, and the balance of the awards are time vesting
restricted stock. For example, 50% of the CEO’s equity-based
compensation in 2007 will be LTIP shares, in contrast to 40% for the President
and 30% for the CAO. The following table summarizes LTI awards for
2006 and 2007, and the second table summarizes the target prices for the
performance vesting of the LTIP awards.
|
Long-Term
Incentive Compensation
|
||||||||||||
|
2006
|
2007
|
|||||||||||
|
Name
|
Percent
of
Salary
|
Percent
of Value from
Time
Vesting Restricted
Stock
|
Percent
of Value
from
Stock
Options
|
Percent
of
Salary
|
Percent
of Value from
Time
Vesting Restricted
Stock
|
Percent
of Value from
LTIP
Stock
|
||||||
|
Steven
R. Williams
|
150%
|
70%
|
30%
|
175%
|
50%
|
50%
|
||||||
|
Thomas
E. Riley
|
125%
|
70%
|
30%
|
145%
|
60%
|
40%
|
||||||
|
Eric
R. Stearns
|
120%
|
70%
|
30%
|
140%
|
60%
|
40%
|
||||||
|
Richard
W. McCullough(1)
|
100%
|
70%
|
30%
|
–
|
–
|
–
|
||||||
|
Darwin
L. Stump
|
110%
|
70%
|
30%
|
90%
|
70%
|
30%
|
||||||
|
(1)
|
LTI
awarded in 2006 pursuant to initial employment agreement. Mr.
McCullough will be eligible for annual award consideration beginning
in
2008.
|
|
LTIP
Target Prices (1)
|
||||||||
|
Approximate
|
Target
Price
|
Percent
Vested if
|
||||||
|
Growth
Target
|
Year
3
|
Year
4
|
Year
5
|
Target
Attained(2)
|
||||
|
12%
|
$ 60.00
|
$
67.50
|
$ 75.00
|
50%
|
||||
|
16%
|
67.50
|
77.50
|
90.00
|
75%
|
||||
|
20%
|
75.00
|
90.00
|
107.50
|
100%
|
||||
|
(1)
|
Growth
target percentages and target prices are based on the average closing
price of the Company's common stock during the preceding December
for each
of the years ended December 31, 2009, 2010 and
2011.
|
|
(2)
|
Performance
shares will vest for a performance period only if the target price
is met
or exceeded for such period. Performance shares vested for a
performance period shall not be subject to divestment in the event
the
share price subsequently decreases below the threshold in a subsequent
performance period.
|
As
of
January 1, 2006, the Company maintained a 401(k) plan and a qualified profit
sharing plan for all of the Company’s employees including the executive
officers. On July 1, 2006, the two plans were combined into a single
plan. The plan provides for discretionary matching
contributions. Generally, the Company matches employee 401(k)
contributions dollar for dollar up to 10% of the employee’s compensation and
then matches 20% for contributions above 10% of the employees' compensation
up
to the maximum allowable limits under the Internal Revenue Code
("IRC"). The Company's profit sharing contribution is discretionary
and for 2006 was equal to 1% of the Company's consolidated net
income. Total Company contributions, to both 401(k) and profit
sharing, to the plan in 2006 were $3.1 million.
Under
their current employment agreements, each of the executive officers also
earns
the right to future payments following their retirement or other departure
from
the Company. For each year worked under his current agreement, the
CEO earns an annual retirement benefit equal to $500 times the number of
his
full years of service times 10 ($500 per year of service for 10
years). Following the termination of his service with the Company,
the cumulative total of the calculated annual retirement benefits is disbursed
in ten equal annual installments. For 2006, the retirement benefit
was $115,000 ($11,500 per year for 10 years) and for 2007, the retirement
benefit will be $120,000 ($12,000 per year for 10 years). The CEO's
total cumulative retirement benefit, under this plan, at December 31, 2006,
was
$330,000 ($33,000 per year for 10 years). Each of the other executive
officers, under their respective employment agreements, annually earns a
retirement benefit equal to $75,000 ($7,500 per year for 10
years). Following their termination of service with the Company,
their cumulative total annual retirement benefit will be disbursed in ten
equal
annual installments. As of December 31, 2006, for each of the other
executive officers, excluding Mr. McCullough, the total cumulative benefit,
including the 2006 increment, was $225,000 ($22,500 per year for 10
years). As of December 31, 2006, Mr. McCullough had not yet completed
sufficient service to qualify for the benefit, but will, like the others,
be
eligible in 2007.
Additionally,
under his previous employment agreement, Mr. Williams earned supplemental
retirement benefits. The prior agreement requires the Company to pay
Mr. Williams an annual sum of $40,000 per year for the ten year period following
his retirement from the Company (an aggregate of $400,000). This
benefit was fully vested on December 31, 2003. Under provisions of
his previous employment agreement, Mr. Williams may elect to defer payment
up to
five years following his retirement. In the event of employment
beyond the five year vesting period or the deferral of payment following
retirement the amount of the annual benefit will be increased by 10.75%
compounded annually. As of December 31, 2006, the amount of this
benefit is $543,470 (or $54,347 per year for 10 years). In the event
of change in control the benefits due under this agreement will be accelerated
and due immediately.
The
Company also provides certain other benefits to its executive officers that
are
not tied to any formal individual or Company performance criteria and are
intended to be part of a competitive overall compensation
program. Each of the executive officers has (1) a Company vehicle (or
vehicle allowance) that they use for Company business, and are allowed to
use
for personal uses as well, (2) coverage under the Company’s medical plan and
reimbursement of medical expenses not covered by the plan, (3) the right
to be
reimbursed for one Board-approved club membership, (4) reimbursement of the
cost
of a $1 million life insurance policy, and (5) reimbursement of the cost
of
disability insurance. Given the importance of the executives and
their good health to the success of the Company and the achievement of its
business goals, the Committee believes that the medical insurance and
reimbursement encourage the executives to seek appropriate medical
assistance. The other benefits are commonly provided to executives
and are necessary to create a competitive compensation package.
The
Committee believes that severance benefits for senior management should reflect
the fact that it may be difficult for employees to find comparable employment
within a short period of time. They also should disentangle the
Company from the former employee as soon as practicable. For
instance, while it is possible to provide salary continuation to an employee
during the job search process, which in some cases may be less expensive
than a
lump-sum severance payment, a lump-sum severance payment is preferable in
order
to most cleanly sever the relationship as soon as practicable. The
Company has entered into employment agreements with each of the executive
officers that include change in control provisions. These agreements
provide for the continued employment of the executives for a period of two
years
following a change in control of the Company. These agreements are
intended to retain the executives and provide continuity of management in
the
event of an actual or threatened change in the control of the Company and
ensure
that the executive’s compensation and benefits expectations would be satisfied
in such event.
The
compensation provisions in the event of a change in control also serve to
lessen
the potential negative impact of a change in control on the executive
officers. The Committee believes this is desirable to encourage the
executives to consider possible change in control situations that might benefit
the Company’s shareholders.
Where
the
termination is without “cause” or the executive officer terminates employment
for “good reason,” the severance plan provides for benefits equal to three times
the sum of: a) the executive officer’s highest base salary during the previous
two years of employment immediately preceding the termination date, plus
b) the
highest bonus paid to the executive officer during the same two year
period. The executive officer is also entitled to (1) vesting of any
unvested equity compensation, (2) reimbursement for any unpaid expenses,
(3)
retirement benefits earned under the current or previous agreements, (4)
continued coverage under the Company’s medical plan for up to 18 months, and (5)
payment of any earned, unpaid bonus amounts. In addition, a
terminated executive officer is entitled to receive any benefits that he
otherwise would have been entitled to receive under the Company's 401(k)
and
profit sharing plan, although those benefits are not increased or
accelerated. The Committee believes that these termination benefits
are comparable to the general practice among similar companies, although
it has
not conducted a study to confirm this.
Good
reason includes (1) assignment to the executive of duties materially and
adversely inconsistent with his position, duties, responsibilities and status
with the Company, (2) an adverse change in the executive’s position with the
Company, (3) a change in control of the Company, (4) a decrease of the executive
officer’s base salary, (5) a material reduction in the benefits provided by the
Company, (6) the requirement by the Company for the executive officer to
be
based anywhere outside of Bridgeport, West Virginia, (7) the failure by the
Company to obtain a satisfactory agreement from any successor or assignee
of the
Company to assume and agree to the Company’s obligations under the employment
agreement, or (8) any other material breach of the employment agreement by
the
Company.
The
Company may terminate any of the executive officers for just cause, which
is
defined in the employment agreements to include (1) a failure by the executive
to perform his duties, (2) conduct by the executive that results in consequences
which are materially adverse to the Company, monetarily or otherwise, (3)
a
guilty plea or conviction of a felony, or (4) a material breach of the terms
of
the employment agreement by the executive officer. If an executive
officer is terminated for just cause, the Company is required to pay the
executive officer his base salary through the termination date plus any bonus
(only for periods completed and accrued, but not paid), incentive, deferred,
retirement or other compensation, and provide any other benefits, which have
been earned or become payable as of the termination date but which have not
yet
been paid or provided.
If
an
executive officer voluntarily terminates his employment with the Company
for
other than good reason, he is entitled to receive (1) the base salary, bonus
and
incremental retirement payment prorated for the portion of the year that
the
executive officer is employed by the Company, (2) any incentive, deferred
or
other compensation which has been earned or has become payable, but which
has
not yet been paid under the schedule originally contemplated in the agreement
under which they were granted or in full without discount within 60 days
of the
termination date at the discretion of the Company, (3) any unpaid expense
reimbursement upon presentation by the executive officer of an accounting
of
such expenses in accordance with normal Company practices, and (4) any other
payments for benefits earned under the employment agreement or Company
plans.
The
table
below provides information regarding the amounts each of the executive officers
would be eligible to receive if a termination event had occurred as of December
31, 2006:
|
Termination
Benefits
|
||||||||
|
Name
|
Retirement
or
Voluntary
Termination
by
Executive
|
Termination
For
Cause
by
Company
|
Change
in Control or
Termination
Without
Cause or
Good
Reason
by
Executive
|
Death/
Disability(1)
|
||||
|
Steven
R. Williams(2)
|
$ 1,669,067
|
$ 1,513,817
|
$ 4,198,813
|
$ 2,286,078
|
||||
|
Thomas
E. Riley
|
541,252
|
459,652
|
2,172,522
|
1,069,117
|
||||
|
Eric
R. Stearns
|
520,252
|
444,952
|
2,315,782
|
1,000,160
|
||||
|
Richard
W. McCullough(3)
|
-
|
-
|
1,153,767
|
317,267
|
||||
|
Darwin
L. Stump
|
456,677
|
423,602
|
1,839,846
|
681,171
|
||||
|
(1)
|
In
the event of death or disability, the termination benefits would
consist
of (i) the base salary and bonus for the portion of the year the
executive
officer is employed by the Company; (ii) the base salary that would
have
been earned for six months after termination; (iii) immediate vesting
of
all equity and option awards; (iv) the payment of deferred retirement
compensation based upon the schedule originally contemplated in
the
deferred retirement compensation agreement or in a lump-sum no
later than
two and one-half months following the close of the calendar year
in which
the death or disability occurred; (v) reimbursement for any unpaid
expenses; (vi) any benefits earned under the 401(k) and profit
sharing
plan; and (vii) continued coverage under the Company's medical
plan, life
time coverage for Mr. Williams and for up to 18 months for all
other named
executive officers.
|
|
(2)
|
Includes
(i) the estimated lifetime value of medical benefits for Mr. Williams
and/or his spouse; and (ii) the sum of deferred retirement compensation
benefits related to prior employment agreement and current employment
agreement.
|
|
(3)
|
Includes
a signing bonus of $83,000 (employment effective November 15,
2006). If employment terminates within one year after
commencement of employment, Mr. McCullough must refund to the Company
a
pro-rata portion of the signing
bonus.
|
In
order
to promote equity ownership and further align the interests of management
with
the Company’s shareholders, the Committee has adopted share retention and
ownership guidelines for senior management and non-employee
directors. Under these guidelines, executive officers and
non-employee directors are required to achieve and continue to maintain a
significant ownership position, expressed as a multiple of salary as
follows:
|
Chief
Executive Officer
|
3
times salary
|
|
Other
Executive Officers (4 persons)
|
2
times salary
|
|
Non-Employee
Directors
|
1
times retainer
|
The
Committee periodically reviews share ownership levels of the persons subject
to
these guidelines. Shares held by the executive officers and shares
held indirectly through the Company 401(k) plan are included in determining
an
executive officer’s share ownership. Shares underlying stock options,
including vested options, as well as unvested restricted stock, are not
included. Each of the executive officers, excluding Mr. McCullough
who was hired in November 2006, and the non-employee directors have achieved
shareholdings in excess of the applicable multiple set forth above.
The
Company’s insider trading policy expressly prohibits Company officers,
directors, employees and associates from engaging in options, puts, calls
or
other transactions that are intended to hedge against the economic risk of
owning the Company shares.
The
Company entered into employment agreements with Messrs. Williams, Riley,
Stearns
and Stump effective January 1, 2004, and Mr. McCullough effective November
13,
2006. The initial term of the agreements is for two years and they
are automatically extended for an additional 12 months beginning on the first
anniversary of the effective date and on each successive anniversary unless
either party cancels. The employment agreements provide for the base
annual salary to be reviewed annually (see "Base Salary" discussion
above).
Each
employment agreement provides for an annual performance bonus as determined
by
the Compensation Committee and is based in part upon written objective criteria
and in part upon the discretion of the Compensation Committee. The
annual performance bonus earned is calculated as a percentage, as determined
by
the Compensation Committee, of the executive officers' base salary.
Each
employment agreement contains a standard non-disclosure covenant and provides
that the executive officer is prohibited during the term of his employment
and
for a period of one year following his termination from engaging in any business
that is competitive with the Company's oil and gas drilling
business. Additionally, the employment agreements state that the
executive officer must devote substantially all of his business time, best
efforts and attention to promote and advance the business of the
Company. The executive officer may not be employed in any other
business activity, other than with the Company, during the term of the
employment agreement, whether or not such activity is pursued for gain, profit
or other pecuniary advantage without approval by the Compensation Committee
of
the Board. This restriction will not prevent the executive officer
from investing his personal assets in a business which does not compete with
the
Company or its affiliates, and where such investment will not require services
of any significance on the part of the executive officer in the operation
of the
affairs of the business.
Executive
officers may invest in a Board-approved executive drilling program at the
Company's cost. During 2006, Messrs. Williams, Riley and Stump
invested approximately $40,000, $20,000 and $17,000,
respectively. Other investors participating in drilling with the
Company are generally charged a profit or markup above the cost of the wells;
for example, the markup on Company-sponsored partnerships is approximately
15%
of the cost of the wells. As a result, the executive officers realize
a benefit not generally available to other investors. The Board
believes that having the executive officers invest in wells with the Company
and
other investors helps to create a commonality of interests much like share
ownership creates a commonality of interests between the shareholders and
executive officers.
The
Committee is aware of IRC Section 162(m) of the tax code, which generally
limits
the deductibility of executive pay in excess of one million dollars, and
which
specifies the requirements for the “performance-based” exemption from this
limit. Elements of the executive compensation program are indeed
performance-based, and vehicles such as stock options are believed to qualify
as
performance-based under Section 162(m). Other aspects of the
executive compensation program may not qualify as performance-based, such
as
time-based restricted stock and the Company's annual incentive plan because
the
Committee prefers the ability to exercise discretion in evaluating a portion
of
participants' performance. The financial implications of a potential
lost deduction are not expected to be material. The Committee will
continue to monitor its position on the impact of Section 162(m) for the
Company's executive compensation programs.
The following table provides summary compensation information for the Company's Chief Executive Officer, the Chief Financial Officer, and the three most highly compensated executive officers, other than the Chief Executive Officer and Chief Financial Officer, whose total compensation exceeded $100,000 in 2006 (the "named executive officers").
|
Non-Equity
|
Nonqualified
|
|||||||||||||||
|
Stock
|
Option
|
Incentive
Plan
|
Deferred
|
All
Other
|
Total
|
|||||||||||
|
Name
and Principal Position
|
Salary
|
Bonus(1)
|
Awards
(2)
|
Awards
(3)
|
Compensation(4)
|
Compensation
(5)
|
Compensation
(6)
|
Compensation
|
||||||||
|
Steven
R. Williams
|
$ 345,000
|
$
155,250
|
$
163,023
|
$
54,546
|
$ 362,250
|
$ 88,438
|
$ 37,778
|
(7)
|
$
1,206,285
|
|||||||
|
Chairman,
|
||||||||||||||||
|
Chief Executive Officer
|
||||||||||||||||
|
and Director
|
||||||||||||||||
|
Thomas
E. Riley
|
272,000
|
81,600
|
107,580
|
35,977
|
190,400
|
30,824
|
9,357
|
(8)
|
727,738
|
|||||||
|
President
|
||||||||||||||||
|
and Director
|
||||||||||||||||
|
Eric
R. Stearns
|
251,000
|
175,300
|
(9)
|
98,318
|
32,806
|
175,700
|
21,730
|
17,773
|
772,627
|
|||||||
|
Executive Vice President,
|
||||||||||||||||
|
Exploration and Development
|
||||||||||||||||
|
Richard
W. McCullough
|
32,237
|
83,000
|
(10)
|
5,928
|
2,289
|
-
|
3,848
|
-
|
127,302
|
|||||||
|
Chief Financial Officer
|
||||||||||||||||
|
and Treasurer
|
||||||||||||||||
|
Darwin
L. Stump
|
220,500
|
33,075
|
85,963
|
28,484
|
154,350
|
25,880
|
17,610
|
(11)
|
565,862
|
|||||||
|
Chief Accounting Officer
|
|
(1)
|
The
annual STI bonus plan provides for a discretionary component equal
to 30%
of the total STI award. The amounts for Messrs. Williams,
Riley, and Stump represent only the discretionary amounts earned
pursuant
to the STI plan. The annual STI bonus plan has established
performance criteria that must be met before 70% of the annual
cash bonus
may be paid. See discussion of the STI bonus plan
above.
|
|
(2)
|
Represents
compensation expense recorded by the Company pursuant to FAS 123(R)
related to outstanding restricted stock awards. See Note 8,
Common Stock, to the Consolidated Financial
Statements.
|
|
(3)
|
Represents
compensation expense recorded by the Company pursuant to FAS 123(R)
related to outstanding stock options. See Note 8, Common Stock,
to the Consolidated Financial
Statements.
|
|
(4)
|
Represents
performance based cash bonuses earned during the year and paid
shortly
after year-end. As noted above in the discussion and analysis,
the STI bonus plan has established performance criteria that must
be met
for the executive to earn 70% of the targeted annual cash bonus
amount.
|
|
(5)
|
Represents
the present value of the current year benefit earned related to
the
deferred compensation retirement plan. The amount for Mr.
McCullough was based upon a prorated annual amount since 2006 was
the
initial year of employment.
|
|
(6)
|
All
Other Compensation includes insurance and medical reimbursements,
social
fringe benefits such as club dues and athletic event tickets, the
value
for the personal use of Company automobiles and discounts related
to
Company-sponsored drilling
programs.
|
|
(7)
|
Includes,
in addition to other compensation items discussed in (6)
above, $20,170 for post retirement medical and a discount
received of $5,216 related to investments in Company-sponsored
drilling
programs, see discussion above in Other Agreements and
Arrangements.
|
|
(8)
|
Includes,
in addition to other compensation items discussed in (6) above,
a discount
received of $2,649 related to investments in Company-sponsored
drilling
programs.
|
|
(9)
|
Includes
$75,300 pursuant to discretionary component of the STI plan and
an
additional $100,000 bonus for his role in the sale of an undeveloped
leasehold in Grand Valley Field in
September.
|
|
(10)
|
Represents
a signing bonus paid at the start of employment with the Company
in
November 2006.
|
|
(11)
|
Includes,
in addition to other compensation items discussed in (6) above,
a discount
received of $2,437 related to an investment in a Company-sponsored
drilling program.
|
|
Estimated
Future Payouts
|
Number
of
|
Grant
Date
|
||||||||||||||
|
Under
Non-Equity
|
Securities
|
Exercise
Price
|
Fair
Value of
|
|||||||||||||
|
Incentive
Plan Awards
|
Number
of
|
Underlying
|
Per
Share
|
Stock
and
|
||||||||||||
|
Shares
|
Option
|
of
Option
|
Option
|
|||||||||||||
|
Name
|
Grant
Date
|
Threshold
|
Target
|
Maximum
|
Awarded
|
Awards(1)
|
Awards(1)
|
Awards
(2)
|
||||||||
|
Steven
R. Williams
|
3/16/2006
|
$ -
|
$ -
|
$ -
|
9,348
|
7,517
|
$ 44.95
|
(3)
|
$ 571,886
|
|||||||
|
6/23/2006
|
-
|
258,750
|
517,500
|
-
|
-
|
-
|
-
|
|||||||||
|
Thomas
E. Riley
|
3/16/2006
|
-
|
-
|
-
|
6,141
|
4,939
|
44.95
|
(3)
|
375,707
|
|||||||
|
6/23/2006
|
-
|
136,000
|
272,000
|
-
|
-
|
-
|
-
|
|||||||||
|
Eric
R. Stearns
|
3/16/2006
|
-
|
-
|
-
|
5,441
|
4,375
|
44.95
|
(3)
|
332,860
|
|||||||
|
6/23/2006
|
-
|
125,500
|
251,000
|
-
|
-
|
-
|
-
|
|||||||||
|
Richard
W. McCullough
|
11/14/2006
|
-
|
-
|
-
|
4,256
|
3,333
|
43.60
|
255,688
|
||||||||
|
Darwin
L. Stump
|
3/16/2006
|
-
|
-
|
-
|
4,381
|
3,523
|
44.95
|
(3)
|
268,020
|
|||||||
|
6/23/2006
|
-
|
110,250
|
220,500
|
-
|
-
|
-
|
-
|
|||||||||
_______________
|
(1)
|
Represents
awards under the Company's long-term equity compensation plan (see
Note 8,
"Common Stock," to the consolidated financial statements and "Long-Term
Incentives" above in the Compensation Discussion and Analysis for
additional discussion).
|
|
(2)
|
The
Grant Date Fair Value of stock and option awards is computed by
multiplying the restricted stock number of shares awarded by the
closing
price of the Company's stock on the date of the grant, plus the
Black
Scholes value per share times the number of securities underlying
the
option shares. The closing price per share of awards on March
16, 2006, and November 14, 2006, was $44.95 and $43.60,
respectively. The Black Scholes estimated fair value per share
of the options awarded on March 16, 2006, and November 14, 2006,
was
$20.18 and $21.04,
respectively.
|
|
(3)
|
In
April 2007, the Company corrected an administrative error related
to the
use of the closing price of the Company's common stock on the day
prior to
the award, rather than the closing price on the day of the award
in
accordance to the plan, see Long-Term Incentives discussion
above. The Exercise Price Per Share correctly reflects the
closing price per share on the day of the
award.
|
|
Option
Awards
|
Restricted
Stock Awards
|
|||||||||||
|
Number
of Securities
|
Number
|
Market
Value
|
||||||||||
|
Underlying
Unexercised
|
|
of
Shares
|
of
Shares
|
|||||||||
|
Options
Held at
|
That
Have
|
That
Have
|
||||||||||
|
December
31, 2006
|
Exercise
|
Expiration
|
Not
|
Not
|
||||||||
|
Name
|
Exercisable
|
Unexercisable
|
Price
|
Date
|
Vested
|
Vested
(1)
|
||||||
|
Steven
R. Williams
|
2,935
|
2,935
|
(2)
|
$ 37.15
|
12/13/2014
|
13,413
|
(3)
|
$ 577,430
|
||||
|
-
|
7,517
|
(4)
|
44.95
|
3/16/2016
|
-
|
-
|
||||||
|
Thomas
E. Riley
|
1,945
|
1,945
|
(5)
|
37.15
|
12/13/2014
|
8,836
|
(6)
|
380,390
|
||||
|
-
|
4,939
|
(7)
|
44.95
|
3/16/2016
|
-
|
-
|
||||||
|
Eric
R. Stearns
|
1,835
|
1,835
|
(8)
|
37.15
|
12/13/2014
|
7,981
|
(9)
|
343,582
|
||||
|
-
|
4,375
|
(10)
|
44.95
|
3/16/2016
|
-
|
-
|
||||||
|
Richard
W. McCullough
|
-
|
3,333
|
(11)
|
43.60
|
11/14/2016
|
4,256
|
(12)
|
183,221
|
||||
|
Darwin
L. Stump
|
1,725
|
1,725
|
(13)
|
37.15
|
12/13/2014
|
6,771
|
(14)
|
291,492
|
||||
|
-
|
3,523
|
(15)
|
44.95
|
3/16/2016
|
-
|
-
|
||||||
|
(1)
|
Market
value of shares is based on the closing price of the Company's
common
stock on December 29, 2006, $43.05 per
share.
|
|
(2)
|
Vesting:
1,467 shares in 2007 and 1,468 shares in
2008.
|
|
(3)
|
Vesting:
4,369 shares in 2007, 4,370 shares in 2008, 2,337 shares in 2009
and 2,337
shares in 2010.
|
|
(4)
|
Vesting:
25% in each of the years 2007 through
2010.
|
|
(5)
|
Vesting:
972 shares in 2007 and 973 shares in
2008.
|
|
(6)
|
Vesting:
2,882 shares in 2007, 2,883 shares in 2008, 1,535 shares in 2009
and 1,536
shares in 2010.
|
|
(7)
|
Vesting:
25% in each of the years 2007 through
2010.
|
|
(8)
|
Vesting:
917 shares in 2007 and 918 shares in
2008.
|
|
(9)
|
Vesting:
2,630 shares in 2007, 2,630 shares in 2008, 1,360 shares in 2009
and 1,361
shares in 2010.
|
|
(10)
|
Vesting:
25% in each of the years 2007 through
2010.
|
|
(11)
|
Vesting:
25% in each of the years 2007 through
2010.
|
|
(12)
|
Vesting:
25% in each of the years 2007 through
2010.
|
|
(13)
|
Vesting:
862 shares in 2007 and 863 shares in
2008.
|
|
(14)
|
Vesting:
2,290 shares in 2007, 2,290 shares in 2008, 1,095 shares in 2009
and 1,096
shares in 2010.
|
|
(15)
|
Vesting:
25% in each of the years 2007 through
2010.
|
|
Option
Awards
|
Stock
Awards
|
||||||||
|
Number
of
|
Number
of
|
||||||||
|
Shares
Acquired
|
Value
Realized
|
Shares
Acquired
|
Value
Realized
|
||||||
|
Name
|
on
Exercise
|
on
Exercise
|
on
Vesting
|
on
Vesting(1)
|
|||||
|
Steven
R. Williams
|
-
|
$ -
|
2,032
|
$ 90,932
|
|||||
|
Thomas
E. Riley
|
-
|
-
|
1,347
|
60,278
|
|||||
|
Eric
R. Stearns
|
-
|
-
|
1,270
|
56,833
|
|||||
|
Richard
W. McCullough
|
-
|
-
|
-
|
-
|
|||||
|
Darwin
L. Stump
|
-
|
-
|
1,195
|
53,476
|
|||||
_______________
|
(1)
|
Based
on the closing price of the Company's common stock on the date
of vesting,
December 13, 2006, $44.75 per
share.
|
|
Executive
|
Company
|
Aggregate
|
Aggregate
|
Aggregate
|
||||||
|
Contributions
in
|
Contributions
in
|
Earnings
in
|
Withdrawals/
|
Balance
at
|
||||||
|
Name
|
2006
|
2006(1)
|
2006(2)
|
Distributions
|
December
31, 2006
|
|||||
|
Steven
R. Williams
|
$ -
|
$ 88,438
|
(3)
|
$ 35,699
|
(4)
|
$ -
|
$ 754,821
|
|||
|
Thomas
E. Riley
|
-
|
30,824
|
3,489
|
-
|
92,471
|
|||||
|
Eric
R. Stearns
|
-
|
21,730
|
2,460
|
-
|
65,189
|
|||||
|
Richard
W. McCullough
|
-
|
3,848
|
-
|
-
|
3,848
|
|||||
|
Darwin
L. Stump
|
-
|
25,880
|
2,930
|
-
|
77,641
|
|
(1)
|
Company
contributions include the present value cost of providing the defined
compensation payout over a ten year period. Since this is a
self funded deferred compensation plan, the Company’s additional annual
deferred compensation expense, less the interest component noted
as
aggregate earnings above, equals the increase in the accrued Company
contributions that are required to fund the plan. These annual
amounts are a component of the executive officers' 2006 compensation
and
are included in the 2006 Summary Compensation
Table.
|
|
(2)
|
Aggregate
earnings consist of interest income earned on the beginning of
the year
compensation balance at a 6% interest rate. These earnings are
not included in the 2006 Summary Compensation Table as they are
not above
market rate.
|
|
(3)
|
Mr.
Williams received deferred compensation benefits from both the
current
deferred compensation plan for all named executive officers, as
well as a
prior retirement plan. The amount for Mr. Williams includes a
reduction of $8,990 in the current funding amount due to the fact
that the
deferral option has been elected by Mr. Williams for the start
of benefits
under the prior retirement plan. The deferred payment start
date has been deferred for five years after retirement. In
addition, current year required Company contributions were also
reduced by
$35,699 due to a change in Mr. Williams’ projected retirement
date.
|
|
(4)
|
Aggregate
earnings for Mr. Williams include additional earnings of $4,590
on the
Company’s previous retirement plan due to that plan’s “five year deferral
option.”
|
The
following table summarizes information related to the Company's equity
compensation plans under which its equity securities are authorized for issuance
as of June 30, 2007.
|
Plan
category
|
Number
of securities to be issued
upon exercise of outstanding
options
|
Weighted-average
exercise
price of outstanding
options
|
Number
of securities
remaining
available for
future
issuance under equity
compensation
plans(1)
|
|||||||||
|
Equity
compensation plans
|
||||||||||||
|
approved
by
security holders(2)
|
56,567
|
(3)
|
$ 30.92
|
528,331
|
||||||||
|
Equity
compensation plans
|
||||||||||||
|
not
approved by
security holders
|
-
|
-
|
-
|
|||||||||
|
Total
|
56,567
|
30.92
|
528,331
|
|||||||||
|
(1)
|
Excludes
the number of securities to be issued upon exercise of outstanding
options
and performance shares subject to certain performance goals over
a
specified period of time.
|
|
(2)
|
These
plans consist of the 1999 Incentive Stock Option and Non-Qualified
Stock
Option Plan, the 2004 Long-Term Equity Compensation Plan and the
2005
Non-Employee Director Restricted Stock
Plan.
|
|
(3)
|
Excludes
31,972 shares of common stock issuable upon the obtainment of specified
performance goals over a specified period of
time.
|
The
following graph illustrates the cumulative total return on the Company's
common
stock over a five year period ended December 31, 2006, compared to the
cumulative total returns for the same period for the S&P 500 Index and a
peer group index. The peer group index consists of 203 Crude
Petroleum and Natural Gas Companies. The cumulative total shareholder
return computations assume the investment of $100 in Company common stock,
the
S&P 500 Index and the peer group index. The table includes the
cumulative shareholder return assuming the reinvestment of
dividends.
|
Year
ended December 31,
|
|||||||||||
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||
|
PETROLEUM
DEVELOPMENT CORPORATION
|
$ 100.00
|
$ 85.90
|
$ 384.12
|
$ 625.12
|
$ 540.36
|
$ 697.73
|
|||||
|
SIC
CODE INDEX
|
100.00
|
106.61
|
171.22
|
217.51
|
312.49
|
406.32
|
|||||
|
S&P
500 INDEX
|
100.00
|
77.90
|
100.25
|
111.15
|
116.61
|
135.03
|
|||||
Advance
Notice Procedures
Under
the
Company's By-Laws, no business may be brought before an annual meeting of
the
Company unless it is specified in the notice of the meeting or is otherwise
brought before the meeting by or at the direction of the Board or by a
shareholder entitled to vote who has delivered advance notice to the
Company. The notice must contain certain information specified in the
By-Laws and be delivered to the Corporate Secretary at Petroleum Development
Corporation, 120 Genesis Boulevard, Bridgeport, West Virginia 26330, not
less
than 80 days (June 9, 2008) nor more than 90 days (May 30, 2008) prior to
the
first anniversary of the preceding year's annual meeting. These
requirements are separate from and in addition to the SEC's requirements
that a
shareholder must meet in order to have a shareholder proposal included in
the
Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange
Act of 1934. Under federal proxy rules, if a shareholder wishes to
present such a proposal, but fails to notify the Company by the date required
by
the Company's By-Laws, the proxies solicited by the Board will include
discretionary authority to vote on the shareholder's proposal in the event
the
proposal is properly brought before the meeting.
Shareholder
Proposals for 2008 Annual Meeting
In
order
to be included in the Company's Proxy Statement for the 2008 Annual Meeting
of
Shareholders, shareholder proposals must be received by the Company at its
principal executive office on or prior to April 2, 2008. Proposals
should be addressed to:
Corporate
Secretary
Petroleum
Development Corporation
120
Genesis Boulevard
Bridgeport,
West Virginia 26330
In
addition, for any proposal that is not submitted for inclusion in next year's
proxy statement, but is instead sought to be presented directly at the 2008
Annual Meeting of Shareholders, SEC rules permit management to vote proxies
in
its discretion if the Company (1) receives written notice of the proposal
not
later than June 9, 2008, nor earlier than May 30, 2008, and advises shareholders
in the 2008 proxy statement about the nature of the matter and how management
intends to vote on the matter; or (2) does not receive written notice of
the
proposal prior to the close of business on June 16, 2008. Notices of
intention to present proposals at the 2008 annual meeting of shareholders
should
be addressed to Corporate Secretary, Petroleum Development Corporation, 120
Genesis Boulevard, Bridgeport, West Virginia 26330.
|
|
By
Order of the Board of Directors,
|
|
|
Steven
R. Williams, Chairman
|
Dated: July
31, 2007
THE
COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL
HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON,
A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 2006, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE
COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY
BE OBTAINED BY WRITING TO CORPORATE COMMUNICATIONS DEPARTMENT, PETROLEUM
DEVELOPMENT CORPORATION, 120 GENESIS BOULEVARD, BRIDGEPORT, WEST VIRGINIA
26330.
Petroleum
Development Corporation
120
Genesis Boulevard
Bridgeport,
West Virginia 26330
Proxy
Solicited by the Board of Directors for the Annual Meeting of
Shareholders
The
undersigned hereby appoints STEVEN R. WILLIAMS and DARWIN L. STUMP, and either
of them, proxies, each with full power to act without the other and with
full
power of substitution for and in the name of the undersigned at the Annual
Meeting of Shareholders of Petroleum Development Corporation (the "Company")
to
be held on August 28, 2007, at 10:00 a.m. and at any adjournment or postponement
thereof to vote all shares of the common stock of the Company, held by the
undersigned with respect to the following matters or postponement and on
such
other matters as may properly come before the meeting.
(1)
ELECTION OF DIRECTORS
Nominees:
Vincent F. D'Annunzio and Thomas E. Riley
FOR
ALL
WITHHOLD
ALL
FOR ALL EXCEPT
(See
Instructions
Below)
Instructions: To
withhold authority to vote for either nominee, mark "FOR ALL EXCEPT" and
circle
the nominee's name above.
(2)
TO
RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31,
2007.
FOR
AGAINST
ABSTAIN
In
their
discretion, the proxies are authorized to vote upon such other business as
may
properly come before the meeting and at any and all adjournments or
postponements thereof.
(CONTINUED
AND TO BE SIGNED ON THE OTHER SIDE)
The
undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement for such meeting dated August 28, 2007,
and a
copy of the Company's 2006 Annual Report.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR
TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED,
WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF
NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR PROPOSALS 1 AND 2.
|
|
Date:
__________________, 2007
|
|
Signature
(Please
sign in the above box EXACTLY as your name(s) appears on this
proxy. All joint holders must sign. When signing in
a representative capacity, please provide your full
title.)
|
|
IMPORTANT
INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD, PLEASE READ BOTH SIDES
OF
THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.