FX Energy (FXEN)

Long-Term Incentives

Equity Awards

We maintain several Equity Compensation Plans under which we make an annual grant of stock awards to eligible Executive Officers. Equity incentives represent a significant element of our total compensation program. As with other elements, the value received through various stock-based awards is included in our annual total compensation review process. The review includes an analysis of each specific component that comprises total compensation. Each year, we collect and review competitive data from the survey group specifically on the use of and value received through equity incentives. From this data, management develops and recommends annual awards that are typically at or below the mean of the survey group. Individual awards are based on a subjective assessment of individual performance, contribution and future potential.

Over the past several years, significant accounting and legislative changes have led us to review our existing programs and focus more closely on stock utilization (overhang and annual run rates). As a result, we have discontinued certain stock option awards under our Equity Compensation Plans. In 2005, we began instead issuing restricted stock awards to the majority of eligible senior management as their primary long-term equity incentive. Restricted stock awards provide value in the form of Company stock while resulting in lower share usage and lower dilution than the use of certain other types of equity awards. In addition, the vesting conditions (discussed below) and opportunity for long-term capital appreciation, which are characteristic of restricted stock awards, help the Company achieve its objectives of management retention and linking pay to the Company’s long-term shareholder value. Restricted stock awards do not offer dividend or voting rights until they vest and shares are subsequently released to the grantee.

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Vesting and Other Restrictions

Annual equity awards granted under our Equity Compensation Plans typically vest 33% on each of the first three anniversaries of their grant date, contingent on continued employment with the Company. With respect to supplemental awards, the Company may use a shorter or longer vesting period depending upon the Company’s retention objectives for the individual recipient. The Company believes that these provisions serve its objectives of retention and connecting the executives’ long-term interests to those of the Company.

Grant Timing and Pricing

We grant annual stock awards at our fourth quarter, regularly scheduled board meeting each year. Notwithstanding our grant schedule, we do not grant stock awards prior to the release of material, nonpublic information which is likely to result in an increase in the Company’s stock price, nor do we delay the grant of stock awards until after the release of material, non-public information that is likely to result in a decrease in the Company’s stock price. We may change the date upon which equity awards are granted if there is unreleased material, nonpublic information.