ROSETTA
RESOURCES INC.
717
Texas, Suite 2800
Houston,
Texas 77002
April 1,
2008
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Dear
Rosetta Stockholder:
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I am
pleased to invite you to Rosetta’s Annual Meeting of Stockholders. The Annual
Meeting will be held at the Magnolia Hotel (1100 Texas, Houston, Texas 77002) on
Friday, May 9, 2008 at 9:00 a.m., local Houston time. If you cannot be present
at the Annual Meeting, I ask that you participate by completing the enclosed
proxy and returning it at your earliest convenience.
At the
Annual Meeting, you and the other stockholders will elect five directors to
Rosetta’s Board of Directors as described in the accompanying Proxy Statement.
You will also have the opportunity to hear a brief update on our Company,
including highlights from 2007 and an outlook for 2008. We will also provide an
opportunity for you to ask questions. It is an exciting time for Rosetta and we
look forward to your continued interest in our Company. I encourage you to read
the enclosed Notice of Annual Meeting and Proxy Statement, which contains
information about the Board of Directors and its committees and personal
information about each of the nominees for the Board. The Proxy Statement also
includes a proposal to ratify the Company’s independent registered public
accounting firm and a proposal to increase the number of shares available for
award grants in the Company’s Long-Term Incentive Plan.
We hope
you can join us on May 9, 2008. Whether or not you can attend personally, it is
important that the shares are represented at the meeting. Please mark the votes on the enclosed
proxy card, sign and
date the proxy card, and return it to us in the
enclosed envelope by May 6, 2008. Your vote is important, so please return the
proxy promptly.
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Sincerely,
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Randy
L. Limbacher
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President
and Chief Executive Officer
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ROSETTA
RESOURCES INC.
717
Texas, Suite 2800
Houston,
Texas 77002
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
To Be
Held on May 9, 2008
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To
the Stockholders of
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Rosetta
Resources Inc.:
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The
Annual Meeting of Stockholders of Rosetta Resources Inc., a Delaware corporation
(the “Company”), will be held on Friday, May 9, 2008 at 9:00 a.m., local Houston
Time, at the Magnolia Hotel (1100 Texas, Houston, Texas 77002), for the
following purposes:
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1.
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To
elect the members of the Board of Directors of the Company to serve until
the next Annual Meeting of the Company’s
stockholders;
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2.
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To
ratify the appointment of PricewaterhouseCoopers LLP as the Company’s
Independent Registered Public Accounting Firm for
2008;
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3.
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To
approve an amendment to the Company’s 2005 Long-Term Incentive Plan to
increase the number of available shares of common stock from 3,000,000 to
4,950,000; and
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4.
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To
transact such other business as may properly come before the meeting and
any adjournment or postponement
thereof.
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The Board
of Directors has fixed the close of business on March 25, 2008 as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting and any adjournment or postponement thereof. Only stockholders
of record at the close of business on the record date are entitled to notice of,
and to vote at, the meeting. A complete list of the stockholders will be
available for examination at the offices of the Company at 717 Texas, Suite
2800, Houston, Texas 77002 during ordinary business hours for a period of 10
days prior to the meeting.
A record
of the Company’s activities during 2007 and its financial statements for the
fiscal year ended December 31, 2007 are contained in the Company’s 2007 Annual
Report on Form 10-K. The Annual Report does not form any part of the material
for solicitation of proxies.
All
stockholders are cordially invited to attend the meeting. Stockholders are urged, whether or
not they plan to attend the meeting, to complete, date and sign the accompanying
proxy card and to return it promptly in the postage-paid return envelope
provided. If a stockholder who has returned a proxy attends the meeting
in person, the stockholder may revoke the proxy and vote in person on all
matters submitted at the meeting.
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By
Order of the Board of Directors of
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ROSETTA
RESOURCES INC.
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Michael
J. Rosinski
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Executive
Vice President, Chief Financial
Officer,
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Treasurer
and Secretary
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Houston,
Texas
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April
1, 2008
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TABLE
OF CONTENTS
- i -
- ii -
GENERAL INFORMATION
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Q:
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Who
is soliciting my proxy?
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A:
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We,
the Board of Directors of Rosetta Resources Inc., are sending you this
Proxy Statement in connection with the solicitation of proxies for use at
Rosetta’s 2008 Annual Meeting of Stockholders. Certain directors, officers
and employees of Rosetta or American Stock Transfer & Trust Company
(“AST”) may also solicit proxies on the behalf by mail, phone, fax or in
person.
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Q:
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Who
is paying for this solicitation?
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A:
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Rosetta
will pay for the solicitation of proxies, including the cost of preparing
and mailing this Proxy Statement. Rosetta will also reimburse banks,
brokers, custodians, nominees, and fiduciaries for their reasonable
charges and expenses to forward the proxy materials to the beneficial
owners of Rosetta stock. No additional fee beyond the $2,500 monthly fee
paid to AST to act as Rosetta’s transfer agent, together with AST’s
out-of-pocket expenses, will be paid to
AST.
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Q:
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What
am I voting on?
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A:
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1.
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The
election of Randy L. Limbacher, Richard W. Beckler, Donald D. Patteson,
Jr., D. Henry Houston, and Josiah O. Low III to the Board of
Directors;
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2.
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The
ratification of the appointment of PricewaterhouseCoopers LLP as the
Company’s Independent Registered Public Accounting Firm;
and
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3. The
approval of an amendment to the 2005 Long-Term Incentive Plan to increase the
number of available shares of common stock for awards under the plan from
3,000,000 to 4,950,000.
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Q:
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Who
can vote?
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A:
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Stockholders
as of the close of business on March 25, 2008 are entitled to vote at the
Annual Meeting.
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Q:
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How
do I vote?
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A:
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You
may vote the shares either in person or by proxy. To vote by proxy, you
should mark, date, sign, and mail the enclosed proxy card in the prepaid
envelope. Giving a proxy will not affect the right to vote the shares if
you attend the Annual Meeting and want to vote in person – by voting in
person you automatically revoke the proxy. If you vote the shares in
person you must present proof that you own the shares as of the record
date and date of voting through brokers’ statements, similar proof and
identification. You also may revoke the proxy at any time before the
meeting by giving the Secretary written notice of the revocation or by
submitting a later-dated proxy. If you return the proxy card but do not
mark the voting preference, the individuals named as proxies will vote the
shares FOR the three proposals.
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Q:
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How
does the Board recommend I vote on the
proposals?
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A:
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1.
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The
Board recommends a vote FOR each of the director
nominees.
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2.
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The
Board recommends a vote FOR ratification of appointment of the Independent
Registered Public Accounting Firm.
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3.
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The
Board recommends a vote FOR approval of an amendment to the 2005 Long-Term
Incentive Plan to increase the number of available shares for awards from
3,000,000 to 4,950,000.
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Q:
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Is
my vote confidential?
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A:
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Proxy
cards, ballots and voting tabulations that identify individual
stockholders are mailed or returned directly to Rosetta and handled in a
manner intended to protect the voting privacy. The vote will not be
disclosed except: (1) as needed to permit Rosetta to tabulate and certify
the vote; (2) as required by law; or (3) in limited circumstances, such as
a proxy contest in opposition to the Board (which is not currently
anticipated). Additionally, all comments written on the proxy card or
elsewhere will be forwarded to management, but the identity will be kept
confidential unless you ask that the name be
disclosed.
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- iii -
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Q:
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How
many shares can vote?
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A:
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As
of the record date, March 25, 2008, Rosetta had outstanding 51,505,584
shares of common stock. Each share of common stock is entitled to one (1)
vote. Each Rosetta Employee’s share of restricted common stock is entitled
to one vote, regardless of any outstanding vesting
period.
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Q:
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What
happens if I withhold my vote for an individual
director?
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A:
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Because
the individual directors are elected by a plurality of the votes cast at
the meeting, a withheld vote will not have an effect on the outcome of the
election of an individual director.
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Q:
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Can
I vote on other matters?
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A:
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We
do not expect any other matter to come before the meeting. We did not
receive any stockholder proposals by the date requested. If any other
matter is presented at the Annual Meeting, the signed proxy gives the
individuals named as proxies authority to vote the shares on such matters
at their discretion.
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Q:
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How
many votes are required to approve an amendment of the 2005 Long-Term
Incentive Plan to increase the number of available shares for awards from
3,000,000 to 4,950,000?
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A:
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An
amendment to the 2005 Long-Term Incentive Plan to increase the number of
available shares for awards from 3,000,000 to 4,950,000 is approved if the
number of shares voted in favor exceeds the number of shares voted
against.
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Q:
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How
many votes are required to ratify the appointment of
PricewaterhouseCoopers LLP as the Company’s Independent Registered Public
Accounting Firm?
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A:
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The
ratification of the appointment of the Independent Registered Public
Accounting Firm is approved if the number of shares voted in favor exceeds
the number of shares voted against.
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Important
Notice Regarding the Availability of Proxy Materials for the
Stockholders
Meeting to be Held on Friday, May 9, 2008
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The
Company’s Notice of the Annual Meeting, Proxy Statement, and the 2007
Annual Report on Form 10-K are also available at http://www.rosettaresources.com.
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- iv -
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ROSETTA
RESOURCES INC.
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717
Texas, Suite 2800
Houston,
TX 77002
PROXY STATEMENT
For
Annual Meeting of Stockholders
To
Be Held on May 9, 2008
INTRODUCTION
The
accompanying proxy, mailed together with this Proxy Statement, is solicited by
and on behalf of the Board of Directors (the “Board of Directors” or the
“Board”) of Rosetta Resources Inc., a Delaware corporation (the “Company” or
“Rosetta”), for use at the Annual Meeting of Stockholders of the Company to be
held at 9:00 a.m., local Houston time on May 9, 2008, at the Magnolia Hotel
(1100 Texas, Houston, Texas 77002), and at any adjournment or postponement
thereof. The approximate date on which this Proxy Statement and the accompanying
proxy will first be mailed to stockholders of the Company is March 25,
2008.
Shares
represented by valid proxies will be voted at the meeting in accordance with the
directions given. If no directions are given, the shares will be voted in
accordance with the recommendations of the Board of Directors unless otherwise
indicated. Any stockholder of the Company returning a proxy has the right to
revoke the proxy at any time before it is voted by communicating the revocation
in writing to Michael J. Rosinski, Secretary, Rosetta Resources Inc., 717 Texas,
Suite 2800, Houston, Texas 77002, or by executing and delivering a proxy bearing
a later date. No revocation by written notice or by delivery of another proxy
shall be effective until the notice of revocation or other proxy, as the case
may be, has been received by the Company at or prior to the
meeting.
Only
stockholders of record of the Company’s common stock at the close of business on
March 25, 2008, the record date for the meeting, are entitled to notice of and
to vote at the meeting. On that date, Rosetta had outstanding 51,505,584 shares
of common stock, each of which is entitled to one vote.
Voting
Procedures and Tabulation
Stockholders
of record of common stock of the Company may vote by signing, dating, and
returning the proxy card in the accompanying postage-paid envelope. Stockholders
whose shares of common stock of the Company are held in the name of a bank,
broker or other holder of record (that is, “street name”) will receive separate
instructions from such holder of record regarding the voting of
proxies.
Rosetta
will appoint one or more inspectors of election to act at the meeting and to
make a written report thereof. Prior to the meeting, the inspectors will sign an
oath to perform their duties in an impartial manner and according to the best of
their ability. The inspectors will ascertain the number of shares outstanding
and the voting power of each, determine the shares represented at the meeting
and the validity of proxies and ballots, count all votes and ballots, and
perform certain other duties as required by law.
The
inspectors will tabulate the number of votes cast for, or withheld from, each
matter submitted at the meeting for a stockholder vote. Votes that are withheld
will be excluded entirely from the vote and will have no effect. Under the
NASDAQ Marketplace Rules, brokers who hold shares in street name have the
discretionary authority to vote on certain “routine” items when they have not
received instructions from beneficial owners. For purposes of the 2008 Annual
Meeting, routine items include the election of directors, ratification of the
Company’s independent public accounting firm, and approval of an amendment to
the Company’s 2005 Long-Term Incentive Plan to increase the number of available
shares for awards from 3,000,000 to 4,950,000. In instances where brokers are
prohibited from exercising discretionary authority and no instructions are
received from beneficial owners with respect to such item (so-called “broker
non-votes”), the shares they hold will not be considered part of the voting
power present and, therefore, will have no effect on the vote.
- 1 -
CORPORATE GOVERNANCE AND COMMITTEES OF THE
BOARD
Board
of Directors
The Board
of Directors currently consists of six directors. Five of the six current
directors are standing for re-election. All of the Board members standing for
re-election (other than Randy L. Limbacher, the President and Chief Executive
Officer) meet the independence criteria under the Securities and Exchange
Commission (“SEC”) rules and under the NASDAQ Marketplace Rules. On March 20,
2008, G. Louis Graziadio, III informed the Board of Directors that due to his
increased time constraints, he had decided not to stand for re-election to the
Board of Directors. For this reason the number of nominees is less than the
number of director positions currently designated by the Board. You may not vote
for a greater number of persons than the number of nominees named.
The Board
will continue to evaluate possible candidates to increase the size of the Board.
Each of the Board members serves a one-year term or until such Board member’s
successor is duly elected to serve on the Board. In addition, the bylaws provide
that the authorized number of directors, which shall constitute the whole Board
of Directors, may be changed by resolution duly adopted by the Board of
Directors. Any vacancies and additional directorships resulting from an increase
may be filled by the affirmative vote of a majority of the directors then in
office, even though less than a quorum.
D. Henry
Houston became Chairman of the Board effective July 9, 2007. Randy L. Limbacher
was appointed to the Board effective November 8, 2007, shortly after he joined
the Company as President and Chief Executive Officer.
During
2007, the Board met eighteen times and acted by unanimous written consent
five times. Each of the directors attended the 2007 Annual Meeting of
Stockholders, except for Mr. Limbacher who was not a director at that time and
Mr. Graziadio. Each director attended at least 87.5% of the meetings of the
Board of Directors and its committees of which such director was a member during
the past fiscal year, either in person or by telephone.
Committees
of the Board
The Board
of Directors has established three committees: the Audit Committee, the
Compensation Committee, and the Nominating and Corporate Governance Committee.
Although we are not required to have a separate Compensation Committee, we have
determined that it is in the best interests of the Company to maintain an
independent Compensation Committee.
Audit Committee and Audit Committee
Financial Expert. The Audit Committee recommends to the Board of
Directors the independent registered public accounting firm to audit the
financial statements and oversees the annual audit. The Audit Committee also
approves any other services provided by public accounting firms. The Audit
Committee provides assistance to the Board of Directors in fulfilling its
oversight responsibility to the stockholders, the investment community and
others relating to the integrity of the financial statements, the compliance
with legal and regulatory requirements, the independent registered public
accounting firm’s qualifications and independence, and the performance of the
internal audit function. The Audit Committee oversees the system of disclosure
controls and procedures and system of internal controls regarding financial,
accounting, legal compliance and ethics that Management and the Board of
Directors have established. In doing so, it will be the responsibility of the
Audit Committee to maintain free and open communication between the Audit
Committee and the independent registered public accounting firm, the internal
accounting function and Management of the Company. Additionally, the Audit
Committee will provide oversight to the process of determining the estimated
reserves and will utilize independently engaged experts as necessary. Messrs.
Richard W. Beckler, Donald D. Patteson, Jr., Josiah O. Low III and D. Henry
Houston serve on the Audit Committee, all of whom are “independent” under the
listing standards of The NASDAQ Stock Market LLC and SEC rules.
Mr. Houston, Chairman of the Audit Committee, and Josiah O. Low III are
“Audit Committee financial experts,” as defined under the rules of the
SEC.
The Audit
Committee met twenty times and acted by unanimous written consent twice during
2007. Each member of the Audit Committee was present at all meetings, either in
person or by telephone. See the report of the Audit Committee in this Proxy
Statement. A copy of the Audit Committee’s adopted charter is posted on our
website at www.rosettaresources.com, and
may also be obtained by written request to the attention of the Secretary of the
Company at 717 Texas, Suite 2800, Houston, Texas 77002.
- 2 -
Compensation
Committee. The Compensation Committee reviews the compensation and
benefits of the executive officers, establishes and reviews general policies
related to the compensation and benefits and administers the 2005 Long-Term
Incentive Plan, as amended. Under the Compensation Committee charter, the
Compensation Committee will determine the compensation of the Chief Executive
Officer (“CEO”). Messrs. Beckler, Patteson, Low and Houston serve on the
Compensation Committee of the Board. The Chairman is Mr. Patteson. The
Compensation Committee met five times and acted by unanimous written consent
one time during 2007. Each member of the Compensation Committee was
present, either in person or by telephone, at all meetings. A copy of the
Compensation Committee’s adopted charter is posted on our website at www.rosettaresources.com, and
may also be obtained by written request to the attention of the Secretary of the
Company at 717 Texas, Suite 2800, Houston, Texas 77002.
Nominating and Corporate Governance
Committee. The Nominating and Corporate Governance Committee assists the
Board of Directors by identifying individuals qualified to become members of the
Board of Directors, consistent with its approved criteria, recommending director
nominees for election at the Annual Meeting of Stockholders or for appointment
to fill vacancies, and advising the Board of Directors about the appropriate
composition of the Board of Directors and its committees. The Committee also
develops and recommends to the Board of Directors corporate governance
principles and practices and assists in its implementing them. The Nominating
and Corporate Governance Committee is to conduct a regular review of the
corporate governance principles and practices and to recommend to the Board of
Directors any additions, amendments or other changes. The Nominating and
Corporate Governance Committee is to evaluate and make an annual report
concerning the performance of the Board of Directors, the Nominating and
Corporate Governance Committee’s performance and the Management’s performance
with respect to corporate governance matters. Messrs. Beckler, Houston, Low and
Patteson serve on the Nominating and Corporate Governance Committee of the Board
of Directors. The Chairman is Mr. Beckler. The Nominating and Corporate
Governance Committee met eight times in 2007. A copy of the Nominating and
Corporate Governance Committee’s adopted charter is posted on our website at
www.rosettaresources.com, and
may also be obtained by written request to the attention of the Secretary of the
Company at 717 Texas, Suite 2800, Houston, Texas 77002.
Corporate
Governance Guidelines, Stock Ownership Guidelines and Code of
Ethics
We are
committed to integrity, reliability and transparency in the disclosures to the
public. On August 1, 2005, the Board of Directors adopted Guidelines for
Publicity and Public Affairs Activities. On August 1, 2005, the Board of
Directors also adopted a Code of Business Conduct and Ethics. Additionally, on
September 27, 2005, the Board of Directors adopted the following as a part of
the corporate governance: a Mission Statement and Values; a Code of Business
Conduct and Ethics; Environmental, Health and Safety Mission Statement, Policy
and Process. On February 26, 2008, the Board of Directors adopted as part of the
corporate governance the Stock Ownership Guidelines for Non-Employee Directors,
attached as Appendix A, and the Stock Ownership Guidelines for Officers,
attached as Appendix B. All of the foregoing are available on our website at
www.rosettaresources.com.
These documents will also be available in print to any stockholder requesting a
copy in writing from the Secretary of the Company at 717 Texas, Suite 2800,
Houston, Texas 77002.
Director Independence. The
standards applied by the Board of Directors in affirmatively determining whether
a director is “independent” in compliance with the listing standards of NASDAQ
generally provide that a director is not independent if: (a) the
director is, or in the past three years has been, an employee of Rosetta or any
of its subsidiaries; (b) a member of the director’s immediate family is, or in
the past three years has been, an executive officer of Rosetta or any of its
subsidiaries; (c) the director or a member of the director’s immediate family
has received more than $100,000 per year in direct compensation from Rosetta or
any of its subsidiaries other than for service as a director (or for a family
member, as a non-executive employee); (d) the director or a member of the
director’s immediate family is, or in the past three years has been, employed in
a professional capacity by PricewaterhouseCoopers LLP, the Company’s independent
registered public accounting firm, or has worked for such firm in any capacity
on Rosetta’s audit; (e) the director or a member of the director’s immediate
family is, or in the past three years has been, employed as an executive officer
of a company where a Rosetta executive officer serves on the Compensation
Committee; or (f) the director or a member of the director’s immediate family is
an executive officer of a company that makes payments to, or receives payments
from, Rosetta or any of its subsidiaries in an amount which, in any twelve-month
period during the past three years, exceeds the greater of $200,000 or five
percent of the consolidated gross revenues of the company receiving the
payment.
- 3 -
The Board of Directors, applying the standards referenced
above, affirmatively determined that four of its members, Messrs. Beckler,
Patteson, Houston, and Low, constituting a majority of the Board, are
independent for Board membership purposes. The Board of Directors also
determined that all members of the Audit Committee, Compensation Committee, and
Corporate Governance and Nominating Committee are independent.
Independent Directors. At
various times in 2007, the non-management independent directors met outside of
the presence of the one non-management director who does not satisfy the NASDAQ
and SEC independence criteria, the management directors, and other members of
the management team. The Audit Committee meets with the registered public
accountant, and then without anyone else present.
Non-executive Chairman. Mr.
Houston serves as the Chairman of the Board of Directors in a non-executive
officer capacity. As the Chairman of the Board of Directors, Mr. Houston has
several responsibilities including setting board meeting agendas in
collaboration with the Chief Executive Officer, presiding at board meetings,
executive sessions, and assigning tasks to committees. Stockholders may
communicate with Mr. Houston by writing to the Chairman of the Board, c/o
Corporate Secretary, Rosetta Resources Inc., 717 Texas, Suite 2800, Houston,
Texas 77002.
Executive Sessions. In 2007,
the non-management directors met five times in executive session, outside of the
presence of management directors or other members of management.
Board Composition. The
Nominating and Corporate Governance Committee is responsible for reviewing the
requisite skills and characteristics of new Board members as well as the
composition of the Board as a whole. The Committee believes that the minimum
qualifications for serving as a director are that a nominee demonstrate an
ability to make a meaningful contribution to the Board’s oversight of the
business and affairs and have a reputation for ethical conduct. Nominees for
director will include individuals who, taking into account their diversity,
skills, and experience in the context of the needs of the Board, as well as
other relevant factors such as conflicts of interest and other commitments,
would enhance the Board’s ability to manage and direct the affairs and business.
We have not established term limits as we do not wish to risk losing the
contribution of directors who will be able to develop, over a period of time,
increasing insight into the business and operations.
The
Committee identifies candidates by asking the current directors and executive
officers to notify the Committee if they become aware of individuals who meet
the criteria described above. The Committee has the sole authority to engage
firms that specialize in identifying director candidates. The Committee recently
engaged Preng & Associates in this regard. The Committee will also consider
candidates recommended by stockholders. After the Committee has identified a
potential candidate, it collects and reviews available information regarding the
individual, and if the Committee determines that the candidate warrants further
consideration, the Committee Chairman or another Committee member will contact
the person. Generally, if the individual expresses a willingness to be
considered for election to the Board, the Committee will request information
from the candidate, review the individual’s qualifications, engage a third party
to conduct a background investigation, and conduct one or more interviews with
the candidate. When the Committee has completed this process, it tenders its
recommendation to the full Board for consideration.
Responsibility
of Nominating and Corporate Governance Committee
The
Nominating and Corporate Governance Committee shall prepare and recommend to the
Board for adoption appropriate corporate governance principles and practices.
Each year, this Committee shall:
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Review
the advisability or need for any changes in the number and composition of
the Board;
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Review
the advisability or need for any changes in the number, charters, titles
of, or composition of the committees of the
Board;
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Recommend
to the Board the composition of each committee of the Board and the
individual director to serve as chairman of each
committee;
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Require
each chairman of each committee to report to the Board about the
committee’s annual evaluation of its performance and evaluation of its
charter;
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Receive
comments from all directors and report to the Board with an assessment of
the Board’s performance, to be discussed with the full Board following the
end of each fiscal year;
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- 4 -
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Develop,
review and reassess the adequacy of the Company’s corporate governance
principles and practices and recommend any proposed changes to the Board
for its approval;
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§
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Make
a report to the Board on succession planning and work with the Board to
evaluate potential successors to the CEO;
and
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§
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Reevaluate
the performance of the Nominating and Corporate Governance Committee and
make a report to the full Board.
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Board’s Interaction
with Stockholders. The CEO and other corporate officers are
responsible for establishing effective communications with the stockholders. In
accordance with this policy, management speaks for the Company. This policy does
not preclude independent directors from meeting with stockholders, but where
appropriate, management should be present at such meetings. Stockholders may
submit communications to directors by writing to the Secretary of the Company at
the executive offices set forth in this Proxy Statement under “Stockholder
Communications with the Board of Directors”.
Business Conduct and Ethics.
The Code of Business Conduct and Ethics requires all of the directors,
officers and employees to adhere to certain basic principles to uphold the
mission to maximize value creation through excellence and innovative leadership.
The Code requires them to comply with the law, avoid conflicts of interest,
compete fairly and honestly, maintain a safe and healthy work environment, and
preserve company assets. The guiding values are honesty, integrity and quality
in all that we do. We do not presently believe that there would be any occasion
requiring any changes in or waivers under the Code, but in the event of
exceptional circumstances in which such a change or waiver becomes necessary, it
would require Board approval and, where appropriate, prompt public disclosure,
which we would provide on our website. This includes specific compliance
procedures and a mechanism for reporting violations to a supervisor, the manager
of the Internal Audit Department, or to the General Counsel. We have established
an “ethics hotline” for employees to use and a procedure for maintaining secrecy
of names with respect to an employee reporting a violation of the Code of
Business Conduct and Ethics. You can access the Code of Business Conduct and
Ethics on our website at www.rosettaresources.com.
You may also obtain a copy of the Code by written request to the attention of
the Secretary of the Company at 717 Texas, Suite 2800, Houston, Texas
77002.
VOTING
SECURITIES
Only
holders of record of common stock of the Company, par value $0.001 per share, at
the close of business on March 25, 2008, the record date for the Annual Meeting,
are entitled to notice of, and to vote at, the meeting. A majority of the shares
of common stock entitled to vote, present in person or represented by proxy, is
necessary to constitute a quorum. Abstentions and broker non-votes on filed
proxies and ballots are counted as present for establishing a quorum. On the
record date for the Annual Meeting, there were issued and outstanding
51,505,584 shares of common stock. Each share of common stock is entitled
to one vote.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following tabulation sets forth as of March 25, 2008 information with respect to
the only persons who were known to the Company to be beneficial owners of more
than five percent of the outstanding shares of common stock of the Company. The
information below is based on the Company’s review of Schedules 13D or 13G on
file with the SEC, responses to stockholder questionnaires delivered to the
Company in connection with the private offering of common stock completed in
July 2005 in conjunction with Rosetta’s separation from Calpine, and current
records maintained by the Company’s transfer agent.
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of
Class
|
|
First
Pacific Advisors, LLC
11400
West Olympic Blvd., Suite 1200
Los
Angeles, California 90064
|
8,630,900(1)
|
16.9%
|
|
(1)
|
First
Pacific Advisors, LLC may be deemed to share voting and dispositive
control over the shares or common stock owned by FPA Capital Fund, Inc.
(4,455,800 shares). In addition, two managing members of First Pacific
Advisors, LLC, Robert L. Rodriquez and J. Richard Atwood, each
individually own 132,500 and 65,000, respectively, may be deemed to
beneficially own shares outside of the First Pacific Advisors, LLC benefit
ownership investments.
|
- 5 -
PROPOSAL
1
As of the
date of this Proxy Statement, the Company’s Board of Directors consists of six
directors, five of those directors will stand for election, and four of those
five are independent. On March 20, 2008, G. Louis Graziadio, III informed the
Board of Directors that due to his increased time constraints, he had decided
not to stand for re-election to the Board of Directors. Information regarding
the business experience of each nominee is provided below. All directors are
elected annually to serve until the next Annual Meeting and until successors are
elected. You are being asked to elect five members to the Board of Directors.
You may not vote for a greater number of persons than the number of nominees
named.
Directors
are elected by plurality vote of the shares present at the Annual Meeting,
meaning that the director nominee with the most affirmative votes for a
particular slot is elected for that slot. The proxyholders will vote in favor of
the five persons listed below unless contrary instructions are
given.
If you
sign the proxy card but do not give instructions with respect to the voting of
directors, the shares will be voted for the five persons recommended by the
Board of Directors. If you wish to give specific instructions with respect to
the voting of directors, you must do so with respect to the slate of five
persons who will be voted upon at the Annual Meeting prior to the Annual
Meeting.
The Board
of Directors expects that all of the nominees will be available to serve as
directors as indicated. In the event that any nominee should become unavailable,
however, the proxyholders will vote for a nominee or nominees who would be
designated by the Board of Directors unless the Board of Directors chooses to
reduce the number of directors serving on the Board of Directors.
COMPANY
NOMINEES FOR DIRECTOR
D. Henry Houston, age 68, has
served as Director of Rosetta Resources Inc. since July 2005. On July 9, 2007,
Mr. Houston was appointed as the Chairman of the Board. Since 2002,
Mr. Houston has been Executive Vice President and Chief Financial Officer
of Remote Knowledge, Inc., a publicly owned development stage company offering
communication services for marine pleasure craft. From 1995 to 2002, he served
as Executive Vice President and Chief Financial Officer of T.D. Rowe Amusements,
a private company operating approximately 25,000 vending and amusement devices.
Mr. Houston also previously worked as an oil and gas consultant and served
as President of KP Explorations Inc., Chairman of the Board of Magee Poole
Drilling, President of Black Hawk Oil Company, Chief Financial Officer of
C&K Petroleum, and Vice President, Chief Financial Officer, and Director of
Southdown Inc. Earlier in his career, he worked with Price Waterhouse and with
Detsco, Inc. Mr. Houston serves on the Board of Directors of Remote
Knowledge, Inc.
Randy L. Limbacher, age 49,
joined Rosetta Resources Inc. on November 1, 2007. Mr. Limbacher is a
director of the Company and is its President and Chief Executive Officer.
Previously, Mr. Limbacher served as President, Exploration and Production –
Americas for ConocoPhillips, and had responsibility in this position for all
exploration and production activities in the Western Hemisphere.
Mr. Limbacher joined ConocoPhillips with its April 2006 acquisition of
Burlington Resources, an organization with which he had spent over twenty years.
At Burlington, Mr. Limbacher held a series of increasingly responsible
positions, including his role at the time of the acquisition of Executive Vice
President, Chief Operating Officer and Director. Early in his career, he served
in engineering roles with Conoco and Mobil/Superior Oil. Mr. Limbacher has
27 years of experience in the exploration and production business, both
domestically and internationally. He holds a B.S. in Petroleum Engineering from
Louisiana State University. Mr. Limbacher serves on the Board of
Directors of CARBO Ceramics Inc.
Richard W. Beckler, age 67,
has served as Director of Rosetta Resources Inc. since July 2005. Since 2003,
Mr. Beckler has served as a partner in the global litigation group of the
law firm of Howrey LLP. From 1979 to 2003, he served as a partner for the law
firm of Fulbright & Jaworski, and at the end of his tenure was a partner
heading the litigation group in Washington, D.C. Mr. Beckler also served as
a section chief in the Criminal Fraud Section of the U.S. Department of Justice,
and as an assistant district attorney in the Manhattan District Attorney’s
office.
- 6 -
Donald D. Patteson, Jr., age
62, has served as Director of Rosetta Resources Inc. since July 2005.
Mr. Patteson is the founder and Chief Executive Officer of Sovereign
Business Forms, Inc. a consolidator in the wholesale manufacturing of custom
business forms and related products segment of the printing industry. Prior to
founding Sovereign in August 1996, he served as Managing Director of Sovereign
Capital Partners, an investment firm specializing in leveraged buyouts.
Mr. Patteson also previously served as President and Chief Executive
Officer of WBC Holdings, Inc., and President and Chief Executive Officer of
Temple Marine Drilling, Inc./R.C. Chapman Drilling Co., Inc., and President,
Chief Executive Officer and Director of Temple Drilling. Mr. Patteson also
worked with Atwood Oceanics, Houston Offshore International, Western Oceanic and
Arthur Andersen’s management consulting practice earlier in his
career.
Josiah O. Low III, age 68, is
currently a Venture Partner of Catterton Partners (a Greenwich, Connecticut
private equity firm). Prior to Catterton Partners, Mr. Low served as Senior
Advisor at Credit Suisse First Boston, and was a Managing Director of Donaldson,
Lufkin, and Jenrette (“DLJ”). Preceding his position at DLJ, Mr. Low was a
founding Managing Director of Merrill Lynch Capital Markets Group. He has
investment banking experience in the oil and gas finance sector throughout the
United States including involvement with Mesa Petroleum, Houston Oil &
Minerals, Big Three Industries, Centex Oil & Gas, and various drilling
funds. Mr. Low is a graduate of Williams College. He serves on the Board of
Directors of The CoStar Group (NASDAQ), as well as Audubon Connecticut’s Board
of Directors and Petroleum Place, a privately owned service company to the oil
and gas industry.
The
Company has not received stockholder recommendations for a nominee for director
for consideration at the 2008 Annual Meeting of Stockholders. To be considered
for the 2009 Annual Meeting of Stockholders, stockholder recommendations for
director must be submitted to the Company no later than December 1, 2009.
Stockholder recommendations of individuals for consideration as a nominee for
director should be submitted in writing to the attention of the Corporate
Secretary, 717 Texas, Suite 2800, Houston, Texas 77002. The recommendations must
include:
|
1.
|
The
name, address, telephone number and comprehensive biography of the nominee
and an explanation of why the nominee is qualified to serve as a
director;
|
|
2.
|
The
name, address, telephone number of the stockholder or stockholder group
making the recommendation, proof of ownership, number of shares, and
length of time of ownership, and a representation that the stockholder or
group is entitled and will remain entitled to vote at the Company’s next
annual meeting; and
|
|
3.
|
A
letter in writing from the individual being recommended of his or her
willingness to serve, if elected as a
director.
|
The
Board of Directors unanimously recommends a vote FOR the election of each of the
Board’s nominees.
INFORMATION
CONCERNING THE BOARD OF DIRECTORS
Compensation
of Directors
Effective
after their election at the Annual Meeting of Stockholders, we pay each of the
non-employee directors an annual retainer which is currently set at $35,000. In
addition, the Chairman of the Audit Committee is currently paid an annual
retainer of $15,000, the Chairman of the Compensation Committee is currently
paid an annual retainer of $10,000, and the Chairman of the Nominating and
Corporate Governance Committee is currently paid an annual retainer of $5,000.
Non-employee directors are currently paid an attendance fee of $1,500 for each
Board Meeting attended in person, an attendance fee of $1,000 for each committee
meeting attended in person (except for attendance at meetings of the Audit
Committee, for which the director is currently paid $1,250), and an attendance
fee of $1,000 for each Board or committee meeting attended telephonically. We
will reimburse all directors for reasonable expenses incurred while attending
Board and committee meetings. Directors may take an annual physical examination
at the Company’s expense.
Any
non-employee director may elect to receive a grant of shares of the Company’s
common stock in lieu of the annual retainer fees as a Board member and/or
Chairman. The number of shares is determined by dividing the fee amount by the
fair market value (the average of the high and low trading price) of the common
stock on the day of the Annual Meeting of Stockholders.
- 7 -
Upon
joining the Board, each of the non-employee directors received (1) fully vested
options to purchase 10,000 shares of the common stock for a ten-year term at an
exercise price equal to the fair market value (average of high and low trades)
on the date of grant, and (2) a grant of 1,800 shares of restricted stock, with
vesting to occur in three installments: 25% one year after the date of grant, an
additional 25% two years after grant and the remaining 50% three years after the
date of grant. For Messrs. Beckler, Houston and Patteson, those grants were made
on August 1, 2005; and for Mr. Low, December 15, 2006.
In
addition, upon each initial election or reelection to the Board at the Annual
Meeting of Stockholders, each director receives (a) a fully vested option to
purchase 5,000 shares of the common stock for a ten-year term at a price equal
to the fair market value on the date of the Annual Meeting of Stockholders, and
(b) a grant of 3,500 shares of restricted stock, with vesting to occur in three
installments: 25% one year after the date of grant, an additional 25% two years
after grant, and the remaining 50% three years after the date of grant. Messrs.
Beckler, Houston and Patteson each received grants as described in this
paragraph upon their elections at the 2006 and 2007 Annual Meetings of
Stockholders Meetings; Mr. Low received a grant as described in this paragraph
at the 2007 Annual Meeting of Stockholders. If elected at the 2008 Annual
Meeting of Stockholders, each reelected director would receive grants as
described in this paragraph.
Mr.
Limbacher receives no separate compensation for service on the Board of
Directors, nor will any other officers, if any, who serve as directors in the
future, receive separate compensation. See “Executive Officer and Director
Compensation Table – Director Compensation Table” for more information on
director compensation paid for fiscal year 2007.
Compensation Committee Interlocks and Insider
Participation
At
December 31, 2007, the members of the Compensation Committee were Messrs.
Beckler, Patteson, Houston, and Low. Mr. Patteson is the Chairman of the
Compensation Committee. No member of the Compensation Committee was an officer
or employee of the Company at any time during 2007.
During
2007, no executive officer or employee of the Company served as (i) a member of
the Compensation Committee (or other Board Committee performing equivalent
functions) of another entity, one of whose executive officers served on the
Compensation Committee of our Board of Directors; (ii) a director of another
entity, one of whose executive officers served on the Compensation Committee of
our Board of Directors; or (iii) a member of the Compensation Committee (or
other Board Committee performing equivalent functions) of another entity, one of
whose executive officers served as a director of our Company.
- 8 -
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE
OFFICERS
The
following tabulation sets forth, as of March 25, 2008, the shares of common
stock beneficially owned by each nominee director, each named executive officer
listed in the Summary Compensation Table included elsewhere in this Proxy
Statement, and all nominee directors and named executive officers as a
group.
|
Common
Stock
Beneficially
Owned(1)
|
||
|
Name
|
Number
of
Shares
|
Percent
of
Class
|
|
Directors
|
||
|
Randy
L. Limbacher
|
392,271 (2)
|
*
|
|
Richard
W. Beckler
|
31,000 (3)
|
*
|
|
G.
Louis Graziadio, III
|
29,850 (4)
|
*
|
|
D.
Henry Houston
|
31,550 (5)
|
*
|
|
Josiah
O. Low III
|
26,223 (6)
|
*
|
|
Donald
D. Patteson, Jr.
|
31,800 (7)
|
*
|
|
Executive
Officers (excluding any director named above)
|
||
|
Michael
J. Rosinski
|
110,700 (8)
|
*
|
|
Charles
F. Chambers
|
96,286 (9)
|
*
|
|
Michael
H. Hickey
|
65,220
(10)
|
*
|
|
Edward
E. Seeman
|
61,303
(11)
|
*
|
|
Jackie
C. Driskill
|
43,710
(12)
|
*
|
|
John
D. Clayton
|
30,000
(13)
|
*
|
|
Denise
D. Bednorz
|
25,617
(14)
|
*
|
|
Gerald
L. Maxwell
|
27,456
(15)
|
*
|
|
All
directors and named executive officers as a group (13
persons)
|
972,986
|
**
|
|
|
*
Less than one percent.
|
|
|
**
Less than two percent.
|
|
(1)
|
Unless
otherwise indicated, all shares are directly held with sole voting and
investment power.
|
|
(2)
|
Represents
(i) 290,171 restricted shares of common stock, with restrictions to lift
on various dates through November 2012, provided that Mr. Limbacher is
continuously employed by the Company or an affiliate until such dates, and
(iii) 102,100 shares of common stock underlying fully vested
options.
|
|
(3)
|
Represents
(i) 3,975 shares of unrestricted common stock, (ii) 7,025 restricted
shares of common stock, with restrictions to lift on various dates through
May 2010, provided (generally) that Mr. Beckler continues board service
with the Company until such dates, and (iii) 20,000 shares of common stock
underlying fully vested options.
|
- 9 -
|
(4)
|
Represents
(i) 2,375 shares of unrestricted common stock, (ii) 7,475 restricted
shares of common stock, with restrictions to lift on various dates through
May 2010, provided (generally) that Mr. Graziadio continues board service
with the Company until such dates, and (iii) 20,000 shares of common stock
underlying fully vested options.
|
|
(5)
|
Represents
(i) 4,525 shares of unrestricted common stock, (ii) 7,025 restricted
shares of common stock, with restrictions to lift on various dates through
May 2010, provided (generally) that Mr. Houston continues board service
with the Company until such dates, and (iii) 20,000 shares of common stock
underlying fully vested options.
|
|
(6)
|
Represents
(i) 6,373 shares of unrestricted common stock, (ii) 4,850 restricted
shares of common stock, with restrictions to lift on various dates through
May 2010, provided (generally) that Mr. Low continues board service with
the Company until such dates, and (iii) 15,000 shares of common stock
underlying fully vested options.
|
|
(7)
|
Represents
(i) 4,775 shares of unrestricted common stock, (ii) 7,025 restricted
shares of common stock, with restrictions to lift on various dates through
May 2010, provided (generally) that Mr. Patteson continues board service
with the Company until such dates, and (iii) 20,000 shares of common stock
underlying fully vested options.
|
|
(8)
|
Represents
(i) 48,500 shares of unrestricted common stock, (ii) 29,000 restricted
shares of common stock, with restrictions to lift on various dates through
January 2011, provided that Mr. Rosinski is continuously employed by the
Company or an affiliate until such dates, and (iii) 33,200 shares of
common stock underlying fully vested
options.
|
|
(9)
|
Represents
(i) 33,786 shares of unrestricted common stock, (ii) 29,000 restricted
shares of common stock, with restrictions to lift on various dates through
January 2011, provided that Mr. Chambers is continuously employed by the
Company or an affiliate until such dates, and (iii) 33,500 shares of
common stock underlying fully vested
options.
|
|
(10)
|
Represents
(i) 13,158 shares of unrestricted common stock, (ii) 23,000 restricted
shares of common stock, with restrictions to lift on various dates through
January 2011, provided that Mr. Hickey is continuously employed by the
Company or an affiliate until such dates, and (iii) 29,062 shares of
common stock underlying fully vested
options.
|
|
(11)
|
Represents
(i) 24,803 shares of unrestricted common stock, (ii) 6,000 restricted
shares of common stock, with restrictions to lift on various dates through
January 2010, provided that Mr. Seeman is continuously employed by the
Company or an affiliate until such dates, and (iii) 30,500 shares of
common stock underlying fully vested
options.
|
|
(12)
|
Represents
(i) 9,960 shares of unrestricted common stock, (ii) 12,750 restricted
shares of common stock, with restrictions to lift on various dates through
January 2011, provided that Mr. Driskill is continuously employed by the
Company or an affiliate until such dates, and (iii) 21,000 shares of
common stock underlying fully vested
options.
|
|
(13)
|
Represents
(i) 12,000 restricted shares of common stock, with restrictions to lift on
various dates through April 2011, provided that Mr. Clayton is
continuously employed by the Company or an affiliate until such dates, and
(ii) 18,000 shares of common stock underlying fully vested
options.
|
|
(14)
|
Represents
(i) 4,617 shares of unrestricted common stock, (ii) 11,250 restricted
shares of common stock, with restrictions to lift on various dates through
January 2011, provided that Ms. Bednorz is continuously employed by the
Company or an affiliate until such dates, and (iii) 9,750 shares of common
stock underlying fully vested
options.
|
|
(15)
|
Represents
(i) 4,516 shares of unrestricted common stock, (ii) 12,440 restricted
shares of common stock, with restrictions to lift on various dates through
January 2011, provided that Mr. Maxwell is continuously employed by the
Company or an affiliate until such dates, and (iii) 10,500 shares of
common stock underlying fully vested
options.
|
|
Name
|
Age
|
Position
|
|
|
Michael
J. Rosinski
|
63
|
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
|
|
Charles
F. Chambers
|
57
|
Executive
Vice President, Corporate Development
|
|
|
Michael
H. Hickey
|
53
|
Vice President and General Counsel | |
- 10
-
| Name | Age | Position | |
|
Edward
E. Seeman
|
60
|
Vice
President, Northern Division
|
|
|
John
D. Clayton
|
44
|
Vice
President, Asset Operations
|
|
|
Denise
D. Bednorz
|
50
|
Vice
President and Controller
|
|
|
J.
Chad Driskill
|
43
|
Vice
President, Marketing and Business Development
|
|
|
Gerald
L. Maxwell
|
54
|
Vice
President of Human Resources
|
|
Michael J. Rosinski, age 63,
has served as Executive Vice President, Chief Financial Officer, Treasurer and
Secretary of Rosetta Resources Inc. since July 2005. Prior to joining the
Company, Mr. Rosinski served as Executive Vice President and Chief
Financial Officer of Rosetta Resources Operating LP (formerly known as Calpine
Natural Gas L.P.). Prior to that Mr. Rosinski served as Chief Financial
Officer of Power Medical Products from July 2004 through May 2005, and was
Senior Vice President and Chief Operating Officer of Municipal Energy Resources
Corporation from 1997 to 2004. Previously, he held positions as Senior Vice
President and Chief Financial Officer of Santa Fe Energy and held a number of
positions at Tenneco. Mr. Rosinski holds a Masters degree in Business
Administration from Tulane University and a Bachelors degree in Mechanical
Engineering from Georgia Tech. He has over 35 years of experience in energy
financing, financial management and controls, planning and investor relations in
energy and related industries.
Charles F. Chambers, age 57,
has served as Executive Vice President, Corporate Development of Rosetta
Resources Inc. since June 2005. Prior to joining the Company and since February
2005, Mr. Chambers served as Vice President of Business Development and
Land for Rosetta Resources Operating LP (formerly known as Calpine Natural Gas
L.P.). Prior to that in March 2002, he founded Buena Vista Oil & Gas for the
purpose of acquiring domestic oil and gas assets, and he served as its Managing
Director. Mr. Chambers served as Vice President, Business Development for
Rosetta Resources Operating LP from October 1999 until March 2002.
Mr. Chambers served as Vice President, Corporate Development of Sheridan
Energy from 1997 until 1999 when Sheridan was acquired by Calpine. Prior to
these assignments, Mr. Chambers was Land Manager at C&K Petroleum Inc.
and later founded Chambers Oil & Gas, Inc., an independent operator active
in the Texas-Louisiana Gulf Coast. Mr. Chambers has 33 years of experience
in the oil and gas industry.
Michael H. Hickey, age 53, has
served as Vice President and General Counsel of Rosetta Resources Inc. since
August 2005. Mr. Hickey has previous experience in the role as general
counsel having served as Vice President Law and Secretary of Technip Offshore
Inc., from April 2004 through July 2005. He served as Vice President and
Managing Counsel for Calpine’s North American E&P and midstream group. He
served as Vice President, General Counsel and Secretary of Kosa B.V. from
December 1998 until August 2000. He holds a Bachelors of Arts degree and J.D.
both from the University of Tennessee and has been a practicing lawyer for 28
years.
Edward E. Seeman, age 60, has
served as Vice President, Northern Division, of Rosetta Resources Inc. since
July 2005. Prior to joining the Company, Mr. Seeman served as Director,
Reservoir Engineering since April 2001 for Rosetta Resources Operating LP
(formerly known as Calpine Natural Gas L.P.). Previously, he held a number of
positions with Forest Oil Corporation beginning in 1974. He holds a Bachelors
degree in Petroleum Engineering from the University of Oklahoma and has over 32
years of reservoir engineering experience in the oil and gas
industry.
John D. Clayton, age 44, has
served as Vice President, Asset Operations since March 24,
2008. Prior to joining the Company Mr. Clayton was Manager, Lower 48
Business Development for ConocoPhillips, Inc. Mr. Clayton became employed
with ConocoPhillips in 2006 as a result of ConocoPhillip’s merger with
Burlington Resources Inc. Mr. Clayton was employed with Burlington
Resources Inc. from 1986 through 2004, where he held various positions including
Director of Worldwide Acquisition and Divestitures. Mr. Clayton has a
Bachelors of Science degree in petroleum engineering from Louisiana State
University and has over 20 years experience in the industry in asset management,
reservoir engineering, production engineering and drilling
engineering.
- 11 -
Denise D. Bednorz, age 50, has
served as Vice President and Controller of Rosetta Resources Inc. since July
2005. Prior to joining the Company, Ms. Bednorz served as an independent
accounting consultant since January 2002, with audit responsibilities in various
public and private industries including oil and gas, retail and manufacturing,
working on special projects with companies such as Western Atlas International,
Deloitte & Touche and El Paso Energy Corporation. Prior to that, she was
with Team, Inc. as Assistant Controller, and held financial accounting and
management positions at Sonat Offshore Drilling, Inc. and Enterprise Capital
Corporation. Ms. Bednorz is a cum laude graduate of Texas A&M
University, and has over 23 years of accounting experience.
J. Chad Driskill, age 43, has
served as Vice President, Marketing and Business Development of Rosetta
Resources Inc. since July 2005. At Rosetta, Mr. Driskill is responsible for
both physical and financial commodity marketing and trading, as well as
supporting mergers and acquisition activity for the Company. Prior to joining
Rosetta, Mr. Driskill spent ten years at Calpine Corporation holding a
number of positions in energy trading, business development, and risk management
at both Calpine Corporation and Calpine Energy Services. Prior to Joining
Calpine, Mr. Driskill spent five years at LFC Financial Corp as Director of
Gas Trading. Mr. Driskill has over 20 years experience in the energy
trading, oil and gas, and power generation industries.
Gerald
L. Maxwell,
age 54, is the Vice President of Human Resources. Mr. Maxwell joined
the Company in May 2005 as an independent consultant. In November 2005, he
became the General Manager of Human Resources, and April 2007 he became Vice
President of Human Resources. Previously, Mr. Maxwell was Vice President of
Human Resources for several of El Paso Corporation’s business units, both
domestic and international. Prior to El Paso’s acquisition of Tenneco, he was
director of human resources for Tenneco Energy. Mr. Maxwell has also held
human resources positions at Quintana Petroleum, Anadarko Petroleum, Coastal
Corporation, and in the financial industry. He holds dual Bachelors degrees in
management and economics from Houston Baptist University, and has over 29 years
human resources experience in the energy industry.
- 12
-
Overview
of Compensation Philosophy
Rosetta
compensates management through a mix of base salary, bonus and equity grants
with the objectives of attracting and retaining key executive officers critical
to long-term success, compensating those executive officers fairly and
competitively for responsibility and accomplishment, and aligning management's
incentives with the long-term interests of its stockholders. In recent years,
the hydrocarbon exploration and production business has become an increasingly
competitive marketplace for talent. Rosetta’s management and directors believe
that the underlying fundamentals that have created this intense competition for
people – high worldwide demand for energy, supplies that are increasingly
difficult and expensive to find and produce, and relatively limited numbers of
college students pursuing undergraduate degrees in the geosciences – will remain
in place for the foreseeable future. While these fundamentals will make
attracting and retaining experienced energy executives an ongoing challenge, we
believe that our historical approach remains valid - base salary levels should
generally be set at the middle of Rosetta’s competitive marketplace for
comparable positions, and above-market total compensation should be achieved in
the aggregate through the annual performance bonus program and through stock
price appreciation.
Rosetta
has designed its compensation to reward (1) corporate performance in several key
metrics, and (2) stock price appreciation. Prior to 2008, the annual
performance bonus program was designed to pay out based on Company performance
in four areas: production volumes, reserves added, finding costs and
EBITDA. For 2008, we added Lifting & Operating/Workover/G&A expenses as
a fifth area upon which to base our Company performance. At the executive level,
the bonus paid to the President and CEO is completely dependent on corporate
performance in these areas, while payment to the other officers is currently
tied 80% to the corporate performance goals and 20% to individual performance in
their areas of responsibility.
To ensure
that employees are focused on stock price appreciation, the Company has made all
of its employees stockholders through grants of equity in the form of restricted
stock. For executive management, a mix of restricted stock and non-qualified
stock options has been used to ensure additional emphasis on stock price
appreciation.
The
Compensation Process
The Role of the Compensation
Committee of the Board of Directors. The Compensation Committee of the
Company’s Board of Directors is required to be composed of at least three
independent directors, and this was the case for the first four months of 2007.
A fourth independent director was added in May, 2007, and the Compensation
Committee has been composed of four independent directors since that time. As
part of its stated purpose in its charter (which can be found in full on our
website at www.rosettaresources.com),
the Compensation Committee “will assist the Board of Directors of Rosetta
Resources Inc. (the “Company”) in discharging its responsibilities relating to
compensation of the Company's executive officers and the members of the Board.
The Compensation Committee has overall responsibility for approval, evaluation
and oversight of all compensation plans, policies and programs of the
Company.” Several of its stated responsibilities in support of this
purpose are annually to:
|
·
|
Review
and make recommendations to the Board with respect to general compensation
policies of the Company with respect to all officers and
directors;
|
|
·
|
Review
and approve, for the executive officers of the Company, (a) the annual
base salary level, (b) the award of stock options, (c) awards under other
incentive compensation plans and equity-based plans, (d) employment
agreements, severance arrangements, and change-in-control
agreements/provisions, in each case as, when and if appropriate, and (e)
any special or supplemental benefits;
and
|
|
·
|
Review
and approve the corporate goals and objectives relevant to the
compensation of the executive officers and evaluate the executive
officers' performance in light of these goals and objectives, and
recommend to the Board the compensation levels based on this
evaluation.
|
Both the
President and CEO and the Vice President, Human Resources may advise the
Committee in the discharge of these responsibilities by suggesting programs,
practices, and specific actions affecting executive officers other than the
President and CEO himself. However, other executive officers do not play a part
in the process of setting executive compensation.
In 2007,
the Compensation Committee met five times, met in executive session during three
of those five meetings, and acted by unanimous written consent one
time.
- 13 -
Review of Compensation Philosophy and
Determination of Targeted Overall Compensation. To assist the Company in
developing its compensation philosophy and in establishing “targeted overall
compensation” - i.e., the aggregate level of compensation that we will pay if
performance goals are deemed to have been fully met – the Compensation Committee
in August 2007 engaged Longnecker & Associates (“Longnecker”), a nationally
recognized compensation consulting firm with experience in the exploration and
production business. The Compensation Committee asked Longnecker to perform a
study of the compensation of executive management at the Company and at 12
comparable companies based on factors that included market capitalization,
revenues, geographic focus and skill requirements for executive positions.
Companies were only considered comparable if they were at least half as large,
and no more than twice as large as Rosetta in two of the following three
categories: market capitalization, annual revenues, and asset size.
The selected comparable companies for 2007 were:
Atlas
America, Inc.
ATP Oil
& Gas Corp.
Berry
Petroleum Co.
Bill
Barrett Corp.
Bois
d’Arc Energy, Inc.
Clayton
Williams Energy, Inc.
Comstock
Resources, Inc.
Energy
Partners, Ltd.
Linn
Energy, LLC.
McMoran
Exploration Company
Petroquest
Energy, Inc.
Swift
Energy Company
The
Compensation Committee regularly reviews and refines the list of comparable
companies as appropriate.
Compensation
studies that are limited to a review of peer-company proxy statements will cover
in detail only those individuals for whom compensation information is disclosed
publicly, which generally include only the five most highly compensated officers
at each company. As a result, Longnecker used additional data from other broad
executive compensation surveys to more fully develop targeted overall
compensation levels for all of the executive officers.
Longnecker
was engaged independently by the Compensation Committee. Whether Longnecker
continues to provide consulting services in the area of executive compensation
will be a decision reached independently by the Compensation Committee.
Longnecker performs no other consulting services for the Company, with the
exception of advising in the preparation of this Compensation Discussion and
Analysis.
The
Compensation Committee can be expected to review annually the levels of each
element of executive compensation and to recommend to the Board that changes be
implemented as necessary in line with the compensation philosophy.
After receiving the results of the
Longnecker study and reviewing the Company’s compensation philosophy against the
actual practices of the selected comparable companies, the Compensation
Committee determined that the elements of targeted overall compensation for
management (and, in fact, the Company’s entire workforce) should continue to
include (1) base salary, (2) a bonus plan with payouts (if any) to be based on
performance, and (3) equity.
Base Salaries. Rosetta
provides its executive officers with assured cash compensation in the form of a
base salary that is generally near the average of its marketplace. The base
salaries paid to top executive officers at year-end 2007 are shown in the
Summary Compensation Table.
The
previous President and CEO of the Company left the organization in July 2007,
and a search was undertaken for his replacement. As candidates were identified
and interviewed, the directors concluded that attracting and retaining the ideal
candidate would require a departure from its philosophy of paying a base salary
at or near the average of our peer group. If we were to attract a new President
and CEO who could take the Company to the next level, we would have to pay a
base salary that would be more consistent with a similar position at a company
larger than those in our peer group. As such, we agreed upon a compensation
package for Randy L. Limbacher,
- 14 -
Given Mr.
Limbacher’s arrival at the Company in late 2007, he and the Committee agreed to
postpone consideration of changes to base salaries for the existing executive
officers until he had time to evaluate the organizational structure and
incumbents, and as such did not agree to base salary adjustments until the
Board’s regularly scheduled meeting on January 31, 2008.
The
Compensation Committee expects to continue to review executive base salaries
annually and to recommend changes as appropriate.
Incentive Bonus. Incentive
bonuses are a critical part of the Company’s compensation philosophy. Bonuses
may be earned if the Company achieves its objectives in key performance metrics
as discussed below. Bonuses actually paid in 2007 as a result of 2006
performance are shown in the Summary Compensation Table; bonus targets for 2007
performance were paid in March 2008. Bonus targets for 2007 performance were set
as a percentage of base salary after review of the Longnecker study in late
2006, and were 100% for the President and CEO, 60% for the executive vice
presidents, and 40% for the vice presidents. The results of the 2007 Longnecker
study suggested that the targets for executive officers other than the President
and CEO should be adjusted upward to remain competitive with similar positions
at the Company’s competitors, and those targets were changed to be effective
beginning in the 2008 performance year. The new targets range from 50% to 75% of
base salary.
Although the Company reserves the right
to add or delete corporate performance metrics for the bonus plan in the future,
the metrics for 2007 were production volumes, reserves added, finding costs and
EBITDA. For 2008 performance we will add a fifth metric: Lifting &
Operating/Workover/G&A Expenses. Production volumes and reserves added were
weighted to constitute 30% each of the available bonus pool, while finding costs
and EBITDA were weighted 20% each. In the 2008 performance year, each of the
five metrics will be considered to have equal weightings. The bonus payout for
the President and CEO is fully dependent on achievement of corporate objectives,
while payout for the other named executive officers is based 80% on corporate
objectives, and 20% on performance by that executive and his/her area of
responsibility toward the achievement of corporate objectives. The Company
believes that it is reasonable to expect performance warranting a full payout of
the pool. At the recommendation of the Compensation Committee, the Board may
exercise an element of positive or negative discretion beyond the stated
objectives when it considers that discretion warranted.
Equity Grants. Another
critical component of the compensation philosophy is that the executive
officers’ personal financial success should be tied to our common stock
performance. As a result of the 2006 Longnecker study, the Compensation
Committee and the Board determined that additional grants would be appropriate
and made those grants in January 2007. As a result of the 2007 Longnecker study,
the Compensation Committee and the Board determined that additional grants would
be appropriate and made those grants in February 2008.
The grants made in January 2007 and in
February 2008 were based on information from the Longnecker studies reflecting
the value of equity grants as a percentage of base salary for similar positions
at the Company’s competitors, and the Compensation Committee determined that
this equity value would be granted in a mix of restricted stock and
non-qualified stock options. The Compensation Committee feels that utilization
of restricted stock encourages the executive officer to adopt a view towards
long-term value while providing a retention incentive even in the event of a
decline in the stock price, and that stock options will encourage the executive
officer to take necessary and appropriate steps to increase the stock price. All
restricted stock and stock options granted in January 2007 and in February 2008
are time-vested, with 25% vesting one year from the date of grant, an additional
25% after two years, and the remaining 50% after three years if the recipient
remains employed by the Company as of those dates. The only additional grants
made to a current executive officer by the Company were to Mr. Limbacher as a
result of the commencement of his employment with the Company, and were made
effective on November 1, 2007 and January 1, 2008.
None of these equity grants has been
timed to coincide with or to precede the release of material information, and
the Compensation Committee believes that strong controls have been established
to prevent such timed grants. Specifically, (1) all grants for executive
officers must be approved by the Compensation Committee, (2) grant prices for
non-qualified stock options have all been set at the fair market value (average
of the high and low trades) on the date of grant, (3) all options granted before
October 1, 2006 were granted on the date of approval by the Board, and all
options granted on or after October 1, 2006 were granted on the first trading
day of the month following approval by the Board, and (4) no options have been
repriced. In establishing award levels, the
- 15 -
Compensation
Committee and the Board generally do not consider the equity ownership levels of
the recipients or prior awards that are fully vested. The Company has
implemented requirements that each executive officer hold a specific minimum
level of stock, and these requirements are set forth in the Executive Officer
Stock Ownership Guidelines, attached hereto as Appendix B.
Actions Taken Affecting Each Element.
Utilizing annualized base salaries as of January 1, 2008, full-payout
bonus targets for 2008, and stock grants that were effective February 1, 2008
(in the case of the President and CEO, grants that were effective November 1,
2007), there is a general percentage allocation among components as
follows:
|
Position
|
Base
Salary
|
Bonus
|
Equity
|
|
President
& CEO
|
15%
|
15%
|
70%
|
|
Executive
VPs
|
25%
|
19%
|
56%
|
|
Vice
Presidents
|
33%
|
18%
|
49%
|
Employee Benefits. In addition
to the main elements of compensation previously discussed in this section, the
executive officers are eligible for the same welfare and defined benefits as are
available to all employees, which include medical and dental insurance, short
and long-term disability insurance, life and accidental death insurance each
with a face value of $50,000, and a 401(k) plan with a dollar-for-dollar match
on the first 6% of eligible employee contributions. Like other employees, each
executive may park in Rosetta’s building or other available parking space at no
cost, although the executive officers have reserved spaces. The Company has no
pension plan or deferred compensation arrangement for the executive officers at
this time.
In
addition to these all-employee benefits, executive officers may utilize two
other benefits. First, the Company may pay monthly club membership dues (but not
personal usage expenses) for the President and CEO and for the two executive
vice presidents. This allows these executives to make business contacts outside
the reach of the Company, and to have a place to entertain corporate clients.
Second, to ensure that the executive leadership is given every opportunity to
identify and correct medical issues that may affect their work, the Company
provides for an annual physical examination at Company expense.
The
general benefits offered to all employees (and thus to the executive officers)
are reviewed each year. The benefits offered only to executive officers will be
reviewed by the Compensation Committee in conjunction with an annual study of
executive officer compensation.
Employment Agreements. The
Company has entered into a written Employment Agreement with each of its current
officers. The written Agreements ensure an understanding of how the employment
relationship may be extended or terminated, what benefits are to be paid in the
event of termination, and to outline the executive’s post-employment
obligations. These obligations restrict the use of confidential and/or
proprietary information both during and after employment, and for two years
after termination prohibit (1) disparagement of the Company and
(2) solicitation of employees, vendors, customers to end their
relationships with the Company. Originals of these Employment Agreements are
retained by the Company’s Human Resources Department.
Deductibility Cap on Executive
Compensation. Under U.S. federal income tax law, we cannot take a tax
deduction for certain compensation paid in excess of $1 million to the
executive officers, with the exception (under current tax law) of the chief
financial officer. However, performance-based compensation, as defined in the
tax law, is fully deductible if the programs are approved by stockholders and
meet other requirements. To maintain flexibility in compensating the executive
officers in a manner designed to promote varying corporate goals, the
Compensation Committee has not adopted a policy that all compensation must be
deductible. We may make payments that are not fully deductible because we
believe that such payments are necessary to achieve corporate objectives and to
protect stockholder interests. In 2007, the total compensation for deductibility
purposes exceeded $1 million for Mr. Limbacher (due primarily to a sign-on
bonus to mitigate the loss of vested items at his previous employer), and was
thus subject to IRC Section 162 (m) limitations, but did not exceed $1 million
for any other executive officer.
- 16 -
Gross-Ups. Under their
respective Employment Agreements, if benefits to which the executive officers
become entitled are considered “excess parachute payments” under IRC
Section 280(G), then the executive officers would be entitled to an
additional gross-up payment from the Company. This payment would be in an amount
such that, after payment by the executive officer of all taxes including any
excise tax imposed upon the gross-up payment, the executive officer would retain
an amount equal to the excise tax imposed upon the payment.
The Compensation Committee has
determined that it is important to state the termination benefits for executive
officers to ensure that they understand that there is an economic “safety net”
that protects them as they consider decisions for the Company that may have
adverse consequences to their own employment situations. These termination
benefits are stated in each executive officer’s Employment Agreement and reflect
the fact that it may be difficult for executive officers to find comparable
employment within a short period of time.
If the Company should choose not to
renew an Employment Agreement at its expiration, if the Company terminates the
employment of the executive officer without cause, or if the executive officer
terminates employment for “good reason” (as defined in the Employment
Agreement), then the executive officer would be paid a multiple of base salary
and target bonus and would become immediately vested in any unvested equity
grants. In these circumstances, the President and CEO would be paid three times
his then-current base salary and target bonus, each of the two executive vice
presidents would be paid two times his then-current base salary and target
bonus, and each of the other executive officers would each be paid his
then-current base salary and target bonus. Separation payments for the President
and CEO and certain of the other officers would exceed IRC Section 162(m)
deductibility limits.
Based
upon a hypothetical termination date of December 31, 2007, the severance
benefits for the named executive officers would have been as
follows:
|
Name
(1)
(2)
|
Hypothetical
Separation Payment to Executive on 12/31/07 (3)
|
Hypothetical
Cost of Accelerated Vesting of Stock Grants as of 12/31/07 (4)
|
Total
Cost of Hypothetical Separation Event as of 12/31/07
|
|
Randy
L. Limbacher, President & Chief Executive Officer
(PEO)(5)
|
$3,750,000
|
$1,796,062
|
$5,546,062
|
|
Michael
J. Rosinski, Executive Vice President & Chief Financial Officer
(PFO)
|
$800,000
|
$421,466
|
$1,221,466
|
|
Charles
F. Chambers, Executive Vice President, Corporate
Development (PEO)(NEO)(6)
|
$720,000
|
$418,513
|
$1,138,513
|
|
Michael
H. Hickey, Vice President & General Counsel (NEO)
|
$319,200
|
$450,615
|
$769,815
|
|
Edward
E. Seeman, Vice President, Northern Region (NEO)
|
$280,000
|
$258,819
|
$538,819
|
|
John
L. Thibeaux, Vice President, Southern Region (NEO)(7)
|
$322,000
|
$296,677
|
$618,677
|
|
(1)
|
For
this and subsequent tables, “PEO” is an acronym for Principal Executive
Officer, “PFO” for Principal Financial Officer and “NEO” for
Named Executive Officer.
|
|
(2)
|
Because
Mr. Berilgen’s employment as President and CEO ended on July 15, 2007,
hypothetical severance benefits are not shown in this
table.
|
|
(3)
|
This
column includes a multiple of base salary and bonus as described in the
employment agreement.
|
|
(4)
|
The
costs of accelerating the vesting of stock grants are represented in this
column using the Company’s unamortized costs of the
grants.
|
|
(5)
|
Mr.
Limbacher became President and CEO effective November 1,
2007.
|
|
(6)
|
Mr.
Chambers served as interim President and CEO from July 15, 2007 through
October 31, 2007.
|
|
(7)
|
Mr.
Thibeaux is disclosed because he was one of the three highest compensated
NEOs during the period from July 15, 2007 through October 31, 2007. Mr.
Thibeaux is no longer employed with the
Company.
|
- 17 -
The
Compensation Committee has determined that the interests of stockholders are
best served if we provide separation benefits to eliminate, or at least reduce,
the reluctance of executive officers to pursue potential corporate transactions
that may be in the best interests of stockholders but that may have resulting
adverse consequences to the executive officers’ employment situations. These
“change-in-control” benefits apply when (i) the affected executive
officer’s employment is terminated, or the executive officer resigns for good
cause; and (ii) either of the preceding actions occurs within the two-year
period following a “corporate change”. This so-called “double-trigger” provision
ensures that these benefits would be payable only in the dual events of a
corporate change and an adverse effect on the executive officer’s employment
situation. Also, these benefits are not in addition to the severance pay
described above – the executive cannot simultaneously be eligible for
both.
For
purposes of this section, a corporate change is defined as (i) the dissolution
or liquidation of the Company; (ii) a reorganization, merger or consolidation of
the Company with one or more corporations (other than a merger or consolidation
effecting a reincorporation of the Company in another state or any other merger
or consolidation in which the stockholders of the surviving corporation and
their proportionate interests therein immediately after the merger or
consolidation are substantially identical to the stockholders of the Company and
their proportionate interests therein immediately prior to the merger or
consolidation) (collectively, a “corporate change merger”); (iii) the sale of
all or substantially all of the assets of the Company or an affiliate as defined
in the Company’s Long-Term Incentive Plan; or (iv) the occurrence of a change in
control. A “change-in-control” shall be deemed to have occurred if
(a) individuals who were directors of the Company immediately prior to a
control transaction shall cease within two years of such control transaction to
constitute a majority of the Board of Directors of the Company (or of the Board
of Directors of any successor to the Company or to a Company which has acquired
all or substantially all its assets) other than by reason of an increase in the
size of the membership of the applicable Board that is approved by at least a
majority of the individuals who were directors of the Company immediately prior
to such control transaction or (b) any entity, person or Group acquires shares
of the Company in a transaction or series of transactions that result in such
entity, person or group directly or indirectly owning beneficially 50% or more
of the outstanding shares of the Company’s common stock. As used above, a
“control transaction” means (A) any tender offer for or acquisition of
capital stock of the Company pursuant to which any person, entity, or group
directly or indirectly acquires beneficial ownership of 20% or more of the
outstanding shares of Common Stock; (B) any corporate change merger of the
Company; (C) any contested election of directors of the Company; or (D) any
combination of the foregoing, any one of which results in a change in voting
power sufficient to elect a majority of the Board of Directors of the
Company.
If both
events warranting the change-in-control payment occur, the affected executive
will be paid a multiple of base salary and target bonus and will become
immediately vested in any unvested equity grants. In such a circumstance, the
President and CEO would be paid three times his then-current base salary and
target bonus, and each of the other named executive officers would be paid two
times his then-current base salary and target bonus. The cash components of any
change-in-control benefits will be paid in a lump sum and the Company will also
reimburse the executive’s cost of continuing health insurance for up to 18
months for the President and CEO, and for up to 12 months for the other
executive officers. Because of the tax on so-called “parachute payments” imposed
by Internal Revenue Code Section 280G, the Company has agreed to reimburse the
officers for any excise taxes imposed as a result of a payment of
change-in-control benefits and to gross up those tax payments to keep them
whole. Change-in-control payments for the President and CEO and certain of the
other officers would exceed IRC Section 162(m) deductibility
limits.
Based
upon a hypothetical termination from a change-in-control event as of December
31, 2007, the change-in-control termination benefits for the executive officers
would have been as follows:
|
Name
(1)
|
Hypothetical
Change-in-Control Separation Payment to Executive on
12/31/07
|
Hypothetical
Cost of Accelerated Vesting of Stock Grants as of 12/31/07
(2)
|
Hypothetical
Cost of Payments of 280(g) Excise Tax and Tax Gross-Up (3)
|
Hypothetical
Cost of Medical Insurance Reimbursement
|
Total
Cost of Hypothetical Separation Event as of 12/31/07
|
|
Randy
L. Limbacher, President & Chief Executive Officer
(PEO)(4)
|
$3,750,000
|
$1,796,062
|
2,087,187
|
$21,120
|
$7,654,369
|
|
Michael
J. Rosinski, Executive Vice President &
Chief
Financial Officer (PFO)
|
$800,000
|
$421,466
|
0
|
$14,080
|
$1,235,546
|
- 18 -
|
Charles
F. Chambers, Executive Vice President, Corporate Development
(NEO)(PEO)(5)
|
$720,000
|
$418,513
|
0
|
$9,630
|
$1,148,143
|
|
Michael
H. Hickey, Vice President & General Counsel (NEO)
|
$638,400
|
$450,615
|
0
|
$12,630
|
$1,101,645
|
|
Edward
E. Seeman, Vice President, Northern Region (NEO)
|
$560,000
|
$258,819
|
0
|
$10,400
|
$829,219
|
|
John
M. Thibeaux, Vice President, Southern Division (NEO)(6)
|
$644,000
|
$296,677
|
0
|
$9,630
|
$950,307
|
|
(1)
|
Because
Mr. Berilgen’s employment as President and CEO ended on July 15, 2007,
hypothetical change-in-control benefits are not shown in this
table.
|
|
(2)
|
The
costs of accelerating the vesting of stock grants are represented in this
column using the Company’s unamortized costs of the grants. A different
and more precise calculation would be used to arrive at excise tax under
IRC 280(G) at the time of an actual triggering
event.
|
|
(3)
|
Except
for Mr. Limbacher, hypothetical payments to all of the Company's named
executive officers as of 12/31/07 would fall within the “safe harbor”
provisions of IRC 280(G), and as such, no excise taxes on “parachute
payments” or tax gross-ups are shown. Depending on circumstances, we may
be liable for these excise taxes or gross-ups in future
years.
|
|
(4)
|
Mr.
Limbacher became President and CEO effective November 1,
2007.
|
|
(5)
|
Mr.
Chambers served as interim President and CEO from July 15, 2007 through
October 31, 2007.
|
|
(6)
|
Mr.
Thibeaux is disclosed because he was one of the three highest compensated
NEOs during the period from July 15, 2007 through October 31, 2007. Mr.
Thibeaux is no longer employed with the
Company.
|
- 19-
|
Name
and Principal Position
|
Year
|
Salary
(2)
|
Bonus
(3)
|
Stock
Awards
(4)
|
Option
Awards
(5)
|
Non-Equity
Incentive Plan Compen-sation (6)
|
Change
in Pension
Value
and Nonqualified Deferred Compen-sation Earnings
|
All
Other Compen-sation
(7)
|
Total
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
||
|
Randy
L. Limbacher, President & Chief Executive Officer
(PEO)(8)
|
2007
|
625,000
|
1,000,000
|
104,019
|
937,656
|
0
|
0
|
2,979
|
2,669,654
|
|
Michael
J. Rosinski, Executive Vice President & Chief Financial Officer
(PFO)
|
2007
|
250,000
|
20,000
|
123,683
|
198,026
|
95,000
|
0
|
24,490
|
711,199
|
|
2006
|
230,000
|
70,000
|
134,204
|
125,825
|
0
|
0
|
25,198
|
585,227
|
|
|
Charles
F. Chambers, Executive Vice President, Corp. Development
(NEO)(PEO)(9)
|
2007
|
225,000
|
40,000
|
122,683
|
197,473
|
74,000
|
0
|
23,130
|
682,286
|
|
2006
|
200,000
|
96,000
|
134,204
|
125,928
|
0
|
0
|
29,565
|
585,697
|
|
|
Michael
H. Hickey, Vice President & General Counsel (NEO)
|
2007
|
228,000
|
50,000
|
123,553
|
175,886
|
72,000
|
0
|
23,461
|
672,900
|
|
2006
|
228,000
|
35,000
|
111,167
|
110,038
|
0
|
0
|
22,430
|
506,635
|
|
|
Edward
E. Seeman, Vice President, Northern Region (NEO)
|
2007
|
200,000
|
0
|
68,784
|
160,833
|
57,000
|
0
|
12,714
|
499,331
|
|
2006
|
200,000
|
63,000
|
108,423
|
125,928
|
0
|
0
|
19,586
|
516,937
|
|
|
B.A.
Berilgen, President & Chief Executive Officer (PEO)
(10)
|
2007
|
233,589
|
0
|
328,498
|
492,584
|
339,000
|
0
|
2,019,645
|
3,413,316
|
|
2006
|
400,000
|
348,000
|
357,968
|
408,926
|
0
|
0
|
30,323
|
1,545,217
|
|
|
John
M. Thibeaux, Vice President, Southern Division (NEO)(11)
|
2007
|
230,000
|
25,000
|
57,581
|
72,288
|
0
|
0
|
21,693
|
406,562
|
|
(1)
|
Rosetta
began business as an independent entity in 2005. We have not included 2005
compensation information because it would have represented only a portion
of the year.
|
|
(2)
|
Annualized
base salaries for 2006 are reflected as of 12/31/06, and annualized base
salaries for 2007 are reflected as of 12/31/07. Mr. Berilgen received
$233,589 in base salary payments from 1/1/07 until his departure on
7/15/07.
|
|
(3)
|
For
2006, reflects bonus payments for 2005 performance before the
establishment of a bonus plan based on specific targets communicated to
the participants. For 2007, reflects (a) signing bonuses paid to Messrs.
Limbacher and Thibeaux, (b) special stipends paid to Messrs. Chambers and
Rosinski for interim responsibilities during Rosetta’s search for a new
president and CEO, and (c) a special retention payment to Mr.
Hickey.
|
|
(4)
|
Represents
the Company’s accounting expense for financial statement reporting
purposes for the listed fiscal year for restricted shares awarded in that
year and prior fiscal years, in accordance with FAS No. 123R. See the
Grants of Plan-Based Awards Table herein for information on restricted
share awards made in Fiscal Year 2007. These amounts reflect the
Company’s accounting expense for these restricted share awards, and do not
necessarily correspond to the actual value that will be recognized by the
listed executives.
|
|
(5)
|
Represents
the Company’s accounting expense for financial statement reporting
purposes for the listed fiscal year for stock options awarded in that year
and prior fiscal years, in accordance with FAS No. 123R. See the Grants of
Plan-Based Awards Table herein for information on stock option awards made
in Fiscal Year 2007. These amounts reflect the Company’s accounting
expense for these option awards, and do not necessarily correspond to the
actual value that will be recognized by the listed
executives.
|
|
(6)
|
Beginning
in 2006, the Compensation Committee established a non-equity incentive
bonus plan in which payouts are based on the achievement of specific
performance targets. Payouts from this plan were made in early
2007.
|
|
(7)
|
Elements
exceeding $10,000 in “all other compensation” include the separation
payment of $2,000,000 to Mr. Berilgen at the time of his departure in July
2007 (see Rosetta’s 8-K filing on July 9, 2007); and expenses for welfare
benefits for Messrs. Rosinski ($14,987), Chambers ($10,961), Hickey
($12,061), Seeman, ($10,314), and Thibeaux ($10,093). No other single
element of “all other compensation” exceeds $10,000 for any individual.
Other compensation in this category includes, as appropriate, 401(k)
match, employee parking, club dues and executive
physicals.
|
|
(8)
|
Mr.
Limbacher became President and CEO effective November 1,
2007.
|
|
|
|
- 20 -
| (9) | Mr. Chambers served as interim President and CEO from July 15, 2007 through October 31, 2007. |
|
(10)
|
Mr.
Berilgen was President and CEO until July 15,
2007.
|
|
(11)
|
Mr.
Thibeaux is disclosed because he was one of the three highest compensated
NEOs during the period from July 15, 2007 through October 31, 2007. Mr.
Thibeaux was not employed by the Company in 2006, and is no longer
employed with the Company.
|
- 21 -
|
Name
|
Grant
Date
|
Estimated
Future payouts under non-equity incentive plan awards
|
Estimated
future payouts under equity incentive plan awards
|
All
other stock awards; Number of shares of stock or units
(2)
(#)
|
All
other option awards; Number of securities underlying options
(3)
(#)
|
Exercise
or base price of option awards
(4)
($/sh)
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
(5)
($)
|
|||||||||||||||||
|
Threshold
(1)
($)
|
Target
($)
|
Maximum
(1)
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
|||||||||||||||||||
|
Randy
L. Limbacher, President & Chief Executive Officer
(PEO)(6)
|
11/1/07
|
-
|
625,000
|
-
|
-
|
0
|
-
|
102,100
|
102,100
|
18.61
|
2,837,737
|
|||||||||||||
|
Michael
J. Rosinski, Executive Vice President & Chief Financial Officer
(PFO)
|
1/2/07
|
-
|
195,000
|
-
|
-
|
0
|
-
|
10,000
|
22,000
|
18.51
|
388,438
|
|||||||||||||
|
Charles
F. Chambers, Executive Vice President, Corporate Development
(NEO)(PEO)(7)
|
1/2/07
|
-
|
180,000
|
-
|
-
|
0
|
-
|
10,000
|
22,000
|
18.51
|
388,438
|
|||||||||||||
|
Michael
H. Hickey, Vice President & General Counsel (NEO)
|
1/2/07
|
-
|
156,000
|
-
|
-
|
0
|
-
|
8,000
|
20,000
|
18.51
|
332,916
|
|||||||||||||
|
Edward
E. Seeman, Vice President, Northern Region (NEO)
|
1/2/07
|
-
|
80,000
|
-
|
-
|
0
|
-
|
6,000
|
10,000
|
18.51
|
203,508
|
|||||||||||||
|
B.A.
Berilgen, President and CEO (PEO)(8)
|
1/2/07
|
-
|
0
|
-
|
-
|
-
|
-
|
30,000
|
70,000
|
18.51
|
1,201,806
|
|||||||||||||
|
John
M. Thibeaux, Vice President, Southern Division (NEO)(9)
|
2/1/07
|
-
|
0
|
-
|
-
|
0
|
-
|
10,000
|
25,000
|
18.90
|
427,107
|
|||||||||||||
|
(1) The
Non-Equity Incentive Plan has neither a threshold nor a
maximum.
(2) The
shares of restricted stock in this table were granted on 1/3/07, except
for Mr. Limbacher (11/1/07) and Mr. Thibeaux (2/1/07), and the expense
associated with these grants is also shown in the Summary Compensation
Table. The restrictions will be lifted as to 25% of these shares on the
first anniversary of the date of grant, 25% on the second anniversary of
the date of grant, and the remaining 50% on the third anniversary of the
date of grant, assuming that the executive remains employed by Rosetta or
an affiliate on that date.
(3) The
options in this table were granted on 1/3/07, except for Mr. Limbacher
(11/1/07) and Mr. Thibeaux (2/1/07), and the expenses associated with
these grants are also shown in the Summary Compensation Table. Except for
Mr. Limbacher, whose options were fully vested at the date of grant, the
options will vest and become exercisable as to 25% of the options on the
first anniversary of the date of grant, 25% on the second anniversary of
the date of grant, and the remaining 50% on the third anniversary of the
date of grant, assuming that the executive remains employed by Rosetta or
an affiliate on that date.
(4) Options
were granted at an exercise price equal to the fair market value of the
stock (average of high and low trades) on the grant
date.
(5) Represents
the dollar amount of the grant date fair value recognized in accordance
with FAS No. 123R for each award of restricted shares to each Named
Executive Officer. The fair value of stock option awards was calculated
using a Black-Scholes model on the date of award. The fair value of
restricted share awards was calculated using the fair market value of the
common stock on the date of award. The fair value of each of the
restricted shares awarded to Mr. Limbacher on 11/107 was $18.61. The fair
value of each of the restricted shares awarded to Messrs. Chambers,
Rosinski, Seeman, Hickey, and Berilgen on 1/2/07 was $18.525. The fair
value of each of the restricted shares awarded to Mr. Thibeaux on 2/1/07
was $18.90.
(6) Mr.
Limbacher became President and CEO effective November 1,
2007.
(7) Mr.
Chambers served as interim President and CEO from July 15, 2007 through
October 31, 2007.
(8) Mr.
Berilgen was President and CEO until July 15, 2007.
(9) Mr.
Thibeaux is disclosed as one of the three highest compensated NEOs during
the period from July 15, 2007 through October 31, 2007. Mr. Thibeaux
is no longer employed with the Company, and as such, no future incentive
plan target is shown.
|
||||||||||||||||||||||||
- 22 -
|
OUTSTANDING EQUITY AWARDS AS OF DECEMBER 31,
2007
(1)
|
||||||||||||||||||||||||
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||
|
Name
|
Number
of Securities Underlying Unexer-cised Options-
Exer- cisable
|
Number
of Securities Underlying Unexer- cised Options-Unexer-
cisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexer-cised
Unearned Options
|
Option
Exercise Price
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Been Vested
|
Market
Value of shares or Units of Stock That Have Not Been Vested
(2)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
|
|||||||||||||||
|
(#)
|
(#)
|
(#)
|
($)
|
(#)
|
($)
|
(#)
|
($)
|
|||||||||||||||||
|
Randy
L. Limbacher, President & Chief Executive Officer
(PEO)(7)
|
102,100
|
0
|
0
|
18.61
|
11/1/17
|
102,100
|
2,007,286
|
0
|
0
|
|||||||||||||||
|
Michael
J. Rosinski, Executive Vice President & Chief Financial Officer
(PFO)
|
0
|
22,000 (3)
|
0
|
18.51
|
1/3/17
|
10,000
|
196,600
|
0
|
0
|
|||||||||||||||
|
2,300
|
6,900
(4)
|
0
|
18.23
|
2/24/16
|
3,750
|
73,725
|
0
|
0
|
||||||||||||||||
|
23,100
|
7,700
(5)
|
0
|
16.00
|
7/7/15
|
3,000
|
58,980
|
0
|
0
|
||||||||||||||||
|
Charles
F. Chambers, Executive Vice President, Corp. Development
(NEO)(PEO)(8)
|
0
|
22,000
(3)
|
0
|
18.51
|
1/3/17
|
10,000
|
196,600
|
0
|
0
|
|||||||||||||||
|
2,000
|
6,000
(4)
|
0
|
18.23
|
2/24/16
|
3,750
|
73,725
|
0
|
0
|
||||||||||||||||
|
24,000
|
8,000 (5)
|
0
|
16.00
|
7/7/15
|
3,000
|
58,980
|
0
|
0
|
||||||||||||||||
|
Michael
H. Hickey, Vice President & General Counsel (NEO)
|
0
|
20,000 (3)
|
0
|
18.51
|
1/3/17
|
8,000
|
157,280
|
0
|
0
|
|||||||||||||||
|
2,187
|
6,563 (4)
|
0
|
18.23
|
2/24/16
|
5,250
|
103,215
|
0
|
0
|
||||||||||||||||
|
19,686
|
6,563 (6)
|
0
|
16.00
|
8/1/15
|
3,000
|
58,980
|
0
|
0
|
||||||||||||||||
|
Edward
E. Seeman, Vice President, Northern Region (NEO)
|
0
|
10,000
(3)
|
0
|
18.51
|
1/3/17
|
6,000
|
117,960
|
0
|
0
|
|||||||||||||||
|
2,000
|
6,000 (4)
|
0
|
18.23
|
2/24/16
|
0
|
0
|
0
|
0
|
||||||||||||||||
|
24,000
|
8,000
(5)
|
0
|
16.00
|
7/7/15
|
3,000
|
58,980
|
0
|
0
|
||||||||||||||||
|
B.A.
Berilgen, President and CEO (PEO)(9)
|
7,500
|
0
|
0
|
18.23
|
7/15/08
|
0
|
0
|
0
|
0
|
|||||||||||||||
|
75,000
|
0
|
0
|
16.00
|
7/15/08
|
||||||||||||||||||||
|
John
M. Thibeaux, Vice President, Southern Division (NEO)(10)
|
0
|
25,000
|
0
|
18.90
|
2/1/17
|
10,000
|
196,000
|
0
|
0
|
|||||||||||||||
|
(1)
|
No
options have been transferred.
|
|
(2)
|
Market
value of restricted stock reflects a per-share price of $19.66, which was
the fair market value on 12/31/07.
|
|
(3)
|
These
unvested options vest 25% on 1/2/08, 25% on 1/2/09, and 50% on
1/2/10.
|
|
(4)
|
These
unvested options vest 33.3% on 2/24/08, and 66.7% on
2/24/09.
|
|
(5)
|
These
unvested options vest fully on
7/7/08.
|
|
(6)
|
These
unvested options vest fully on
8/1/08
|
|
(7)
|
Mr.
Limbacher became President and CEO effective November 1,
2007.
|
|
(8)
|
Mr.
Chambers served as interim President and CEO from July 15, 2007 through
October 31, 2007.
|
|
(9)
|
Mr.
Berilgen was President and CEO until July 15,
2007.
|
|
(10)
|
Mr.
Thibeaux is disclosed because he was one of the three highest compensated
NEOs during the period from July 15, 2007 through October 31, 2007. Mr.
Thibeaux is no longer employed with the Company. Due to the circumstances
of his departure, all unvested options and restricted shares became fully
vested in February 2008.
|
- 23 -
|
OPTION EXERCISES AND STOCK VESTED
TABLE
|
||||||||||||
|
Option
Awards
|
Stock
Awards
|
|||||||||||
|
Name
|
Number
of Shares Acquired on Exercise
|
Value
Realized on Exercise
|
Number
of Shares Acquired on Vesting (1)
|
Value
Realized on Vesting (2)
|
||||||||
|
(#)
|
($)
|
(#)
|
($)
|
|||||||||
|
Randy
L. Limbacher, President & Chief Executive Officer
(PEO)(3)
|
0
|
0
|
0
|
0
|
||||||||
|
Michael
J. Rosinski, Executive Vice President & Chief Financial Officer
(PFO)
|
0
|
0
|
2,750
|
56,601
|
||||||||
|
Charles
F. Chambers, Executive Vice President, Corp. Development
(NEO)(PEO)(4)
|
0
|
0
|
2,353
|
47,895
|
||||||||
|
Michael
H. Hickey, Vice President & General Counsel (NEO)
|
0
|
0
|
2,390
|
44,218
|
||||||||
|
Edward
E. Seeman, Vice President, Northern Region (NEO)
|
0
|
0
|
1,033
|
22,654
|
||||||||
|
B.A.
Berilgen, President and CEO (PEO)(5)
|
0
|
0
|
7,354
|
150,371
|
||||||||
|
John
M. Thibeaux, Vice President, Southern Division (NEO)(6)
|
0
|
0
|
0
|
0
|
||||||||
(2) Reflects
value of shares actually acquired, after payroll tax withholding, at fair market
value on the date of vesting.
(3) Mr.
Limbacher became President and CEO effective November 1, 2007.
(4) Mr.
Chambers served as interim President and CEO from July 15, 2007 through October
31, 2007.
(5) Mr.
Berilgen was President and CEO until July 15, 2007.
(6) Mr.
Thibeaux is disclosed as one of the three highest compensated NEOs during the
period from July 15, 2007 through October 31, 2007. Mr. Thibeaux is no longer
employed with the Company.
|
Director
Name
|
Fees
earned or paid in cash
($)
|
Stock
Awards (1)
($)
|
Option
Awards (2)
($)
|
Non-equity
incentive plan compensation
($)
|
Change
in pension value and nonqualified deferred compensation
earnings
($)
|
All
Other Compensation
($)
|
Total
($)
|
|
Richard W.
Beckler
|
104,506
|
18,065
|
61,472
|
0 | 0 | 0 | 184,043 |
|
G. Louis
Graziadio, III
|
53,005
|
18,605
|
61,472
|
0 | 0 | 0 | 132,542 |
|
D. Henry
Houston
|
152,006
|
18,065
|
61,472
|
0 | 0 | 0 | 231,543 |
|
Josiah O. Low
III
|
81,250
|
18,065
|
61,472
|
0 | 0 | 0 | 160,787 |
|
Donald D.
Patteson, Jr.
|
117,755
|
18,065
|
61,472
|
0 | 0 | 0 | 198,087 |
Richard
W. Beckler
|
(1)
|
Represents
the Company’s accounting expense for financial statement reporting
purposes for Fiscal Year 2007 for restricted shares awarded in 2007, in
accordance with FAS No. 123R. These amounts reflect the Company’s
accounting expense for these restricted share awards, and do not
necessarily correspond to the actual value that will be recognized by the
Directors.
|
|
(2)
|
Represents
the Company’s accounting expense for financial statement reporting
purposes for Fiscal Year 2007 for stock options awarded in 2007, in
accordance with FAS No.123R. These amounts reflect the Company’s
accounting expense for these option awards, and do not necessarily
correspond to the actual value that will be recognized by the
Directors.
|
|
(3)
|
Reflects
expense for annual physical examination in 2007 for Mr. Patteson; no other
directors took advantage of this benefit in
2007.
|
Note: The
Company does not provide a pension plan or a non-qualified deferred compensation
plan at this time, and as such, has not included either the Pension Benefits
Table or the Non-Qualified Deferred Compensation Table in this
section.
- 24 -
REPORT OF THE COMPENSATION COMMITTEE
The
following report of the Compensation Committee of the Board of Directors shall
not be deemed to be “soliciting material” or to be “filed” with the SEC or
subject to the SEC’s proxy rules, except for the required disclosure in this
Proxy Statement, or subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934 (the “Exchange Act”), except to the extent that the Company
specifically incorporates by reference into any filing made by the Company under
the Securities Act of 1933 or the Exchange Act.
The
Compensation Committee of the Company has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation
S-K with management, and based on such review and discussions, the Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this Proxy Statement and Form 10-K.
COMPENSATION
COMMITTEE
Donald D.
Patteson, Jr., Chairman
Richard
W. Beckler
D. Henry
Houston
Josiah O.
Low III
- 25 -
As of
December 31, 2007, the following equity securities were authorized for issuance
under the Company’s existing compensation plans:
|
Plan
Category
|
Number
of Securities to be Issued upon Exercise of Outstanding Options, Warrants
and Rights (1)
|
Weighted-Average
Exercise Price of Outstanding Securities
|
Number
of Securities Remaining Available for Future Issuance
|
|
Equity
Compensation Plans Approved by Security Holders
|
972,600
|
$17.337
|
1,138,630
|
|
Equity
Compensation Plans Not Approved by Security Holders
|
—
|
—
|
—
|
|
Total
|
972,600
|
$17.337
|
1,138,630
|
|
(1)
|
Includes
all stock options currently granted whether or not vested (1,062,600),
less all that have been exercised to
date.
|
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Exchange Act requires directors and officers of the Company, and
persons who beneficially own more than 10% of the Company’s common stock, to
file with the SEC initial reports of ownership and reports of changes in
ownership of the Company’s common stock. Directors, officers and more than 10
percent stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the
Company’s knowledge, based solely on review of the copies of such reports
furnished to it and written representations that no other reports were required,
the Company is not aware of any director or executive officer who has not timely
filed reports required by Section 16(a) of the Exchange Act during or following
the end of Fiscal Year 2007.
CERTAIN
TRANSACTIONS
We have
entered into employment agreements with each of the executive officers. See
“Compensation Committee Discussion and Analysis” for a detailed description of
those agreements. Additionally, we have entered into indemnification agreements
with the members of the Board of Directors. During 2007, the Company amended the
Employment Agreements of the officers of the Company to comply with the
provisions of the Internal Revenue Service Section 409A. See Exhibits 10.36,
10.37 and 10.38 to the Company’s Form 10-K filed on February 29, 2008, and
Exhibits 10.2 and 10.3 to the Company’s 10-Q filed on November 9,
2007.
On July
6, 2007, the Company entered into a Severance Agreement and General Release with
B.A. Berilgen, who was the former President, Chief Executive Officer and
Chairman of the Board of the Company. See Exhibit 99.1 to Form 8-K filed July 9,
2007.
Effective
November 1, 2007, the Company entered into an Employment Agreement with Randy L.
Limbacher to employ him as the Company’s President and Chief Executive Officer.
See Ex. 99.1 to Form 8-K filed November 5, 2007.
In July
2005, we acquired the domestic oil and natural gas business from Calpine
Corporation. At the time of the closing of the transaction, the Company was a
wholly-owned indirect subsidiary of Calpine. Upon closing of the transaction,
Calpine no longer owned any of the Company’s common stock or other security.
After closing the transaction, Calpine was not an affiliate of the Company. In
connection with the transaction with Calpine, the Company entered into certain
contracts necessary to complete the transaction. Under a purchase and sale
agreement, the Company completed the acquisition of the subsidiaries which held
the domestic oil and natural gas properties. Company currently has
indemnification obligations and rights under the purchase and sale agreement. On
July 7, 2005, Company entered into a gas purchase contract with an affiliate of
Calpine under which the Company sells a substantial amount of its California
natural gas production through 2009 with Calpine having a ten year right of
first refusal thereafter. Under the gas purchase contract, the Company has the
right to sell to third parties if Calpine breaches its obligation to fund a
daily margin account and it fails to cure within sixty (60) days. The Company
also
- 26 -
In
January 2006, the Company purchased certain leases from LOTO Energy II, LLC
(“LOTO II”) for cash, subject to a retained overriding royalty in favor of LOTO
II. The Company also made certain ongoing development commitments to LOTO II
associated with these leases. G. Louis Graziadio, III, a Company director, was
president of LOTO II at the time of this purchase. LOTO II is indirectly owned
in part by trusts established by Mr. Graziadio for the benefit of certain
members of his family. Mr. Graziadio has disclaimed any legal and beneficial
interest in the trusts.
Additionally,
the Company entered into several contracts under which all obligations have been
performed or the performance is immaterial to the Company’s business and
operations.
The
Company has a related party transactions procedure for the review, approval or
ratification of related party transactions, which are defined as all current or
proposed transactions in excess of $120,000 in which (i) the Company is a
participant and (ii) any director, executive officer or immediate family member
of any director or executive officer has a direct or indirect material
interest.
All
executive officers and directors are required to notify the General Counsel or
the Corporate Secretary as soon as practicable of any proposed related party
transaction. The General Counsel will determine whether a potential transaction
or relationship constitutes a related party transaction that requires compliance
with the policy and/or disclosure as a related party transaction under
applicable SEC rules. If the General Counsel determines that the transaction or
relationship constitutes a Related Party Transaction, the transaction is
referred to the Nominating and Governance Committee. Any member of the
Nominating and Governance Committee who has an interest in the transaction
presented for consideration will abstain from voting on the Related Party
Transaction.
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit
Committee, which is composed entirely of independent directors, has selected
PricewaterhouseCoopers LLP as the independent registered public accounting firm
to audit the consolidated financial statements of the Company and its
subsidiaries for 2008 and the Company’s effectiveness of internal control over
financial reporting. The Board has endorsed this appointment.
PricewaterhouseCoopers LLP previously audited the consolidated financial
statements of the Company and the effectiveness of internal control over
financial reporting from the inception of the Company through December 31,
2007.
Aggregate
fees for professional services rendered for the Company by
PricewaterhouseCoopers LLP for the year ended December 31, 2007 were $1,703,000
and for the year ended December 31, 2006 were $1,201,000.
The
Board unanimously recommends that you vote FOR the appointment of
PricewaterhouseCoopers LLP as the Company’s Independent Registered Public
Accounting Firm.
- 27 -
|
|
To
the Stockholders of
|
|
|
Rosetta
Resources Inc.:
|
The
primary purpose of the Audit Committee of the Company’s Board of Directors is to
assist the Board of Directors in fulfilling its responsibilities for monitoring
(i) the integrity of the quarterly and annual financial and accounting
information to be provided to the stockholders and the SEC; (ii) the system of
internal controls that management has established; (iii) the Company’s
registered public accountant’s qualifications and independence, (iv) the
performance of the Company’s internal audit functions and its registered public
accountant; and (v) the Company’s compliance with legal and regulatory
requirements governing the preparation and reporting of financial information.
The Audit Committee’s function is more fully described in its charter, a copy of
which is posted on our website at www.rosettaresources.com, and
may also be obtained by written request to the attention of the Corporate
Secretary of the Company at 717 Texas, Suite 2800, Houston,
Texas 77002. The Audit Committee, which was established in accordance
with Section 3(a)(58)(A) of the Exchange Act, held twenty meetings during 2007,
including regular meetings and special meetings addressing earnings releases and
related matters.
Messrs.
Beckler, Houston, Low, and Patteson serve on the Audit Committee, all of whom
are “independent” under the listing standards of The NASDAQ Stock Market LLC and
the SEC’s rules. Mr. Houston is the chairman of the Audit Committee.
Messrs. Houston and Low are “Audit Committee financial experts,” as defined
under the rules of the SEC.
Review
and Discussion
The Audit
Committee has reviewed and discussed the Company’s audited financial statements
with management. It has also discussed with PricewaterhouseCoopers LLP (“PWC”),
the Company’s registered public accountants, the matters required to be
discussed by Statement of Auditing Standards No. 61 (Communication with Audit
Committees), as updated by SAS No. 89 (Audit Adjustments) and SAS No. 90 (Audit
Committee Communications). Additionally, PWC has provided to the Audit Committee
the written disclosures required by Independence Standards Board Standard No. 1
Independence Discussions with Audit Committees, and the committee discussed the
auditors’ independence with management and the auditors.
Based on
the Audit Committee’s discussions with management and the registered public
accountants, and its review of the representations of management and the report
of PWC to the Audit Committee, the Audit Committee recommended to the Board of
Directors the inclusion of the audited consolidated financial statements in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as
filed with the Securities and Exchange Commission.
Fees
Paid to PricewaterhouseCoopers LLP for Fiscal Years 2007 and 2006:
|
(In
$ Thousands)
|
2007
|
%
|
2006
|
%
|
|
Audit
Fees................................................................................................................................................................................
|
$
1,703
|
100%
|
1,157
|
96.3%
|
|
Audit
Related
Fees..................................................................................................................................................................
|
—
|
—
|
44
(1)
|
3.7%
|
|
Tax..............................................................................................................................................................................................
|
—
|
—
|
—
|
—
|
|
Other..........................................................................................................................................................................................
|
—
|
—
|
—
|
—
|
|
(1)
|
The
audit related fees were for professional services rendered in connection
with SOX 404 implementation
activities.
|
Audit
Committee Pre-Approval Policies and Procedures
The Audit
Committee pre-approves all audit and non-audit services by a registered public
accountant prior to the receipt of such services. Any pre-approval of non-audit
services by the Audit Committee Chair shall be reported to the Audit Committee
at its next scheduled meeting.
- 28 -
All fees
for 2007 set forth in the table above were pre-approved by the Audit Committee
Chair or the Audit Committee, as provided above, which in either case determined
that such services would not impair the independence of the auditor and are
consistent with the SEC’s rules on auditor independence.
We have
selected PWC as the Company’s independent public accountants for the year ending
December 31, 2008. PWC has audited the Company’s financial statements and the
predecessor’s financial statements since 2003.
Recommendation
The Audit
Committee recommends that PWC be ratified to be the Company’s independent public
accountant for 2008.
As of the
date of this Proxy, a representative of PWC is expected to attend the Annual
Meeting and is not expected to make a statement, but will be available to
respond to appropriate questions and may make a statement if such representative
desires to do so.
The
information contained in this Audit Committee Report shall not be deemed to be
“soliciting material” to be “filed” with the SEC, or shall such information be
incorporated by reference into any future filings with the SEC, or subject to
the liabilities of Section 18 of the Exchange Act, except to the extent that the
Company specifically incorporates it by reference into a document filed under
the Securities Act of 1933, or the Exchange Act.
|
|
AUDIT
COMMITTEE
|
|
|
D.
Henry Houston, Chairman
|
|
|
Donald
D. Patteson, Jr.
|
|
|
Richard
W. Beckler
|
|
|
Josiah
O. Low III
|
-
29 -
APPROVAL
OF AN AMENDMENT TO THE 2005 LONG-TERM INCENTIVE PLAN TO INCREASE THE NUMBER OF
AVAILABLE SHARES OF COMMON STOCK FOR AWARDS FROM 3,000,000 TO
4,950,000
The Board of Directors believes that it
has been able to attract, motivate and retain highly qualified individuals to
serve as employees, officers or directors in part through the use of equity
compensation awards. Equity compensation aligns the recipients with the
interests of the stockholders, and ties a portion of both employee and officer
compensation directly to stockholder value because the value of such awards
depends on the appreciation of the shares of the Company’s stock. The Board of
Directors believes that the current number of shares available under the 2005
Long-Term Incentive Plan (the “Plan”) will not be sufficient in the near future
to allow the purposes of the Plan to continue to be fulfilled by the Board in
approving grants under the Plan to the Company’s directors, officers and
employees.
The Board of Directors considers the
dilutive effect of increasing the number of available shares under the Plan in
deciding whether to seek stockholder approval of an amendment to increase the
number of shares available for awards under the Plan. The Compensation Committee
considers the total potential dilution of the outstanding shares of Company
stock if all outstanding stock options were exercised and all restricted shares
vested. The total number of shares of the Company’s common stock available for
awards under the plan after the proposed increase under this Proposal 3 will not
exceed 10% of the Company’s current outstanding shares of common stock. The
Amended and Restated 2005 Long-Term Incentive Plan is attached hereto as
Appendix C.
Of the 3,000,000 shares currently under
the Plan, 624,568 shares remain available. The closing price of a share of the
Company’s common stock on March 25, 2007 was $ 18.83.
Federal Income Tax Consequences
Associated with Awards Granted Under the Plan. The following
is a general summary as of the date of this proxy statement of the United States
federal income tax consequences associated with the grant of awards under the
Plan. The federal tax laws may change and the federal, state and local tax
consequences for any participant will depend upon his or her individual
circumstances, thus the tax consequences for any particular individual may be
different. Also, this information may not be applicable to any employees of
foreign subsidiaries or to participants who are not residents of the United
States.
Several different types of incentive
awards may be issued under the Plan. The tax consequences related to the
issuance of each type of award is discussed separately below.
Nonqualified Stock Options and Stock
Appreciation Rights (SARs). Nonqualified stock options granted
under the Plan are not intended to qualify as “incentive stock options” and will
not qualify for any special tax benefits to the optionee. A participant
receiving a nonqualified stock option or SAR that has been issued with an
exercise price not less than the fair market value of the Company’s common stock
on the grant date will not recognize income and the Company will not be allowed
a deduction at the time such an option is granted. When a participant exercises
a nonqualified stock option or SAR, the difference between the exercise price
and any higher market value of the stock on the date of exercise will be
ordinary income to the participant. When a participant disposes of shares
acquired by the exercise of the option or SAR, any additional gain or loss will
be a capital gain or loss.
In general, there will be no federal
income tax deduction allowed to the Company upon the grant or termination of a
nonqualified stock option or SAR or a sale or disposition of the shares acquired
upon exercise of the stock option or SAR. However, upon the exercise of a
nonqualified stock option or SAR, the Company will be entitled to a deduction
for federal income tax purposes equal to the amount of ordinary income that the
participant is required to recognize as a result of the exercise, provided that
the deduction is not otherwise disallowed under the Internal Revenue
Code.
Restricted Stock Awards, Restricted
Stock Unit Awards and Stock-Based Awards. Generally, the recipient of a
restricted stock award or restricted stock unit award has no federal income tax
consequences at the time of grant. Rather, at the time the shares are vested and
no longer subject to a substantial risk of forfeiture, the participant will
recognize ordinary income to the extent of the excess of the fair market value
of the stock on the date the risk of forfeiture ceases over the amount paid, if
any, by the participant for such stock. For a restricted stock award only, the
participant may instead elect to be taxed at the time of grant by making an
election under Section 83(b) of the Internal Revenue Code.
- 30-
In the year that the recipient of a
restricted stock award, restricted stock unit award or stock-based award
recognizes ordinary taxable income in respect of such award, the Company will be
entitled to a deduction for federal income tax purposes equal to the amount of
ordinary income that the participant is required to recognize, provided that the
deduction is not otherwise disallowed under the Internal Revenue Code. Upon
disposition of the shares received, the gain or loss recognized by the
participant will be treated as capital gain or loss.
Performance-Based Awards. With
certain exceptions, Section 162(m) of the Internal Revenue Code denies a
deduction to the Company for compensation paid to certain executive officers in
excess of $1 million per executive per taxable year. One such exception applies
to certain performance-based compensation as described in Section 162(m), and
certain awards granted under the Plan will be intended to qualify as
performance-based compensation. The Plan contains provisions consistent with the
requirements for performance-based compensation under Section 162(m). However,
the Compensation Committee may award non-deductible compensation when such
grants are in the best interest of the Company, balancing tax efficiency with
long-term strategic objectives.
Section
409A. Section 409A of the Internal Revenue Code provides
certain new requirements for non-qualified deferred compensation arrangements.
These include requirements with respect to an individual’s election to defer
compensation and the individual’s selection of the timing and form of
distribution of deferred compensation. Section 409A also generally provides that
distributions must be made on or after the occurrence of certain events (e.g.,
the individual’s separation from service, a predetermined date, or the
individual’s death). Section 409A imposes restrictions on an individual’s
ability to change his or her distribution timing or form of distribution, after
the compensation has been deferred.
Awards granted under the Plan with a
deferral feature will be subject to the requirements of Section 409A. If an
award is subject to and fails to satisfy the requirements of Section 409A, the
recipient of that award may recognize ordinary income on the amounts deferred
under the award, to the extent vested, which may be prior to when the
compensation is actually or constructively received. Also, if an award that is
subject to Section 409A fails to comply with Section 409A, an additional 20%
federal income tax is imposed on compensation recognized as ordinary income, as
well as interest on such deferred compensation.
ERISA. The Company
believes that the Plan is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). The Plan is not a qualified plan
under Section 401(a) of the Internal Revenue Code.
The
Board recommends a vote FOR approval of an amendment of the 2005 Long-Term
Incentive Plan to increase the number of available shares of common stock for
awards from 3,000,000 to 4,950,000.
Management
does not intend to bring any other business before the meeting and has not been
informed that any other matters are to be presented at the meeting by others. If
other matters properly come before the meeting or any adjournment thereof, the
persons named in the accompanying proxy and acting thereunder will vote in
accordance with their best judgment.
STOCKHOLDER
PROPOSALS AND OTHER MATTERS
Rule
14a-8 under the Securities Exchange Act of 1934, as amended, addresses when a
company must include a stockholder's proposal in its proxy statement and
identify the proposal in its form of proxy when the company holds an annual or
special meeting of stockholders. Under Rule 14a-8, proposals that stockholders
intend to have included in the Company’s proxy statement and form of proxy for
the 2008 Annual Meeting of Stockholders must have been received by the Company
no later than January 18, 2008. No Stockholder proposals were received by the
Company by the required date.
To be
considered for inclusion in the Proxy Statement for the Company’s 2009 Annual
Meeting of Stockholders, under Rule 14a-8 of the SEC, a stockholder proposal
must be received at the Company’s principal executive offices at 717 Texas,
Suite 2800, Houston, Texas 77002; Attn.: Corporate Secretary, by December 1, 2009.
The cost
of solicitation of proxies will be borne by the Company. Solicitation may be
made by mail, personal interview, telephone or telegraph by officers, agents or
employees of the Company, who will receive no additional compensation therefore.
The Company will bear the reasonable expenses incurred by banks, brokerage
firms, custodians, nominees and fiduciaries in forwarding proxy material to
beneficial owners.
- 31 -
Annual
Report
The
annual report to stockholders for the year ended December 31, 2007 is being
mailed to all stockholders entitled to vote at the meeting. The annual report to
stockholders does not form any part of the proxy soliciting materials. Copies of
the Company’s Annual Report on Form 10-K for the year ended December 31, 2007,
as filed with the Securities and Exchange Commission, are available without
charge to stockholders through the Investor Relations section of the website at
www.rosettaresources.com or
upon request to Michael J. Rosinski, Secretary of Rosetta Resources Inc., 717
Texas, Suite 2800, Houston, Texas 77002.
Stockholder
Communications with the Board of Directors
Stockholders
who wish to communicate with the Board of Directors or a particular director may
send a letter to the Secretary of the Company at 717 Texas, Suite 2800, Houston,
Texas 77002. The mailing envelope must contain a clear notation indicating that
the enclosed letter is a “Stockholder-Board Communication” or
“Stockholder-Director Communication.” All such letters must identify the author
as a stockholder and clearly state whether the intended recipients are all
members of the Board or just certain specified individual directors. The
Secretary will make copies of all such letters and circulate them to the
appropriate director or directors.
Number
of Proxy Statements and Annual Reports
Only one
copy of this Proxy Statement and the annual report accompanying this Proxy
Statement will be mailed to stockholders who have the same address unless we
receive a request that the stockholders with the same address are to receive
separate Proxy Statements and Annual Reports. These additional copies will be
supplied at no additional cost to the requesting stockholder.
REGARDLESS
OF THE NUMBER OF SHARES YOU OWN, IT IS IMPORTANT THAT THEY BE REPRESENTED AT THE
MEETING, AND YOU ARE RESPECTFULLY REQUESTED TO SIGN, DATE AND RETURN THE PROXY
CARD IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE.
|
|
By
order of the Board of Directors of
|
|
|
ROSETTA
RESOURCES INC.
|
|
|
 |
|
|
Michael
J. Rosinski
|
|
|
Executive
Vice President, Chief Financial
Officer,
|
|
|
Treasurer
and Secretary
|
Houston,
Texas
April 1,
2008
- 32 -
NON-EMPLOYEE
DIRECTOR STOCK OWNERSHIP GUIDELINES
Effective
February 26, 2008
The Board
of Directors believes that non-employee directors more effectively represent
Rosetta Resources Inc.’s (“Rosetta”) shareholders, if they are shareholders
themselves. Therefore, the Board of Directors (the “Board”) has adopted the
following Non-employee Director Stock Ownership Guidelines.
Non-employee
Director Stock Ownership Guidelines
Each
non-employee director must own at least ten thousand (10,000) shares of
Rosetta’s Common Stock. This minimum stock ownership level must be achieved by
each non-employee director within either three (3) years after: (i) the date of
each non-employee director joining the Board, or (ii) the date these guidelines
are approved and made effective, whichever date last occurs. Any change in the
value of the stock (such as a stock split, stock dividend, recapitalization,
etc.) will not affect the minimum number of shares each non-employee director
must hold.
After
achieving the minimum level of stock ownership, ownership of the minimum amount
must be maintained as long as the non-employee director remains on the
Board.
Counting
Shares Owned
Stock
that counts towards satisfaction of the Non-employee Director Stock Ownership
Guidelines includes:
|
1.
|
Shares
purchased on the open market;
|
|
2.
|
Shares
obtained through stock option exercises that the director continues to
hold;
|
|
3.
|
Restricted
stock (vested and unvested);
|
|
4.
|
Shares
beneficially owned in a trust, by a spouse and/or minor children;
and
|
|
5.
|
Vested
Stock options.
|
Exceptions
There may
be instances where these guidelines would place a hardship on a non-employee
director. The Nominating and Corporate Governance Committee will make the final
decision as to developing or waiving an alternative stock ownership guideline
for a non-employee director that addresses the non-employee director’s personal
circumstances and satisfies the purposes of these guidelines.
A-1
OFFICERS
STOCK OWNERSHIP GUIDELINES
Effective
February 26, 2008
The Board
of Directors believes that officers more effectively represent Rosetta Resources
Inc.’s (“Rosetta’s”) shareholders and display confidence in the company, if they
are shareholders themselves. Therefore, the Board of Directors has adopted the
following Officers Stock Ownership Guidelines.
Officers
Stock Ownership Guidelines
Each
Officer must own a certain number of shares of Rosetta’s Common Stock based on
his or her level of office, as applicable. The applicable minimum number of
shares to be held by each officer by office level are as follows:
|
President
and Chief Executive
Officer ....................................................................................................................................................................................................
|
Two Hundred Fifty Thousand (250,000) shares |
|
Any
Executive Vice
President ..............................................................................................................................................................................................................
|
Fifty Thousand (50,000) shares |
|
Any Vice
President ..................................................................................................................................................................................................................................
|
Twenty-five Thousand (25,000) shares |
Any
change in the value of the stock (such as a stock split, stock dividend,
recapitalization, etc.) will not affect the minimum number of shares each
officer for his or her office level must hold.
The
minimum stock ownership level for each officer must be achieved within either,
three (3) years after: (i) the date these guidelines are approved and made
effective, or (ii) the date of each officer’s appointment to his or her
particular office, whichever date last occurs. Appointment to a new higher level
of office within the original three (3) year period restarts the required three
(3) year period from the date of appointment to such new higher level of office.
After each officer achieves the minimum number of shares for his or her level of
office, as applicable, ownership of the minimum number of shares for that level
of office must be maintained.
Counting
Shares Owned
Stock
that counts towards satisfaction of the Officers Stock Ownership Guidelines
includes:
|
1.
|
Shares
purchased on the open market;
|
|
2.
|
Shares
obtained through stock option exercises that the officer continues to
hold;
|
|
3.
|
Restricted
stock (vested and unvested);
|
|
4.
|
Shares
beneficially owned in a trust, by a spouse and/or minor children;
and
|
|
5.
|
Vested
Stock options.
|
Exceptions
There may
be instances where these guidelines would place a hardship on an officer. The
Nominating and Corporate Governance Committee will make the final decision as to
developing or waiving an alternative stock ownership guideline for an officer
that addresses the officer’s personal circumstances and satisfies the purposes
of these guidelines.
B-1
AMENDED
AND RESTATED
ROSETTA
RESOURCES INC.
2005
LONG-TERM INCENTIVE PLAN
ARTICLE
I. ESTABLISHMENT AND PURPOSE
1.1 Establishment and Purpose.
Rosetta Resources Inc. (“Rosetta”) hereby establishes the Rosetta
Resources Inc. 2005 Long-Term Incentive Plan, as set forth in this document. The
purpose of the Plan is to attract and retain highly qualified individuals and
service providers, to further align the interests of Company employees and other
service providers with those of the stockholders of Rosetta, and closely link
compensation with Company performance. Rosetta is committed to creating
long-term stockholder value. Rosetta’s compensation philosophy is based on a
belief that Rosetta can best create stockholder value if key employees,
directors, and certain others providing services to the Company act and are
rewarded as business owners. Rosetta believes that an equity stake through
equity compensation programs effectively aligns employee and stockholder
interests by motivating and rewarding long-term performance that will enhance
stockholder value.
1.2 Effectiveness and Term. This
Plan shall become effective as of July 7, 2005 (the “Effective Date”),
contingent on the closing of the Acquisition and the Offering, provided that
prior to the Effective Date the Plan is duly approved by the holders of at least
a majority of the shares of Common Stock either (i) present or represented and
entitled to vote at a special meeting of the stockholders of Rosetta duly held
in accordance with applicable law or (ii) by written action in lieu of a meeting
in accordance with applicable law. Unless terminated earlier by the Board
pursuant to Section 14.1, this Plan shall terminate on the day prior to the
tenth anniversary of the Effective Date.
ARTICLE
II. DEFINITIONS
2.1 “Acquisition” means the closing
of the transactions contemplated by the Purchase and Sale
Agreement.
2.2 “Affiliate” means (i) with
respect to Incentive Stock Options, a “parent corporation” or a “subsidiary
corporation” of Rosetta, as those terms are defined in sections 424(e) and (f)
of the Code, respectively, and (ii) with respect to other Awards, (A) a “parent
corporation” or a subsidiary corporation” of Rosetta as defined in (i) above,
(B) a limited liability company, partnership or other entity in which Rosetta
controls 50% or more of the voting power or equity interests.
2.3 “Award” means an award granted
to a Participant in the form of Options, SARs, Restricted Stock, Restricted
Stock Units, Performance Awards, Stock Awards or Other Incentive Awards, whether
granted singly or in combination.
2.4 “Award Agreement” means a
written agreement between Rosetta and a Participant that sets forth the terms,
conditions, restrictions and limitations applicable to an Award.
2.5 “Board” means the Board of
Directors of Rosetta.
2.6 “Cash Dividend Right” means a
contingent right, granted in tandem with a specific Restricted Stock Unit Award,
to receive an amount in cash equal to the cash distributions made by Rosetta
with respect to a share of Common Stock during the period such Award is
outstanding.
2.7 “Cause” means a finding by the
Committee of acts or omissions constituting, in the Committee’s reasonable
judgment, (i) a breach of duty by the Participant in the course of his
employment or service involving fraud, acts of dishonesty (other than
inadvertent acts or omissions), disloyalty to the Company, or moral turpitude
constituting criminal felony; (ii) conduct by the Participant that is materially
detrimental to the Company, monetarily or otherwise, or reflects unfavorably on
the Company or the Participant to such an extent that the Company’s best
interests reasonably require the termination of the Participant’s employment or
service; (iii) acts or omissions of the Participant materially in violation of
his obligations under any written employment or other agreement between the
Participant and the Company or at law; (iv) the Participant’s failure to comply
with or enforce Company policies concerning equal employment opportunity,
including engaging in sexually or otherwise harassing conduct; (v) the
Participant’s repeated insubordination; (vi) the Participant’s failure to comply
with or enforce, in any material respect, all other personnel policies of the
Company; (vii) the Participant’s failure to devote his full (or other required)
working time and best efforts to the performance of his responsibilities to the
Company; or (viii) the Participant’s conviction of, or entry of a plea agreement
or consent decree or similar arrangement with respect to a felony or any
violation of federal or state securities laws.
C-1
2.8 “Code” means the Internal
Revenue Code of 1986, as amended from time to time, including regulations
thereunder and successor provisions and regulations.
2.9 “Committee” means the
Compensation Committee of the Board or such other committee of the Board as may
be designated by the Board to administer the Plan, which committee shall consist
of two or more members of the Board; provided, however, that with respect to the
application of the Plan to Awards made to Outside Directors, the “Committee”
shall be the Board. During such time as the Common Stock is registered under
Section 12 of the Exchange Act, each member of the Committee shall be an Outside
Director. To the extent that no Committee exists that has the authority to
administer the Plan, the functions of the Committee shall be exercised by the
Board.
2.10 “Common Stock” means the common
stock of Rosetta, $0.001 par value per share, or any stock or other securities
of hereafter issued or issuable in substitution or exchange for the Common
Stock.
2.11 “Company” means Rosetta and any
Affiliate.
2.12 “Corporate Change” means (i)
the dissolution or liquidation of Rosetta; (ii) a reorganization, merger or
consolidation of Rosetta with one or more corporations (other than a merger or
consolidation effecting a reincorporation of Rosetta in another state or any
other merger or consolidation in which the stockholders of the surviving
corporation and their proportionate interests therein immediately after the
merger or consolidation are substantially identical to the stockholders of
Rosetta and their proportionate interests therein immediately prior to the
merger or consolidation) (collectively, a “Corporate Change Merger”); (iii) the
sale of all or substantially all of the assets of the Company; or (iv) the
occurrence of a Change in Control. A “Change in Control” shall be deemed to have
occurred if (x) individuals who were directors of Rosetta immediately prior to a
Control Transaction shall cease, within two years of such Control Transaction to
constitute a majority of the Board (or of the Board of Directors of any
successor to Rosetta or to a company which has acquired all or substantially all
its assets) other than by reason of an increase in the size of the membership of
the applicable Board that is approved by at least a majority of the individuals
who were directors of Rosetta immediately prior to such Control Transaction or
(y) any entity, person or Group acquires shares of Rosetta in a transaction or
series of transactions that result in such entity, person or Group directly or
indirectly owning beneficially 50% or more of the outstanding shares of Common
Stock. As used herein, “Control Transaction” means (A) any tender offer for or
acquisition of capital stock of Rosetta pursuant to which any person, entity, or
Group directly or indirectly acquires beneficial ownership of 20% or more of the
outstanding shares of Common Stock; (B) any Corporate Change Merger of Rosetta;
(C) any contested election of directors of Rosetta; or (D) any combination
of the foregoing, any one of which results in a change in voting power
sufficient to elect a majority of the Board. As used herein, “Group” means
persons who act “in concert” as described in Sections 13(d)(3) and/or 14(d)(2)
of the Exchange Act. Notwithstanding the foregoing, “Corporate Change” shall not
include the Acquisition, the Offering, or any public offering of equity of
Rosetta pursuant to a registration that is effective under the Securities
Act.
2.13 “Dividend Unit Right” means a
contingent right, granted in tandem with a specific Restricted Stock Unit Award,
to have an additional number of Restricted Stock Units credited to a Participant
in respect of the Award equal to the number of shares of Common Stock that could
be purchased at Fair Market Value with the amount of each cash distribution made
by Rosetta with respect to a share of Common Stock during the period such Award
is outstanding.
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2.14 “Effective Date” means the date
this Plan becomes effective as provided in Section 1.2.
2.15 “Employee” means an employee of
the Company; provided, however, that the term “Employee” does not include an
Outside Director or an individual performing services for the Company who is
treated for tax purposes as an independent contractor at the time of performance
of the services.
2.16 “Exchange Act” means the
Securities Exchange Act of 1934, as amended.
2.17 “Fair Market Value” means the
fair market value of the Common Stock, as determined in good faith by the
Committee or (i) if the Common Stock is traded in the over-the-counter market,
the average of the representative closing bid and asked prices as reported by
NASDAQ for the date the Award is granted (or if there was no quoted price for
such date of grant, then for the last preceding business day on which there was
a quoted price), or (ii) if the Common Stock is traded in the NASDAQ
National Market System, the average of the highest and lowest selling prices for
such stock as quoted on the NASDAQ National Market System for the date the Award
is granted (or if there are no sales for such date of grant, then for the last
preceding business day on which there were sales), or (iii) if the Common Stock
is listed on any national stock exchange, the average of the highest and lowest
selling prices for such stock as quoted on such exchange for the date the Award
is granted (or if there are no sales for such date of grant, then for the last
preceding business day on which there were sales).
2.18 “Good Reason” means any of the
following actions if taken without the Participant’s prior written consent: (i)
any material failure by the Company to comply with its obligations under the
terms of a written employment agreement; (ii) any demotion of the Participant as
evidenced by a material reduction in the Participant’s responsibilities, duties,
compensation, or benefits; or (iii) any permanent relocation of the
Participant’s place of business to a location 50 miles or more from the
then-current location. Neither a transfer of employment among Rosetta and any of
its Affiliates, a change in the co-employment relationship, nor a mere change in
job title or reporting structure constitutes “Good Reason.”
2.19 “Grant Date” means the date an
Award is determined to be effective by the Committee upon the grant of such
Award.
2.20 “Inability to Perform” means
and shall be deemed to have occurred if the Participant has been determined
under the Company’s or any co-employer’s long-term disability plan to be
eligible for long-term disability benefits. In the absence of the Participant’s
participation in, application for benefits under, or existence of such a plan,
“Inability to Perform” means a finding by the Committee in its sole judgment
that the Participant is, despite any reasonable accommodation required by law,
unable to perform the essential functions of his position because of an illness
or injury for (i) 60% or more of the normal working days during six
consecutive calendar months or (ii) 40% or more of the normal working days
during twelve consecutive calendar months.
2.21 “Incentive Stock Option” means
an Option that is intended to meet the requirements of section 422(b) of the
Code.
2.22 “NASDAQ” means The NASDAQ Stock
Market, Inc.
2.23 “Nonqualified Stock Option”
means an Option that is not an Incentive Stock Option.
2.24 “Offering” means the offering,
sale and issuance by Rosetta of Common Stock as set forth that certain offering
memorandum initially dated June 9, 2005.
2.25 “Option” means an option to
purchase shares of Common Stock granted to a Participant pursuant to Article
VII. An Option may be either an Incentive Stock Option or a Nonqualified Stock
Option, as determined by the Committee.
2.26 “Other Incentive Award” means
an incentive award granted to a Participant pursuant to Article
XII.
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2.27 “Outside Director” means a
member of the Board who: (i) meets the independence requirements of the
principal exchange or quotation system upon which the shares of Common Stock are
listed or quoted, (ii) from and after the date on which the remuneration paid
pursuant to the Plan becomes subject to the deduction limitation under Section
162(m) of the Code, qualifies as an “outside director” under Section 162(m) of
the Code, (iii) qualifies as a “non-employee director” of Rosetta under Rule
16b-3, and (iv) satisfies independence criteria under any other applicable laws
or regulations relating to the issuance of shares of Common Stock to
Employees.
2.28 “Participant” means an
Employee, director, or other individual or entity who performs services for the
Company that has been granted an Award; provided, however, that no Award that
may be settled in Common Stock may be issued to a Participant that is not a
natural person.
2.29 “Performance Award” means an
Award granted to a Participant pursuant to Article XI to receive cash or Common
Stock conditioned in whole or in part upon the satisfaction of specified
performance criteria.
2.30 “Permitted Transferee” shall
have the meaning given such term in Section 15.4.
2.31 “Plan” means the Rosetta
Resources Inc. 2005 Long-Term Incentive Plan, as in effect from time to
time.
2.32 “Purchase and Sale Agreement”
means that certain Purchase and Sale Agreement by and among Calpine Gas Holdings
LLC, Calpine Fuels Corporation, Calpine Corporation and Rosetta dated July 7,
2005.
2.33 “Purchased Restricted Stock”
shall have the meaning given such term in Section 9.2.
2.34 “Restricted Period” means the
period established by the Committee with respect to an Award of Restricted Stock
or Restricted Stock Units during which the Award remains subject to
forfeiture.
2.35 “Restricted Stock” means a
share of Common Stock granted to a Participant pursuant to Article IX that is
subject to such terms, conditions, and restrictions as may be determined by the
Committee.
2.36 “Restricted Stock Unit” means a
fictional share of Common Stock granted to a Participant pursuant to Article X
that is subject to such terms, conditions, and restrictions as may be determined
by the Committee.
2.37 “Rosetta” means Rosetta
Resources Inc., a Delaware corporation, or any successor thereto.
2.38 “Rule 16b-3” means Rule 16b-3
promulgated by the SEC under the Exchange Act, or any successor rule or
regulation that may be in effect from time to time.
2.39 “SEC” means the United States
Securities and Exchange Commission, or any successor agency or
organization.
2.40 “Securities Act” means the
Securities Act of 1933, as amended.
2.41 “Stock Appreciation Right”
or “SAR” means a right granted to
a Participant pursuant to Article VIII with respect to a share of Common Stock
to receive upon exercise cash, Common Stock or a combination of cash and Common
Stock, equal to the appreciation in value of a share of Common
Stock.
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ARTICLE
III. PLAN ADMINISTRATION
3.1 Plan Administrator and Discretionary
Authority. The Plan shall be administered by the Committee. The Committee
shall have total and exclusive responsibility to control, operate, manage and
administer the Plan in accordance with its terms. The Committee shall have all
the authority that may be necessary or helpful to enable it to discharge its
responsibilities with respect to the Plan. Without limiting the generality of
the preceding sentence, the Committee shall have the exclusive right
to: (i) interpret the Plan and the Award Agreements executed
hereunder; (ii) decide all questions concerning eligibility for, and the amount
of, Awards granted under the Plan; (iii) construe any ambiguous provision of the
Plan or any Award Agreement; (iv) prescribe the form of Award Agreements; (v)
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award Agreement; (vi) issue administrative guidelines as an aid
to administering the Plan and make changes in such guidelines as the Committee
from time to time deems proper; (vii) make regulations for carrying out the Plan
and make changes in such regulations as the Committee from time to time deems
proper; (viii) determine whether Awards should be granted singly or in
combination; (ix) to the extent permitted under the Plan, grant waivers of Plan
terms, conditions, restrictions and limitations; (x) accelerate the exercise,
vesting or payment of an Award when such action or actions would be in the best
interests of the Company; (xi) require Participants to hold a stated number or
percentage of shares of Common Stock acquired pursuant to an Award for a stated
period; and (xii) take any and all other actions the Committee deems necessary
or advisable for the proper operation or administration of the Plan. The
Committee shall have authority in its sole discretion with respect to all
matters related to the discharge of its responsibilities and the exercise of its
authority under the Plan, including without limitation its construction of the
terms of the Plan and its determination of eligibility for participation in, and
the terms of Awards granted under, the Plan. The decisions of the Committee and
its actions with respect to the Plan shall be final, conclusive and binding on
all persons having or claiming to have any right or interest in or under the
Plan, including without limitation Participants and their respective Permitted
Transferees, estates, beneficiaries and legal representatives.
3.2 Liability; Indemnification. No
member of the Committee, nor any person to whom it has delegated authority,
shall be personally liable for any action, interpretation or determination made
in good faith with respect to the Plan or Awards granted hereunder, and each
member of the Committee (or delegatee of the Committee) shall be fully
indemnified and protected by Rosetta with respect to any liability he may incur
with respect to any such action, interpretation or determination, to the maximum
extent permitted by applicable law.
ARTICLE
IV. SHARES SUBJECT TO THE PLAN
4.1 Available Shares.
(a) Subject
to adjustment as provided in Section 4.2, the maximum number of shares of Common
Stock that shall be available for grant of Awards under the Plan shall be
4,950,000 shares of Common Stock.
(b) The
maximum number of shares of Common Stock that may be subject to Incentive Stock
Options granted under the Plan is 4,950,000. The maximum number of shares of
Common Stock that may be subject to all Awards granted under the Plan to any one
Participant (i) during the fiscal year of Rosetta in which the Participant is
first hired by the Company is 300,000 shares and (ii) during each subsequent
fiscal year is 200,000 shares. The limitations provided in this Section 4.1(b)
shall be subject to adjustment as provided in Section 4.2.
(c) Shares
of Common Stock issued pursuant to the Plan may be original issue or treasury
shares or a combination of the foregoing, as the Committee, in its sole
discretion, shall from time to time determine. During the term of this Plan,
Rosetta will at all times reserve and keep available such number of shares of
Common Stock as shall be sufficient to satisfy the requirements of the
Plan.
4.2 Adjustments for Recapitalizations and
Reorganizations. Subject to Article XIII, if there is any change in the
number or kind of shares of Common Stock outstanding (i) by reason of a stock
dividend, spin-off, recapitalization, stock split, or combination or exchange of
shares, (ii) by reason of a merger, reorganization, or consolidation, (iii) by
reason of a reclassification or change in par value, or (iv) by reason of any
other extraordinary or unusual event affecting the outstanding Common Stock as a
class without Rosetta’s receipt of consideration, or if the value of outstanding
shares of Common Stock is reduced as a result of a spin-off or Rosetta’s payment
of an extraordinary cash dividend, or distribution or dividend or distribution
consisting of any assets of Rosetta other than cash, the maximum number and kind
of shares of Common Stock available for issuance under the Plan, the maximum
number and kind of shares of Common Stock for which any individual may receive
Awards in any fiscal year, the number and kind of shares of Common Stock covered
by outstanding Awards, and the price per share or the applicable market value or
performance target of such Awards shall be equitably and proportionately
adjusted by the Committee to reflect any increase or decrease in the number of,
or change in the kind or value of, issued shares
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of
Common Stock to preclude, to the extent practicable, the enlargement or dilution
of rights under such Awards; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
4.3 Adjustments for Awards. The
Committee shall have sole discretion to determine the manner in which shares of
Common Stock available for grant of Awards under the Plan are counted. Without
limiting the discretion of the Committee under this Section 4.3, unless
otherwise determined by the Committee, the following rules shall apply for the
purpose of determining the number of shares of Common Stock available for grant
of Awards under the Plan:
(a) Options, Restricted Stock and Stock
Awards. The grant of Options, Restricted Stock or Stock Awards shall
reduce the number of shares of Common Stock available for grant of Awards under
the Plan by the number of shares of Common Stock subject to such an
Award.
(b) SARs. The grant of SARs that may
be paid or settled (i) only in Common Stock or (ii) in either cash or Common
Stock shall reduce the number of shares available for grant of Awards under the
Plan by the number of shares subject to such an Award; provided, however, that
upon the exercise of SARs, the excess of the number of shares of Common Stock
with respect to which the Award is exercised over the number of shares of Common
Stock issued upon exercise of the Award shall again be available for grant of
Awards under the Plan. The grant of SARs that may be paid or settled only for
cash shall not affect the number of shares available for grant of Awards under
the Plan.
(c) Restricted Stock Units. The grant of Restricted
Stock Units (including those credited to a Participant in respect of a Dividend
Unit Right) that may be paid or settled (i) only in Common Stock or (ii) in
either cash or Common Stock shall reduce the number of shares available for
grant of Awards under the Plan by the number of shares subject to such an Award;
provided, however, that upon settlement of the Award, the excess, if any, of the
number of shares of Common Stock that had been subject to such Award over the
number of shares of Common Stock issued upon its settlement shall again be
available for grant of Awards under the Plan. The grant of Restricted Stock
Units that may be paid or settled only for cash shall not affect the number of
shares available for grant of Awards under the Plan.
(d) Other Incentive Awards. The
grant of a Performance Award or Other Incentive Award in the form of Common
Stock or that may be paid or settled (i) only in Common Stock or (ii) in either
Common Stock or cash shall reduce the number of shares available for grant of
Awards under the Plan by the number of shares subject to such an Award;
provided, however, that upon settlement of the Award, the excess, if any, of the
number of shares of Common Stock that had been subject to such Award over the
number of shares of Common Stock issued upon its settlement shall again be
available for grant of Awards under the Plan. The grant of a Performance Award
or Other Incentive Award that may be paid or settled only for cash shall not
affect the number of shares available for grant of Awards under the
Plan.
(e) Cancellation, Forfeiture and
Termination. If any Award referred to in Sections 4.3(a), (b), (c), or
(d) (other than an Award that may be paid or settled only for cash) is canceled
or forfeited, or terminates, expires or lapses, for any reason, the shares then
subject to such Award shall again be available for grant of Awards under the
Plan.
(f) Payment of Exercise Price and
Withholding Taxes. If previously acquired shares of Common Stock are used
to pay the exercise price of an Award, the number of shares available for grant
of Awards under the Plan shall be increased by the number of shares delivered as
payment of such exercise price. If previously acquired shares of Common Stock
are used to pay withholding taxes payable upon exercise, vesting or payment of
an Award, or shares of Common Stock that would be acquired upon exercise,
vesting or payment of an Award are withheld to pay withholding taxes payable
upon exercise, vesting or payment of such Award, the number of shares available
for grant of Awards under the Plan shall be increased by the number of shares
delivered or withheld as payment of such withholding taxes.
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ARTICLE
V. ELIGIBILITY
5.1 The
Committee shall select Participants from those Employees, Outside Directors and
other individuals or entities providing services to the Company that, in the
opinion of the Committee, are in a position to make a significant contribution
to the success of the Company. Once a Participant has been selected for an Award
by the Committee, the Committee shall determine the type and size of Award to be
granted to the Participant and shall establish in the related Award Agreement
the terms, conditions, restrictions and limitations applicable to the Award, in
addition to those set forth in the Plan and the administrative guidelines and
regulations, if any, established by the Committee.
ARTICLE
VI. FORM OF AWARDS
6.1 Form of Awards. Awards may be
granted under the Plan, in the Committee’s sole discretion, in the form of
Options pursuant to Article VII, SARs pursuant to Article VIII, Restricted Stock
pursuant to Article IX, Restricted Stock Units pursuant to Article X,
Performance Awards pursuant to Article XI, and Stock Awards and Other Incentive
Awards pursuant to Article XII, or a combination thereof. All Awards shall be
subject to the terms, conditions, restrictions and limitations of the Plan. The
Committee may, in its sole discretion, subject any Award to such other terms,
conditions, restrictions and/or limitations (including without limitation the
time and conditions of exercise, vesting or payment of an Award and restrictions
on transferability of any shares of Common Stock issued or delivered pursuant to
an Award), provided they are not inconsistent with the terms of the Plan. The
Committee may, but is not required to, subject an Award to such conditions as it
determines are necessary or appropriate to ensure than an Award constitutes
“qualified performance based compensation” within the meaning of section 162(m)
of the Code and the regulations thereunder. Awards under a particular Article of
the Plan need not be uniform, and Awards under more than one Article of the Plan
may be combined in a single Award Agreement. Any combination of Awards may be
granted at one time and on more than one occasion to the same Participant.
Subject to compliance with applicable tax law, an Award Agreement may provide
that a Participant may elect to defer receipt of income attributable to the
exercise or vesting of an Award.
6.2 No Repricing or Reload Rights.
Except for adjustments made pursuant to Section 4.2, no Award may be
repriced, replaced, regranted through cancellation or otherwise modified without
stockholder approval, if the effect would be to reduce the exercise price for
the shares underlying such Award. The Committee may not cancel an outstanding
Option that is under water for the purpose of granting a replacement Award of a
different type.
6.3 Loans. The Committee may, in
its sole discretion, approve the extension of a loan by the Company to a
Participant who is an Employee to assist the Participant in paying the exercise
price or purchase price of an Award; provided, however, that no loan shall be
permitted if the extension of such loan would violate any provision of
applicable law. Any loan will be made upon such terms and conditions as the
Committee shall determine.
ARTICLE
VII. OPTIONS
7.1 General. Awards may be granted
in the form of Options that may be Incentive Stock Options or Nonqualified Stock
Options, or a combination of both; provided, however, that Incentive Stock
Options may be granted only to Employees.
7.2 Terms and Conditions of Options.
An Option shall be exercisable in whole or in such installments and at
such times as may be determined by the Committee. The price at which a share of
Common Stock may be purchased upon exercise of an Option shall be determined by
the Committee, but such exercise price shall not be less than 100% of the Fair
Market Value per share of Common Stock on the Grant Date unless the Option was
granted through the assumption of, or in substitution for, outstanding awards
previously granted to individuals who became Employees as a result of a merger,
consolidation, acquisition, or other corporate transaction involving the Company
and complies with section 409A of the Code. Except as otherwise provided in
Section 7.3, the term of each Option shall be as specified by the Committee;
provided, however, that no Options shall be exercisable later than ten years
after the Grant Date. Options may be granted with respect to Restricted Stock or
shares of Common Stock that are not Restricted Stock, as determined by the
Committee in its sole discretion.
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7.3 Restrictions
Relating to Incentive Stock Options.
(a) Options granted in the form of
Incentive Stock Options shall, in addition to being subject to the terms and
conditions of Section 7.2, comply with section 422(b) of the Code. To the extent
the aggregate Fair Market Value (determined as of the times the respective
Incentive Stock Options are granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the Company
exceeds $100,000, such excess Incentive Stock Options shall be treated as
options that do not constitute Incentive Stock Options. The Committee shall
determine, in accordance with the applicable provisions of the Code, which of a
Participant’s Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the Participant of such
determination as soon as practicable after such determination. The price at
which a share of Common Stock may be purchased upon exercise of an Incentive
Stock Option shall be determined by the Committee, but such exercise price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on the
Grant Date. No Incentive Stock Option shall be granted to an Employee under the
Plan if, at the time such Option is granted, such Employee owns stock possessing
more than 10% of the total combined voting power of all classes of stock of
Rosetta or an Affiliate, within the meaning of section 422(b)(6) of the Code,
unless (i) on the Grant Date of such Option, the exercise price of such Option
is at least 110% of the Fair Market Value of the Common Stock subject to the
Option and (ii) such Option by its terms is not exercisable after the expiration
of five years from the Grant Date of the Option.
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(b)
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Each
Participant awarded an Incentive Stock Option shall notify Rosetta in
writing immediately after the date he or she makes a disqualifying
disposition of any shares of Common Stock acquired pursuant to the
exercise of such Incentive Stock Option. A disqualifying disposition is
any disposition (including any sale) of such Common Stock before the later
of (i) two years after the Grant Date of the Incentive Stock Option or
(ii) one year after the date of exercise of the Incentive Stock
Option.
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7.4 Exercise
of Options.
(a) Subject
to the terms and conditions of the Plan, Options shall be exercised by the
delivery of a written notice of exercise to Rosetta, setting forth the number of
whole shares of Common Stock with respect to which the Option is to be
exercised, accompanied by full payment for such shares.
(b) Upon
exercise of an Option, the exercise price of the Option shall be payable to
Rosetta in full either: (i) in cash or an equivalent acceptable to the
Committee, or (ii) in the sole discretion of the Committee and in
accordance with any applicable administrative guidelines established by the
Committee, by tendering one or more previously acquired nonforfeitable,
unrestricted shares of Common Stock that have been held by the Participant for
at least six months having an aggregate Fair Market Value at the time of
exercise equal to the total exercise price, or (iii) in a combination of
the forms of payment specified in clauses (i) and (ii) above.
(c) During
such time as the Common Stock is registered under Section 12 of the Exchange
Act, to the extent permissible under applicable law, payment of the exercise
price of an Option may also be made, in the absolute discretion of the
Committee, by delivery to Rosetta or its designated agent of an executed
irrevocable option exercise form together with irrevocable instructions to a
broker-dealer to sell or margin a sufficient portion of the shares with respect
to which the Option is exercised and deliver the sale or margin loan proceeds
directly to Rosetta to pay the exercise price and any required withholding
taxes.
(d) As
soon as reasonably practicable after receipt of written notification of exercise
of an Option and full payment of the exercise price and any required withholding
taxes, Rosetta shall (i) deliver to the Participant, in the Participant’s name
or the name of the Participant’s designee, a stock certificate or certificates
in an appropriate aggregate amount based upon the number of shares of Common
Stock purchased under the Option, or (ii) cause to be issued in the
Participant’s name or the name of the Participant’s designee, in book-entry
form, an appropriate number of shares of Common Stock based upon the number of
shares purchased under the Option.
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7.5 Termination of Employment or Service.
Each Award Agreement embodying the Award of an Option shall set forth the
extent to which the Participant shall have the right to exercise the Option
following termination of the Participant’s employment or service with the
Company. Such provisions shall be determined by the Committee in its absolute
discretion, need not be uniform among all Options granted under the Plan and may
reflect distinctions based on the reasons for termination of employment or
service. In the event a Participant’s Award Agreement embodying the award of an
Option does not set forth such termination provisions, the following termination
provisions shall apply with respect to such Award:
(a) Termination Other Than For Cause.
If the employment or service of a Participant shall terminate for any
reason other than Cause, each outstanding Option held by the Participant may be
exercised, to the extent then vested, until the earlier of (i) the expiration of
one year from the date of such termination of employment or service or (ii) the
expiration of the term of such Option.
(b) Termination for Cause.
Notwithstanding paragraphs (a) above, if the employment or service of a
Participant shall terminate for Cause, each outstanding Option held by the
Participant may be exercised, to the extent then vested, until the earlier of
(i) the expiration of 30 days from the date of such termination of employment or
service or (ii) the expiration of the terms of such Option.
Notwithstanding
the foregoing, an Option will not be treated as an Incentive Stock Option unless
at all times beginning on the Grant Date and ending on the day three months (one
year in the case of a Participant who is “disabled” within the meaning of
Section 22(e)(3) of the Code) before the date of exercise of the Option, the
Participant is an employee of Rosetta or an Affiliate (or a corporation or a
parent or subsidiary corporation of such corporation issuing or assuming an
option in a transaction to which Section 424(a) of the Code
applies).
ARTICLE
VIII. STOCK APPRECIATION RIGHTS
8.1 General. The Committee may
grant Awards in the form of SARs in such numbers and at such times as it shall
determine. SARs shall vest and be exercisable in whole or in such installments
and at such times as may be determined by the Committee. The price at which SARs
may be exercised shall be determined by the Committee but shall not be less than
100% of the Fair Market Value per share of Common Stock on the Grant Date unless
the SARs were granted through the assumption of, or in substitution for,
outstanding awards previously granted to individuals who became Employees as a
result of a merger, consolidation, acquisition, or other corporate transaction
involving the Company and comply with section 409A of the Code. The term of each
SAR shall be as specified by the Committee; provided, however, that no SARs
shall be exercisable later than ten years after the Grant Date. At the time of
an Award of SARs, the Committee may, in its sole discretion, prescribe
additional terms, conditions, restrictions and limitations applicable to the
SARs, including without limitation rules pertaining to the termination of
employment or service (by reason of death, permanent and total disability, or
otherwise) of a Participant prior to exercise of the SARs, as it determines are
necessary or appropriate, provided they are not inconsistent with the
Plan.
8.2 Exercise of SARs. SARs shall
be exercised by the delivery of a written notice of exercise to Rosetta, setting
forth the number of whole shares of Common Stock with respect to which the Award
is being exercised. Upon the exercise of SARs, the Participant shall be entitled
to receive an amount equal to the excess of the aggregate Fair Market Value of
the shares of Common Stock with respect to which the Award is exercised
(determined as of the date of such exercise) over the aggregate exercise price
of such shares. Such amount shall be payable to the Participant in cash or in
shares of Common Stock, as provided in the Award Agreement; provided, however,
that if SARs are to be settled in cash, the SARs shall be structured to avoid
negative tax consequences to the Participant under Section 409A of the
Code.
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ARTICLE
IX. RESTRICTED STOCK
9.1 General. Awards may be granted
in the form of Restricted Stock in such numbers and at such times as the
Committee shall determine. The Committee shall impose such terms, conditions and
restrictions on Restricted Stock as it may deem advisable, including without
limitation providing for vesting upon the achievement of specified performance
goals pursuant to a Performance Award and restrictions under applicable Federal
or state securities laws. A Participant shall not be required to make any
payment for Restricted Stock unless required by the Committee pursuant to
Section 9.2.
9.2 Purchased Restricted Stock.
The Committee may in its sole discretion require a Participant to pay a
stipulated purchase price for each share of Restricted Stock (“Purchased
Restricted Stock”).
9.3 Restricted Period. At the time
an Award of Restricted Stock is granted, the Committee shall establish a
Restricted Period applicable to such Restricted Stock. Each Award of Restricted
Stock may have a different Restricted Period in the sole discretion of the
Committee.
9.4 Other Terms and Conditions.
Restricted Stock shall constitute issued and outstanding shares of Common
Stock for all corporate purposes. Restricted Stock awarded to a Participant
under the Plan shall be registered in the name of the Participant or, at the
option of Rosetta, in the name of a nominee of Rosetta, and shall be issued in
book-entry form or represented by a stock certificate. Subject to the terms and
conditions of the Award Agreement, a Participant to whom Restricted Stock has
been awarded shall have the right to receive dividends thereon during the
Restricted Period, to vote the Restricted Stock and to enjoy all other
stockholder rights with respect thereto, except that (i) Rosetta shall retain
custody of any certificates evidencing the Restricted Stock during the
Restricted Period, and (ii) the Participant may not sell, transfer, pledge,
exchange, hypothecate or otherwise dispose of the Restricted Stock during the
Restricted Period. A breach of the terms and conditions established by the
Committee pursuant to the Award of the Restricted Stock may result in a
forfeiture of the Restricted Stock. At the time of an Award of Restricted Stock,
the Committee may, in its sole discretion, prescribe additional terms,
conditions, restrictions and limitations applicable to the Restricted Stock,
including without limitation rules pertaining to the termination of employment
or service (by reason of death, permanent and total disability, retirement,
cause or otherwise) of a Participant prior to expiration of the Restricted
Period.
9.5 Miscellaneous. Nothing in this
Article shall prohibit the exchange of shares of Restricted Stock pursuant
to a plan of merger or reorganization for stock or other securities of Rosetta
or another corporation that is a party to the reorganization, provided that the
stock or securities so received in exchange for shares of Restricted Stock
shall, except as provided in Article XIII, become subject to the restrictions
applicable to such Restricted Stock. Any shares of Common Stock received as a
result of a stock split or stock dividend with respect to shares of Restricted
Stock shall also become subject to the restrictions applicable to such
Restricted Stock.
ARTICLE
X. RESTRICTED STOCK UNITS
10.1 General. Awards may be granted
in the form of Restricted Stock Units in such numbers and at such times as the
Committee shall determine. The Committee shall impose such terms, conditions and
restrictions on Restricted Stock Units as it may deem advisable, including
without limitation prescribing the period over which and the conditions upon
which a Restricted Stock Unit may become vested or be forfeited, and providing
for vesting upon the achievement of specified performance goals pursuant to a
Performance Award. Upon the lapse of restrictions with respect to each
Restricted Stock Unit, the Participant shall be entitled to receive from the
Company one share of Common Stock or an amount of cash equal to the Fair Market
Value of one share of Common Stock, as provided in the Award Agreement. A
Participant shall not be required to make any payment for Restricted Stock
Units.
10.2 Restricted Period. At the time
an Award of Restricted Stock Units is granted, the Committee shall establish a
Restricted Period applicable to such Restricted Stock Units. Each Award of
Restricted Stock Units may have a different Restricted Period in the sole
discretion of the Committee.
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10.3 Cash Dividend Rights and Dividend
Unit Rights. To the extent provided by the Committee in its sole
discretion, a grant of Restricted Stock Units may include a tandem Cash Dividend
Right or Dividend Unit Right grant. A grant of Cash Dividend Rights may provide
that such Cash Dividend Rights shall be paid directly to the Participant at the
time of payment of related dividend, be credited to a bookkeeping account
subject to the same vesting and payment provisions as the tandem Award (with or
without interest in the sole discretion of the Committee), or be subject to such
other provisions or restrictions as determined by the Committee in its sole
discretion. A grant of Dividend Unit Rights may provide that such Dividend Unit
Rights shall be subject to the same vesting and payment provisions as the tandem
Award or be subject to such other provisions and restrictions as determined by
the Committee in its sole discretion.
10.4 Other Terms and Conditions. At
the time of an Award of Restricted Stock Units, the Committee may, in its sole
discretion, prescribe additional terms, conditions, restrictions and limitations
applicable to the Restricted Stock Units, including without limitation rules
pertaining to the termination of employment or service (by reason of death,
permanent and total disability, retirement, cause or otherwise) of a Participant
prior to expiration of the Restricted Period. Awards of Restricted Stock Units
are considered nonqualified deferred compensation subject to section 409A of the
Code and will be designed to comply with that section.
ARTICLE
XI. PERFORMANCE AWARDS
11.1 General. Awards may be granted
in the form of Performance Awards that may be payable in the form of cash,
shares of Common Stock, or a combination of both, in such amounts and at such
times as the Committee shall determine. Performance Awards shall be conditioned
upon the level of achievement of one or more stated performance goals over a
specified performance period that shall not be shorter than one year.
Performance Awards may be combined with other Awards to impose performance
criteria as part of the terms of such other Awards.
11.2 Terms and Conditions. Each
Award Agreement embodying a Performance Award shall set forth (i) the amount,
including a target and maximum amount if applicable, a Participant may earn in
the form of cash or shares of Common Stock or a formula for determining such
amount, (ii) the performance criteria and level of achievement versus such
criteria that shall determine the amount payable or number of shares of Common
Stock to be granted, issued, retained and/or vested, (iii) the performance
period over which performance is to be measured, (iv) the timing of any payments
to be made, (v) restrictions on the transferability of the Award, and (vi) such
other terms and conditions as the Committee may determine that are not
inconsistent with the Plan.
11.3 Code Section 162(m) Requirements.
From and after the date on which remuneration paid pursuant to the Plan
becomes subject to the deduction limitation of Section 162(m) of the Code, the
Committee shall determine in its sole discretion whether all or any portion of a
Performance Award shall be intended to satisfy the requirements for
“performance-based compensation” under section 162(m) of the Code (the “162(m)
Requirements”). The performance criteria for any Performance Award that is
intended to satisfy the 162(m) Requirements shall be established in writing by
the Committee based on one or more performance goals as set forth in Section
11.4 not later than 90 days after commencement of the performance period with
respect to such Award, provided that the outcome of the performance in respect
of the goals remains substantially uncertain as of such time. The maximum amount
that may be paid in cash pursuant to Performance Awards granted to a Participant
with respect to a Rosetta’s fiscal year that are intended to satisfy the 162(m)
Requirements is $1,000,000; provided, however, that such maximum amount with
respect to a Performance Award that provides for a performance period longer
than one fiscal year shall be the foregoing limit multiplied by the number of
full fiscal years in the performance period. At the time of the grant of a
Performance Award and to the extent permitted under Code section 162(m) and
regulations thereunder for a Performance Award intended to satisfy the 162(m)
Requirements, the Committee may provide for the manner in which the performance
goals will be measured in light of specified corporate transactions,
extraordinary events, accounting changes and other similar
occurrences.
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11.4 Performance Goals. The
performance measure(s) to be used for purposes of Performance Awards may be
described in terms of objectives that are related to the individual Participant
or objectives that are Company-wide or related to a subsidiary, division,
department, region, function or business unit of the Company in which the
Participant is employed or with respect to which the Participant performs
services, and may consist of one or more or any combination of the following
criteria: (i) earnings or earnings per share (whether on a pre-tax,
after-tax, operational or other basis), (ii) return on equity, (iii) return on
assets or net assets, (iv) return on capital or invested capital and other
related financial measures, (v) cash flow, (vi) revenues, (vii) income or
operating income, (viii) expenses or expense levels, (ix) one or more operating
ratios, (x) stock price, (xi) total stockholder return, (xii) market share,
(xiii) operating profit, (xiv) profit margin, (xv) capital expenditures, (xvi)
net borrowing, debt leverage levels, credit quality or debt ratings, (xvii) the
accomplishment of mergers, acquisitions, dispositions, public offerings or
similar extraordinary business transactions, (xviii) net asset value per share,
(xix) economic value added, (xx) individual business objectives, (xxi) growth in
production, and (xxii) added reserves. The performance goals based on these
performance measures may be made relative to the performance of other business
entities.
11.5 Certification and Negative
Discretion. Prior to the payment of any compensation pursuant to a
Performance Award that is intended to satisfy the 162(m) Requirements, the
Committee shall certify the extent to which the performance goals and other
material terms of the Award have been achieved or satisfied. The Committee in
its sole discretion shall have the authority to reduce, but not to increase, the
amount payable and the number of shares to be granted, issued, retained or
vested pursuant to a Performance Award.
ARTICLE
XII. STOCK AWARDS AND OTHER INCENTIVE AWARDS
12.1 Stock Awards. Stock Awards may
be granted to Participants upon such terms and conditions as the Committee may
determine. Shares of Common Stock issued pursuant to Stock Awards may be issued
for cash consideration or for no cash consideration. The Committee shall
determine the number of shares of Common Stock to be issued pursuant to a Stock
Award.
12.2 Other Incentive Awards. Other
Incentive Awards may be granted in such amounts, upon such terms and at such
times as the Committee shall determine. Other Incentive Awards may be granted
based upon, payable in or otherwise related to, in whole or in part, shares of
Common Stock if the Committee, in its sole discretion, determines that such
Other Incentive Awards are consistent with the purposes of the Plan. Each grant
of an Other Incentive Award shall be evidenced by an Award Agreement that shall
specify the amount of the Other Incentive Award and the terms, conditions,
restrictions and limitations applicable to such Award. Payment of Other
Incentive Awards shall be made at such times and in such form, which may be
cash, shares of Common Stock or other property (or a combination thereof), as
established by the Committee, subject to the terms of the Plan.
ARTICLE
XIII. CORPORATE CHANGE
13.1 Vesting of Awards. Except as
provided otherwise below in this Article or in an Award Agreement at the time an
Award is granted or amended, notwithstanding anything to the contrary in this
Plan, if a Participant's employment or service with the Company is terminated
for any reason other than death, Cause or Inability to Perform or if a
Participant voluntarily terminates employment or service for Good Reason, in
either case within the one-year period following a Corporate Change of Rosetta,
any time periods, conditions or contingencies relating to the exercise or
realization of, or lapse of restrictions under, any Award shall be automatically
accelerated or waived so that:
(a) if
no exercise of the Award is required, the Award may be realized in full at the
time of the occurrence of the Participant's termination of employment or
service; or
(b) if
exercise of the Award is required, the Award may be exercised in full commencing
on the date of the Participant's termination of employment or
service.
In the
event all outstanding Awards are replaced in connection with a Corporate Change
by comparable types of awards of at least substantially equivalent value, as
determined by the Committee in its sole discretion, such replacement awards
shall provide for automatic acceleration or waiver as provided above in the
event of a Participant's involuntary termination of employment or service with
the Company other than for Cause or voluntary termination of employment or
service for Good Reason, as applicable.
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13.2 Cancellation of Awards.
Notwithstanding the foregoing, on or prior to the date of a Corporate
Change, the Committee may take any of the following actions with respect to any
or all outstanding Awards, without the consent of any Participant: (i) the
Committee may require that Participants surrender their outstanding Options and
SARs in exchange for payment by the Company, in cash, Common Stock, the
securities of another company, or a combination thereof, as determined by the
Committee, in an amount equal to the amount, if any, by which the then Fair
Market Value of the shares of Common Stock subject to the Participant’s
unexercised Options and SARs exceeds the exercise price or grant price, and (ii)
with respect to Participants holding Restricted Stock, Restricted Stock Units,
Performance Awards or Other Incentive Awards, and related Cash Dividend Rights
and Dividend Unit Rights (if applicable), the Committee may determine that such
Participants shall receive payment in settlement of such Awards (and dividend
rights), in an amount equivalent to the value of such Awards (and dividend
rights) at the time of such settlement.
ARTICLE
XIV. AMENDMENT AND TERMINATION
14.1 Plan Amendment and Termination.
The Board may at any time suspend, terminate, amend or modify the Plan,
in whole or in part; provided, however, that no amendment or modification of the
Plan shall become effective without the approval of such amendment or
modification by the holders of at least a majority of the shares of Common Stock
if (i) such amendment or modification increases the maximum number of shares
subject to the Plan (except as provided in Article IV) or changes the
designation or class of persons eligible to receive Awards under the Plan, or
(ii) counsel for Rosetta determines that such approval is otherwise required by
or necessary to comply with applicable law or the listing requirements of NASDAQ
or such other exchange or association on which the Common Stock is then listed
or quoted. An amendment to the Plan shall not require stockholder approval if it
curtails rather than expands the scope of the Plan, nor if it is made to conform
the Plan to new statutory or regulatory requirements that arise after submission
of the Plan to stockholders for their approval, such as, without limitation,
changes to section 409A of the Code, or regulations issued thereunder. Upon
termination of the Plan, the terms and provisions of the Plan shall,
notwithstanding such termination, continue to apply to Awards granted prior to
such termination. Except as otherwise provided herein, no suspension,
termination, amendment or modification of the Plan shall adversely affect in any
material way any Award previously granted under the Plan, without the consent of
the Participant (or the Permitted Transferee) holding such Award.
14.2 Award Amendment and Cancellation.
The Committee may amend the terms of any outstanding Award granted
pursuant to the Plan, but except as otherwise provided herein, no such amendment
shall adversely affect in any material way the Participant’s (or a Permitted
Transferee’s) rights under an outstanding Award without the consent of the
Participant (or the Permitted Transferee) holding such Award.
ARTICLE
XV. MISCELLANEOUS
15.1 Award Agreements. After the
Committee grants an Award under the Plan to a Participant, Rosetta and the
Participant shall enter into an Award Agreement setting forth the terms,
conditions, restrictions and limitations applicable to the Award and such other
matters as the Committee may determine to be appropriate. The Committee may
permit or require a Participant to defer receipt of the payment of cash or the
delivery of shares of Common Stock that would otherwise be due to the
Participant in connection with any Award. Awards that are not paid currently
shall be recorded as payable on Rosetta’s records for the Plan. The terms and
provisions of the respective Award Agreements need not be identical. All Award
Agreements shall be subject to the provisions of the Plan, and in the event of
any conflict between an Award Agreement and the Plan, the terms of the Plan
shall govern.
15.2 Listing;
Suspension.
(a) As
long as the Common Stock is listed on a national securities exchange or system
sponsored by a national securities association, the issuance of any shares of
Common Stock pursuant to an Award shall be conditioned upon such shares being
listed on such exchange or system. Rosetta shall have no obligation to issue
such shares unless and until such shares are so listed, and the right to
exercise any Option or other Award with respect to such shares shall be
suspended until such listing has been effected.
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(b) If
at any time counsel to Rosetta or its Affiliates shall be of the opinion that
any sale or delivery of shares of Common Stock pursuant to an Award is or may in
the circumstances be unlawful or result in the imposition of excise taxes on
Rosetta or its Affiliates under the laws of any applicable jurisdiction, Rosetta
or its Affiliates shall have no obligation to make such sale or delivery, or to
make any application or to effect or to maintain any qualification or
registration under the Securities Act, or otherwise, with respect to shares of
Common Stock or Awards, and the right to exercise any Option or other Award
shall be suspended until, in the opinion of such counsel, such sale or delivery
shall be lawful or will not result in the imposition of excise taxes on Rosetta
or its Affiliates.
(c) Upon
termination of any period of suspension under this Section, any Award affected
by such suspension that shall not then have expired or terminated shall be
reinstated as to all shares available before such suspension and as to shares
that would otherwise have become available during the period of such suspension,
but no such suspension shall extend the term of any Award unless otherwise
determined by the Committee in its sole discretion.
15.3 Additional Conditions.
Notwithstanding anything in the Plan to the
contrary: (i) the Committee may, if it shall determine it
necessary or desirable in its sole discretion, at the time of grant of any Award
or the issuance of any shares of Common Stock pursuant to any Award, require the
recipient of the Award or such shares of Common Stock, as a condition to the
receipt thereof, to deliver to Rosetta a written representation of present
intention to acquire the Award or such shares of Common Stock for his own
account for investment and not for distribution, (ii) the certificate for shares
of Common Stock issued to a Participant may include any legend that the
Committee deems appropriate to reflect any restrictions on transfer, and (iii)
all certificates for shares of Common Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the SEC,
any stock exchange or association upon which the Common Stock is then listed or
quoted, any applicable federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be placed on
any such certificates to make appropriate reference to such
restrictions.
15.4 Transferability.
(a) All
Awards granted to a Participant shall be exercisable during his lifetime only by
such Participant, or if applicable, a Permitted Transferee as provided in
subsection (c) of this Section; provided, however, that in the event of a
Participant’s legal incapacity, an Award may be exercised by his guardian or
legal representative. When a Participant dies, the personal representative,
beneficiary, or other person entitled to succeed to the rights of the
Participant may acquire the rights under an Award. Any such successor must
furnish proof satisfactory to Rosetta of the successor’s entitlement to receive
the rights under an Award under the Participant’s will or under the applicable
laws of descent and distribution.
(b) Except
as otherwise provided in this Section, no Award shall be subject to execution,
attachment or similar process, and no Award may be sold, transferred, pledged,
exchanged, hypothecated or otherwise disposed of, other than by will or pursuant
to the applicable laws of descent and distribution. Any attempted sale,
transfer, pledge, exchange, hypothecation or other disposition of an Award not
specifically permitted by the Plan or the Award Agreement shall be null and void
and without effect.
(c) If
provided in the Award Agreement, Nonqualified Stock Options may be transferred
by a Participant to a Permitted Transferee. For purposes of the Plan, “Permitted
Transferee” means (i) a member of a Participant’s immediate family, (ii) any
person sharing the Participant’s household (other than a tenant or employee of
the Participant), (iii) trusts in which a person listed in (i) or (ii) above has
more than 50% of the beneficial interest, (iv) a foundation in which the
Participant or a person listed in (i) or (ii) above controls the management
of assets, (v) any other entity in which the Participant or a person listed in
(i) or (ii) above owns more than 50% of the voting interests, provided that in
the case of the preceding clauses (i) through (v), no consideration is provided
for the transfer, and (vi) any transferee permitted under applicable securities
and tax laws as determined by counsel to Rosetta. In determining whether a
person is a “Permitted Transferee,” immediate family members shall include a
Participant’s child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
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father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships.
(d) Incident
to a Participant’s divorce, the Participant may request that Rosetta agree to
observe the terms of a domestic relations order which may or may not be part of
a qualified domestic relations order (as defined in Code section 414(p)) with
respect to all or a part of one or more Awards made to the Participant under the
Plan. Rosetta’s decision regarding such a request shall be made by the
Committee, in its sole and absolute discretion, based upon the best interests of
Rosetta. The Committee’s decision need not be uniform among Participants. As a
condition of participation, a Participant agrees to hold Rosetta harmless from
any claim that may arise out of Rosetta’s observance of the terms of any such
domestic relations order.
15.5 Withholding Taxes. The Company
shall be entitled to deduct from any payment made under the Plan, regardless of
the form of such payment, the amount of all applicable income and employment
taxes required by law to be withheld with respect to such payment, may require
the Participant to pay to the Company such withholding taxes prior to and as a
condition of the making of any payment or the issuance or delivery of any shares
of Common Stock under the Plan, and shall be entitled to deduct from any other
compensation payable to the Participant any withholding obligations with respect
to Awards. In accordance with any applicable administrative guidelines it
establishes, the Committee may allow a Participant to pay the amount of taxes
required by law to be withheld from or with respect to an Award by
(i) withholding shares of Common Stock from any payment of Common Stock due
as a result of such Award, or (ii) permitting the Participant to deliver to
the Company previously acquired shares of Common Stock, in each case having an
aggregate Fair Market Value equal to the amount of such required withholding
taxes. No payment shall be made and no shares of Common Stock shall be issued
pursuant to any Award unless and until the applicable tax withholding
obligations have been satisfied.
15.6 No Fractional Shares. No
fractional shares of Common Stock shall be issued or delivered pursuant to the
Plan or any Award granted hereunder, provided that the Committee in its sole
discretion may round fractional shares down to the nearest whole share or settle
fractional shares in cash.
15.7 Notices. All notices required
or permitted to be given or made under the Plan or pursuant to any Award
Agreement (unless provided otherwise in such Award Agreement) shall be in
writing and shall be deemed to have been duly given or made if
(i) delivered personally, (ii) transmitted by first class registered
or certified United States mail, postage prepaid, return receipt requested,
(iii) sent by prepaid overnight courier service, or (iv) sent by
telecopy or facsimile transmission, with confirmation receipt, to the person who
is to receive it at the address that such person has theretofore specified by
written notice delivered in accordance herewith. Such notices shall be effective
(i) if delivered personally or sent by courier service, upon actual receipt
by the intended recipient, (ii) if mailed, upon the earlier of five days
after deposit in the mail or the date of delivery as shown by the return receipt
therefor, or (iii) if sent by telecopy or facsimile transmission, when the
answer back is received. Rosetta or a Participant may change, at any time and
from time to time, by written notice to the other, the address that it or such
Participant had theretofore specified for receiving notices. Until such address
is changed in accordance herewith, notices hereunder or under an Award Agreement
shall be delivered or sent (i) to a Participant at his address as set forth
in the records of the Company or (ii) to Rosetta at the principal executive
offices of Rosetta clearly marked “Attention: General
Counsel.”
15.8 Compliance with Law and Stock
Exchange or Association Requirements. In addition, it is the intent of
Rosetta that Options designated Incentive Stock Options comply with the
applicable provisions of Section 422 of the Code, and that Awards intended to
constitute “qualified performance-based awards” comply with the applicable
provisions of Section 162(m) of the Code and that any deferral of the receipt of
the payment of cash or the delivery of shares of Common Stock that the Committee
may permit or require, and any Award granted that is subject to Section 409A of
the Code, comply with the requirements of Section 409A of the Code. To the
extent that any legal requirement of Section 16 of the Exchange Act or Sections
422, 162(m) or 409A of the Code as set forth in the Plan ceases to be required
under Section 16 of the Exchange Act or Sections 422, 162(m) or 409A of the
Code, that Plan provision shall cease to apply. Any provision of this Plan to
the contrary notwithstanding, the Committee may revoke any Award if it is
contrary to law, governmental regulation, or stock exchange requirements or
modify an Award to bring it into compliance with any government regulation or
stock exchange requirements. The Committee may agree to limit its authority
under this Section.
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15.9 California Blue Sky Laws.
Prior to the effective registration of the Common Stock under Section 12
of the Exchange Act, (i) Rosetta shall deliver a balance sheet and an income
statement at least annually to each Participant performs services in the State
of California, unless such Participant is a key employee whose duties in
connection with the Company assure such Participant access to equivalent
information, (ii) the Compensation Committee may not impose upon any Award grant
made to a Participant performs services in the State of California a vesting
schedule that is more restrictive than 20 percent per year vesting, with the
initial vesting to occur not later than one year after the Award’s grant date;
provided, however, that such vesting limitation shall not be applicable to any
Award grants made to individuals who are officers of Rosetta and (iii) with
respect to California Participants (including any individual whose Award is
based in whole or in part on services performed in California), the Plan shall
otherwise be administered in accordance with California Corporations Code
section 25102(o) and California Code of Regulations, Title 10, sections
260.140.41, 260.140.42, 260.140.45, and 260.140.46.
15.10 Binding Effect. The
obligations of Rosetta under the Plan shall be binding upon any successor
corporation or organization resulting from the merger, consolidation or other
reorganization of Rosetta, or upon any successor corporation or organization
succeeding to all or substantially all of the assets and business of Rosetta.
The terms and conditions of the Plan shall be binding upon each Participant and
his Permitted Transferees, heirs, legatees, distributees and legal
representatives.
15.11 Severability. If any provision
of the Plan or any Award Agreement is held to be illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining provisions
of the Plan or such agreement, as the case may be, but such provision shall be
fully severable and the Plan or such agreement, as the case may be, shall be
construed and enforced as if the illegal or invalid provision had never been
included herein or therein.
15.12 No Restriction of Corporate Action.
Nothing contained in the Plan shall be construed to prevent Rosetta or
any Affiliate from taking any corporate action (including any corporate action
to suspend, terminate, amend or modify the Plan) that is deemed by Rosetta or
such Affiliate to be appropriate or in its best interest, whether or not such
action would have an adverse effect on the Plan or any Awards made or to be made
under the Plan. No Participant or other person shall have any claim against
Rosetta or any Affiliate as a result of such action.
15.13 Governing Law. The Plan shall
be governed by and construed in accordance with the internal laws (and not the
principles relating to conflicts of laws) of the State of Texas except as
superseded by applicable federal law.
15.14 No Right, Title or Interest in
Company Assets. No Participant shall have any rights as a stockholder of
Rosetta as a result of participation in the Plan until the date of issuance of
Common Stock in his name and, in the case of Restricted Stock, unless and until
such rights are granted to the Participant pursuant to the Plan. To the extent
any person acquires a right to receive payments from the Company under the Plan,
such rights shall be no greater than the rights of an unsecured general creditor
of the Company, and such person shall not have any rights in or against any
specific assets of the Company. All Awards shall be unfunded.
15.15 Risk of Participation. Nothing
contained in the Plan shall be construed either as a guarantee by Rosetta or the
Affiliates, or their respective stockholders, directors, officers or employees,
of the value of any assets of the Plan or as an agreement by Rosetta or the
Affiliates, or their respective stockholders, directors, officers or employees,
to indemnify anyone for any losses, damages, costs or expenses resulting from
participation in the Plan.
15.16 No Guarantee of Tax Consequences.
No person connected with the Plan in any capacity, including without
limitation Rosetta and the Affiliates and their respective directors, officers,
agents and employees, makes any representation, commitment or guarantee that any
tax treatment, including without limitation federal, state and local income,
estate and gift tax treatment, will be applicable with respect to any Awards or
payments thereunder made to or for the benefit of a Participant under the Plan
or that such tax treatment will apply to or be available to a Participant on
account of participation in the Plan.
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15.17 Continued Employment or Service.
Nothing contained in the Plan or in any Award Agreement shall confer upon
any Participant the right to continue in the employ or service of the Company,
or interfere in any way with the rights of the Company to terminate a
Participant’s employment or service at any time, with or without cause. The loss
of existing or potential profit in Awards will not constitute an element of
damages in the event of termination of employment or service for any reason,
even if the termination is in violation of an obligation of Rosetta or an
Affiliate to the Participant.
15.18 Miscellaneous. Headings are
given to the articles and sections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction of the Plan or any provisions hereof. The use of
the masculine gender shall also include within its meaning the feminine.
Wherever the context of the Plan dictates, the use of the singular shall also
include within its meaning the plural, and vice versa.
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