Dear Shareholder,Based on feedback received from Shareholders, it appears there may be some misapprehension as to the operation of the Long Term Incentive Program (LTIP) for which Samson will be seeking Shareholder approval at the General Meeting to be held on May 30, 2012. This letter therefore sets out several issues: 1) The reasoning behind the LTIP 2) A proposed reduction in the maximum shares issued under the plan 3) The removal of Resolution 4 Samson’s Compensation Philosophy It is a well-established corporate practice to align the interests of Directors, executives and employees of a company with those of their shareholders by encouraging Directors, executives and employees to own an interest in the company. At the same time, it is an important management strategy to incentivize staff to perform above expectations, to achieve extraordinary results and commensurately increased shareholder value. In adopting this approach, Samson’s Board of Directors determined to utilise three distinct remuneration components: a Base Salary, a Bonus Pool, and the issue of Shares (with an associated payment of a Performance Award). When formulating these components and the Samson remuneration structure generally, the Board sought the advice of a highly reputable independent remuneration consultant. While the resulting compensation system includes some complexities, there is one simple and consistent principle—other than Base Salary, all compensation at Samson is totally dependent on performance, as measured against rigorous goals established by the Board of Directors. The Base Salaries of Samson executives are linked to industry norms and are dependent on experience, responsibility and vocation. The Bonus Pool is specific to each individual; however, as a general principle, the higher the level of responsibility, the higher the eligibility for Bonus Pool participation and in all cases the Bonus Pool size is directly linked to the individual’s salaries. Accordingly, for the CEO, up to 125% of his salary is available as a Bonus Pool, while at the VP and CFO levels, 80% of their Base Salaries is available as a Bonus Pool. At a more junior level, a 25% factor would apply.
Bonuses will be earned by meeting the thresholds set by the Board for each of the three performance criteria: share price growth, reserve growth and production growth. Each metric is treated individually. Additionally the Bonus Pool will include a discretionary component available for award by the Compensation Committee for performance by an individual outside of the performance criteria. To achieve the Bonus Pool in totality, the company has to meet the targeted thresholds for all three criteria. The current Bonus Plan also includes a set of “Stretch Targets”, which would reward the achievement of extraordinary results for Samson shareholders.The weighting of each of these metrics and the discretionary component for the six months ending June 30, 2012 is shown in the table below;
|Metric||Weight||Threshold||Target||Stretch||6 months to Dec2011(actual forreference)|
|Production||20%||55,000 bbls||75,000 bbls||100,000 bbls||43,842 bbls|
|Reserves||20%||0.853 MMstb||1.1595 MMstb||1.546 MMstb||0.443 MMstb|
|Share Price||30%||12 cents||15 cents||18 cents||9.5 cents|
Reduction of LTIP Maximum SharesWhen the LTIP was established by the Compensation Committee, 200 million shares was used as the maximum number in order to authorize the highest amount that might be issued over the 10 year life of the LTIP under US law. However, because the ASX Listing Rules requires the LTIP to be resubmitted after three years, the Board has now resolved to lower the maximum to 75 million shares. Shareholders should recognize that issuance of even this revised maximum would require Samson employees to provide consistently extraordinary results for the next three years. Notwithstanding approval of the LTIP, any subsequent share issue made under this plan to a Director (CEO in this case) would be subject to a further shareholder vote. Terry Barr Option Grant After some reflection, Terry Barr our CEO has asked the Board to remove consideration of Resolution 4 from the agenda for the General Meeting, which the Board has agreed to do. This resolution originally sought approval for the issue of 3 million options to the CEO. However Terry has concluded that, since he was eligible to receive Shares under the LTIP, he should not also receive options. Conclusion The Board of Directors believes that its current compensation system, including Base Salary, Bonus Pool and the LTIP, is reasonable and necessary to attract and to retain first class employees at Samson, who are essential to the future growth of the company and resulting increase in shareholder value. Accordingly after the modifications to the LTIP described in this letter and the withdrawal of Resolution 4, the Board is confident in commending these proposals to Shareholders and seeks their support for the remaining Resolutions placed before them at the General Meeting to be held May 30, 2012. Victor Rudenno CHAIRMAN