2 The material in this report is not “soliciting material” is not deemed "filed" with the Commission and is not to be incorporated by reference in any filing of Gran Tierra under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

14

---

 

 

The Compensation Committee of the Board of Directors acts on behalf of the Board to review, recommend for adoption and oversee Gran Tierra’s compensation strategy, policies, plans and programs, including:

·

establishing corporate and individual performance objectives relevant to the compensation of Gran Tierra’s executive officers, directors, and other senior management, as appropriate, and evaluating performance in light of these stated objectives;

·

establishing policies with respect to equity compensation arrangements;

·

reviewing and approving the compensation and other terms of employment or service, including severance and change-in-control arrangements, of Gran Tierra’s Chief Executive Officer and the other executive officers; and

·

reviewing and recommending to the Board for approval, modification or termination of Gran Tierra’s equity compensation plans, pension and profit-sharing plans, deferred compensation plans and other similar plans and programs, as well as administering such plans and programs.

The Compensation Committee also reviews with management Gran Tierra’s Compensation Discussion and Analysis and considers whether to recommend that it be included in proxy statements and other public filings.

Compensation Committee Processes and Procedures

Typically, the Compensation Committee meets at least once annually and with greater frequency if necessary.  The agenda for each meeting is usually developed by the chair of the Compensation Committee, in consultation with the Chief Executive Officer.  However, from time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, to provide financial or other background information or advice or to otherwise participate in Compensation Committee meetings.  The Chief Executive Officer may not participate in, or be present during, any deliberations or determinations of the Compensation Committee regarding his compensation or individual performance objectives.  The charter of the Compensation Committee grants the Compensation Committee full access to all books, records, facilities and personnel of Gran Tierra, as well as authority to obtain, at the expense of Gran Tierra, advice and assistance from internal and external legal, accounting or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties.  In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

During the past fiscal year, the Compensation Committee engaged Lane Caputo Compensation Inc. to develop a more relevant group of peers against which the Compensation Committee can benchmark executive compensation The compensation practices of this peer group, along with data from the 2009 Mercer Total Compensation Survey for the Petroleum Industry (for which a peer group was also developed by Lane Caputo in order to extract comparative information), provided the Compensation Committee with relevant and supportable market compensation data to both retrospectively evaluate the company’s 2009 executive compensation and make recommendations to the Board on the structure of the 2010 executive compensation arrangements. Services performed by Lane Caputo Compensation are pre-approved by the Compensation Committee and any additional work to be performed, including at the request of management, must be pre-approved by the Chair of the Compensation Committee. The retention of independent compensation advisors to the company are to be assessed on an annual basis.

 

Under its charter, the Compensation Committee may form, and delegate authority to, subcommittees, as appropriate.  In 2009, the Compensation Committee did not form any subcommittees.

In 2009/2010 Gran Tierra changed the timing its compensation cycle.  Previously Gran Tierra’s practice was to consider compensation annually (at year-end), including the award of equity based compensation. In order to allow time for a more deliberate and objective process, Gran Tierra now makes its compensation decisions for the current year, and reviews performance for the prior year, in the first quarter.  Annual bonuses in respect of 2009 performance, as well as equity incentive awards and salary increases for 2010, were approved in February 2010.  Bonuses in respect of 2009 performance were paid in February 2010 and equity incentives were issued on March 3, 2010.  New performance objectives are established at one or more meetings held during the first quarter of the year.  Generally, the Compensation Committee’s process comprises two related elements: the recommendation of compensation levels and the establishment of performance objectives for the current year.  In the case of the Chief Executive Officer, the evaluation of his performance is conducted by the Compensation Committee, which determines any adjustments to his compensation as well as awards to be granted.  For all executives and directors, as part of its deliberations, the Compensation Committee may review and consider, as appropriate, materials such as financial reports and projections, operational data, tax and accounting information, tally sheets that set forth the total compensation that may become payable to executives in various hypothetical scenarios, executive and director stock ownership information, company stock performance data, analyses of historical executive compensation levels, current company-wide compensation levels, and independent compensation surveys for the petroleum industry in Canada for peer groupings within the industry.

 

15

---

 

 

The specific determinations of the Compensation Committee with respect to executive compensation for fiscal 2009 are described in greater detail in the section of this proxy statement entitled “Compensation Discussion and Analysis.”

 

Compensation Committee Interlocks and Insider Participation

 

As noted above, Gran Tierra’s Compensation Committee consists of Messrs. Johnson, Price, Antony,and Dawson.  None of the members of the Compensation Committee has at any time been an officer or employee of Gran Tierra.  No member of the Board or of the Compensation Committee served as an executive officer of another entity that had one or more of Gran Tierra’s executive officers serving as a member of that entity’s board or compensation committee.

 

Compensation Committee Report3

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement.  Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into Gran Tierra’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

Verne Johnson, Chair

Ray Antony

Walter Dawson

Scott Price

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee of the Board of Directors is responsible for identifying, reviewing and evaluating candidates to serve as directors of Gran Tierra (consistent with criteria approved by the Board), reviewing and evaluating incumbent directors, recommending to the Board for selection candidates for election to the Board of Directors, making recommendations to the Board regarding corporate governance issues, assessing the performance of the Board and management, and developing a set of corporate governance principles for Gran Tierra. The Nominating and Corporate Governance Committee is composed of four directors: Messrs. Dawson, Scott, Kirton and Antony.  All members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 803(a)(2) of the NYSE Amex listing standards).  The Nominating and Corporate Governance Committee met three times during the fiscal year.  The Nominating and Corporate Governance Committee has adopted a written charter that is available to stockholders on Gran Tierra’s website at www.grantierra.com.

 

The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements and having the highest personal integrity and ethics.  The Nominating and Corporate Governance Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of Gran Tierra, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of Gran Tierra’s stockholders.  However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time.  Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of Gran Tierra and the long-term interests of stockholders.  In conducting this assessment, the Nominating and Corporate Governance Committee considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the Board and Gran Tierra, to maintain a balance of knowledge, experience and capability.  In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews these directors’ overall service to Gran Tierra during their terms, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair the directors’ independence.  In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for NASDAQ and NYSE Amex purposes, which determination is based upon applicable NASDAQ and NYSE Amex listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary.  The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board.  The Nominating and Corporate Governance Committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote.  In fiscal 2009, neither the Nominating and Corporate Governance Committee nor the Board paid any fees to any third party to assist in the process of identifying or evaluating director candidates.

 

3 The material in this report is not “soliciting material,” is furnished to, but not deemed "filed" with, the Commission and is not deemed to be incorporated by reference in any filing of Gran Tierra under the Securities Act or the Exchange Act, other than Gran Tierra’s Annual Report on Form 10-K, where it shall be deemed to be “furnished,” whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

16

---

 

The Nominating and Corporate Governance Committee does not have a formal policy regarding diversity in identifying nominees for director.  However, in assessing a potential nominee, the Nomination and Corporate Governance Committee considers the professional experience, education, skills and viewpoints of the nominee and how those factors will contribute to expanding the collective knowledge and experience of the Board of Directors.  The Nominating and Corporate Governance Committee considers that, while nominees should present a good fit with the existing Board of Directors in terms of their ability to work together to create shareholder value in a constructive way, diversity in opinion and viewpoint contribute to the overall success of the Board of Directors and the company as a whole.

 

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders.  The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder.  Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the Board may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at the following address: Gran Tierra Energy Inc., 300, 625-11th Avenue S.W., Calgary, Alberta T2R 0E1, Canada, Attention: Director Nominations.  This written recommendation must be delivered at least 120 days prior to the anniversary of the mailing of Gran Tierra’s proxy statement for the last annual meeting of stockholders.  Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record holder of Gran Tierra’s stock.  Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.

 

Reserves Committee

The primary purpose of the Reserves Committee is to act on behalf of the Board in fulfilling the Board’s oversight responsibilities with respect to evaluating and reporting on Gran Tierra’s oil and gas reserves.

The Reserves Committee oversees Gran Tierra’s (1) annual review of its oil and gas reserves, (2) procedures for evaluating and reporting its oil and gas producing activities, and (3) compliance with applicable regulatory and securities laws relating to the preparation and disclosure of information with respect to its oil and gas reserves.  The Reserves Committee also consults with the Audit Committee on matters relating to Gran Tierra’s oil and gas reserves which impact Gran Tierra’s financial statements.  The Reserves Committee is composed of three directors: Messrs. Price, Johnson, and Coffield.  All members of the Reserves Committee are independent (as independence is currently defined in Rule 803(a)(2) of the NYSE Amex listing standards), other than Mr. Coffield, Gran Tierra’s Chief Executive Officer.  The Reserves Committee met two times during fiscal 2009.  The Reserves Committee has adopted a written charter that is available on Gran Tierra’s website at www.grantierra.com.

Stockholder Communications with the Board of Directors

 

Gran Tierra’s Board has adopted a formal process by which stockholders may communicate with the Board or any of its directors.  This information is available on Gran Tierra’s website at www.grantierra.com.

 

Code of Ethics

 

Gran Tierra has adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees.  The Code of Business Conduct and Ethics is available on Gran Tierra’s website at www.grantierra.com.   If Gran Tierra makes any substantive amendments to the Code of Business Conduct and Ethics or grants any waiver from a provision of the Code to any executive officer or director, Gran Tierra will promptly disclose the nature of the amendment or waiver on its website.

  

 

17

---

 

PROPOSAL 2

 

APPROVAL OF THE GRAN TIERRA 2007 EQUITY INCENTIVE PLAN, AS AMENDED AND RESTATED

Proposal

 

On April 26, 2010, the Gran Tierra Board authorized an amendment, subject to stockholder approval, to Gran Tierra’s 2007 Equity Incentive Plan, as amended and restated, referred to as the “Incentive Plan”, to increase the aggregate number of shares issuable under the Incentive Plan from 18,000,000 shares to 23,306,100 shares (approximately 10% of the Gran Tierra common stock outstanding on April 19, 2010).

 

Gran Tierra is requesting that stockholders approve this amendment to the Incentive Plan.  If this amendment is approved, the Incentive Plan will also automatically be amended to rescind the right of the Board (A) (i) to reduce the exercise price of any outstanding options or stock appreciation rights granted under the Incentive Plan, or (ii) to cancel any outstanding options or stock appreciation rights that have an exercise price or strike price greater than the current fair market value of Gran Tierra common stock, unless approved by the stockholders, and (B) to make loans to employees to purchase stock.

 

Explanation

 

The purpose of this amendment is to ensure that Gran Tierra has a sufficient reserve of common stock available under the Incentive Plan to continue to grant stock options and other awards at market-competitive levels determined appropriate by the Gran Tierra Board. The current maximum aggregate number of shares reserved for issuance under the Incentive Plan is eighteen million (18,000,000) shares of common stock, roughly 7.6% of common stock outstanding.  During the executive compensation review conducted in late 2009, the Board was advised that 95% of Gran Tierra’s peers (the “Custom Peer Group” – please see the Compensation Discussion and Analysis section of this proxy statement for additional detail) currently utilize a ‘rolling’ or ‘evergreen’ provision for their equity-incentive plans under which 10% of common shares outstanding are reserved for issuance under equity incentive plans.  In order for Gran Tierra continue to have the flexibility to grant stock options at market-competitive levels to current employees and future strategic hires, the Board determined that it was prudent to increase the reserve of common stock available under the Incentive Plan to 23,306,100 shares (approximately 10% of the Gran Tierra common stock outstanding on April 19, 2010), but decided not to implement a ‘rolling’ or ‘evergreen’ provision at this time.  

 

If the amendment is approved, the Gran Tierra Board has also determined it is in the best interests of the stockholders to rescind the right of the Board to reduce the exercise price of any outstanding options or stock appreciation rights granted under the Incentive Plan or cancel any outstanding options or stock appreciation rights with exercise prices greater than the fair market value of Gran Tierra common stock.  The Incentive Plan will continue to provide us with flexibility in designing equity incentives including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, and performance cash awards. Accordingly, the Incentive Plan allows us to utilize a broad array of equity incentives in order to secure and retain the services of Gran Tierra’s employees, consultants and directors, and to provide incentives for such persons to exert maximum efforts for Gran Tierra’s success or the success of Gran Tierra’s affiliates.

 

At April 19, 2010, stock awards (net of cancelled or expired awards) covering an aggregate of 12,406,020 shares were outstanding under the Incentive Plan and 2,512,858 shares remained available for future grant under the Incentive Plan. If this Proposal 2 is approved by stockholders, then the number of shares available for grant under the Incentive Plan will be immediately increased to 23,306,100 shares (approximately 10% of the Gran Tierra common stock outstanding on April 19, 2010).

Voting Requirement

 

Each share of Gran Tierra common stock, Goldstrike Exchangeable Share and Solana Exchangeable Share has one vote. To be approved, the Incentive Plan, as amended, must receive the affirmative vote of a majority of the shares present in person or represented by proxy at the Gran Tierra 2010 Annual Meeting and entitled to vote. For purposes of this vote broker non-votes will not be counted for any purpose in determining whether this matter has been approved and abstentions will have the same effect as “Against” votes.

 

References to voting power of Goldstrike Exchangeable Shares refers to the voting power exercised through the Goldstrike Trustee with respect to the Goldstrike Exchangeable Shares, whether by the Goldstrike Trustee or by proxy, and references to voting power of Solana Exchangeable Shares refer to the voting power exercised through the Solana Trustee with respect to the Solana Exchangeable Shares, whether by the Solana Trustee or by proxy.

 

18

---

 

THE GRAN TIERRA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 2.

 

The material features of the Incentive Plan are outlined below.

 

General

 

The Incentive Plan, which is an amendment and restatement of Gran Tierra’s 2005 Equity Incentive Plan, provides for the grant of stock options, restricted stock awards, stock appreciation rights, restricted stock units and other stock awards, collectively referred to as “Awards.”  Stock options granted under the Incentive Plan are not intended to qualify as incentive stock options within the meaning of Section 422 of the Code, as amended. Stock appreciation rights granted under the Incentive Plan may be tandem rights, concurrent rights or independent rights. See the section of this Proposal 2 entitled “U.S. Federal Income Tax Information”, below, for a discussion of the tax treatment of Awards. To date, Gran Tierra has granted only stock options under the Incentive Plan.

 

Purpose

 

The Gran Tierra Board adopted the Incentive Plan to provide a means by which employees, directors and consultants of Gran Tierra and its affiliates may be given an opportunity to purchase stock in Gran Tierra, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for the success of Gran Tierra and its affiliates. All of the approximately 275 employees, directors and consultants of Gran Tierra and its affiliates are eligible to participate in the Incentive Plan.

 

Administration

 

The Gran Tierra Board administers the Incentive Plan. Subject to the provisions of the Incentive Plan, the Gran Tierra Board has the power to construe and interpret the Incentive Plan and to determine the persons to whom and the dates on which Awards will be granted, the number of shares of common stock to be subject to each award, the time or times during the term of each Award within which all or a portion of such award may be exercised, the exercise price, the type of consideration and other terms of the Award.

 

The Gran Tierra Board has the power to delegate administration of the Incentive Plan to a committee composed of one or more members of the Gran Tierra Board. A committee may consist solely of two or more outside directors in accordance with Section 162(m) of the Code or solely of two or more non-employee directors in accordance with Rule 16b-3 of the Exchange Act. The Gran Tierra Board has delegated administration of the Incentive Plan to the Compensation Committee of the Gran Tierra Board. As used in this description of Proposal 2 with respect to the Incentive Plan, the “Board” refers to any committee the Gran Tierra Board appoints as well as to the Gran Tierra Board itself.

 

Stock Subject to the Plan

 

Subject to this Proposal 2, the maximum aggregate number of shares reserved for issuance under the Incentive Plan will be 23,306,100 shares (approximately 10% of the Gran Tierra common stock outstanding on April 19, 2010).  If Awards granted under the Incentive Plan expire or otherwise terminate without being exercised, the shares of common stock not acquired pursuant to such Awards again become available for issuance under the Incentive Plan and shall be considered as shares available for grant for the purpose of determining the Calculated Amount.

 

As of April 19, 2010, options to purchase approximately 12,406,020 shares of common stock were outstanding, which is approximately 5.3% of total shares of common stock outstanding on that date.   As of that same date, approximately 2,512,858 additional shares of common stock were available for grant and not subject to Awards under the Incentive Plan, which is approximately 1.1% of total shares of common stock outstanding.  The weighted average exercise price of all options outstanding as of April 19, 2010 was approximately $3.20 and the weighted average remaining term of such options was approximately 8.4 years. A total of 233,061,014 shares of Gran Tierra's common stock were outstanding as of April 19, 2010.

 

Eligibility

 

Employees (including officers), directors, and consultants of both Gran Tierra and its affiliates are eligible to receive all types of awards under the Incentive Plan. Under the Incentive Plan, no employee may be granted awards exercisable for more than 1,000,000 shares of common stock during any calendar year.  The maximum number of shares which may be reserved for issuance to Insiders, at any time, under the Incentive Plan, and any other share compensation arrangement of Gran Tierra shall be 10% of the shares of common stock issued and outstanding.  Additionally, the maximum number of shares of common stock which may be issued under the Incentive Plan, at any time, and any other share compensation arrangements within any 12-month period shall be 10% of the common stock outstanding for insiders as a group and 5% of the common stock outstanding for any one insider and such insider’s associates.

 

19

---

 

Stockholder approval of this Proposal 2 will also constitute re-approval of the foregoing limit for purposes of Section 162(m) of the Code. This limitation assures that any deductions to which Gran Tierra would otherwise be entitled upon the exercise of options or stock appreciation rights granted under the Incentive Plan will not be subject to the $1 million limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code.

 

Terms of Options

 

The following is a description of the permissible terms of options under the Incentive Plan. Individual option grants may be more restrictive as to any or all of the permissible terms described below.

 

Exercise Price; Payment

 

The exercise price of options may not be less than 100% of the fair market value of the stock on the date of grant. If options were granted to covered executives with exercise prices below fair market value, deductions for compensation attributable to the exercise of such options could be limited by Section 162(m) of the Code. See “U.S. Federal Income Tax Information.” The closing price of Gran Tierra’s common stock as reported on the NYSE Amex on April 23, 2010, was $6.34 per share.

 

The “fair market value” of Gran Tierra’s common stock on a particular day is generally the closing sales price for the common stock (or the closing bid, if no sales were reported) as quoted on the primary exchange or market upon which Gran Tierra’s common stock trades. If that day is not a market trading day, then the last market trading day prior to the day of determination is used. If Gran Tierra’s common stock were not to be traded on a market, the Gran Tierra Board would make a good faith determination of the fair market value in a manner that complies with specified U.S. tax requirements.

 

The exercise price of options granted under the Incentive Plan must be paid either in cash at the time the option is exercised or at the discretion of the Gran Tierra Board, (i) by delivery of other common stock of Gran Tierra,  (ii) by a “net exercise” arrangement, (iii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of common stock, results in either the receipt of cash (or check) by Gran Tierra or the receipt of irrevocable instructions to pay the aggregate exercise price to Gran Tierra from the sale proceeds, or (iv) in any other form of legal consideration acceptable to the Gran Tierra Board.

 

Option Exercise

 

Options granted under the Incentive Plan may become exercisable in cumulative increments, or vest, as determined by the Gran Tierra Board. Shares covered by currently outstanding options under the Incentive Plan typically vest over a three year period in three equal annual installments during the participant’s employment by, or service as a director or consultant to, Gran Tierra or an affiliate, collectively referred to as “Service.” Shares covered by options granted in the future under the Incentive Plan may be subject to different vesting terms. The Gran Tierra Board has the power to accelerate the time during which an option may vest or be exercised. In addition, options granted under the Incentive Plan may permit exercise prior to vesting, but in such event the participant may be required to enter into an early exercise stock purchase agreement that allows Gran Tierra to repurchase unvested shares, generally at their exercise price, should the participant’s Service terminate before vesting. To the extent provided by the terms of an option, a participant may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by a cash payment upon exercise, by authorizing Gran Tierra to withhold a portion of the stock otherwise issuable to the participant, by delivering already-owned common stock of Gran Tierra or by a combination of these means.

 

Term

 

The maximum term of options under the Incentive Plan is 10 years. Options under the Incentive Plan generally terminate three months after termination of the participant’s Service unless (i) such termination is due to the participant’s permanent and total disability (as defined in the Code), in which case the option may, but need not, provide that it may be exercised (to the extent the option was exercisable at the time of the termination of Service) at any time within 12 months of such termination; (ii) the participant dies before the participant’s Service has terminated, or within three months after termination of such Service, in which case the option may, but need not, provide that it may be exercised (to the extent the option was exercisable at the time of the participant’s death) within 18 months of the participant’s death by the person or persons to whom the rights to such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifically provides otherwise. A participant may designate a beneficiary who may exercise the option following the participant’s death. Individual option grants by their terms may provide for exercise within a longer period of time following termination of Service.

 

20

---

 

The option term generally may be extended in the event that exercise of the option within these periods is prohibited. A participant’s option agreement may provide that if the exercise of the option following the termination of the participant’s Service would be prohibited because the issuance of stock would violate the registration requirements under the Securities Act, then the option will terminate on the earlier of (i) the expiration of the term of the option or (ii) three months after the termination of the participant’s service during which the exercise of the option would not be in violation of such registration requirements.

 

Restrictions On Transfer

 

The Gran Tierra Board may grant stock options that are transferable to the extent provided in the stock option agreement. If an option does not provide for transferability then the option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a domestic relations order and shall be exercisable during the lifetime of the option holder and only by the option holder.  Shares subject to repurchase by Gran Tierra under an early exercise stock purchase agreement may be subject to restrictions on transfer that the Gran Tierra Board deems appropriate.

 

Terms of Restricted Stock Awards and Purchases of Restricted Stock

 

Payment

 

The Gran Tierra Board determines the purchase price under a restricted stock purchase agreement but the purchase price may not be less than the par value of Gran Tierra’s common stock on the date of purchase. The Gran Tierra Board may award stock bonuses in consideration of past services without a purchase payment.

 

The purchase price of stock acquired pursuant to a restricted stock purchase agreement under the Incentive Plan must be paid either in cash at the time of purchase or at the discretion of the Gran Tierra Board, (i) by cash at the time of purchase, (ii) by services rendered, or to be rendered to Gran Tierra or (iii) in any other form of legal consideration acceptable to the Gran Tierra Board.

 

Vesting

 

Shares of stock sold or awarded under the Incentive Plan may, but need not be, subject to a repurchase option in favor of Gran Tierra in accordance with a vesting schedule as determined by the Gran Tierra Board. The Gran Tierra Board has the power to accelerate the vesting of stock acquired pursuant to a restricted stock purchase agreement under the Incentive Plan.

 

Restrictions on Transfer

 

Rights under a stock bonus or restricted stock bonus agreement may be transferred only upon the terms and conditions of the award agreement as the Gran Tierra Board shall determine in its discretion, except where such assignment is required by law or expressly authorized by the terms of the applicable stock bonus or restricted stock purchase agreement.

 

Terms of Stock Appreciation Rights

 

The Incentive Plan authorizes the grant of stock appreciation rights. Stock appreciation rights entitle the participant to receive upon exercise an appreciation distribution equal to the fair market value of that number of shares equal to the number of share equivalents in which the participant is vested under the independent stock appreciation rights less the fair market value of such number of shares of stock on the date of grant of the independent stock appreciation rights. Appreciation distributions payable upon exercise of stock appreciation rights may, at the Gran Tierra Board’s discretion, be made in cash, in shares of stock or a combination thereof.

 

Adjustment Provisions

 

Transactions not involving receipt of consideration by Gran Tierra, such as a merger, consolidation, reorganization, stock dividend, or stock split, may change the type(s), class(es) and number of shares of common stock subject to the Incentive Plan and outstanding awards. In that event, the Incentive Plan will be appropriately adjusted as to the type(s), class(es) and the maximum number of shares of common stock subject to the Incentive Plan, and outstanding Awards will be adjusted as to the type(s), class(es), number of shares and price per share of common stock subject to such Awards.

 

21

---

 

Effect Of Certain Corporate Transactions

 

In the event of the consummation of (i) the sale or other disposition of all or substantially all of the assets of Gran Tierra, (ii) the sale or other disposition of at least fifty percent of the outstanding securities of Gran Tierra, or (iii) certain specified types of merger, consolidation or similar transactions, or collectively, a corporate transaction, any surviving or acquiring corporation may continue or assume awards outstanding under the Incentive Plan or may substitute similar awards. If any surviving or acquiring corporation does not assume such awards or substitute similar Awards, then with respect to Awards held by participants whose Service with Gran Tierra or an affiliate has not terminated as of the effective time of the corporate transaction, the vesting of such awards (and, if applicable, the time during which such awards may be exercised) will be accelerated in full and the awards will terminate if not exercised (if applicable) at or prior to such effective time.

 

The Incentive Plan provides, that in the event of certain change of control events, any outstanding stock awards may be subject to additional acceleration of vesting and exercisability upon or after such change of control event, if such acceleration is provided for in the individual award holder’s stock award agreement.

 

The acceleration of an Award in the event of a corporate transaction or a change in control event may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of Gran Tierra.

 

Duration, Amendment And Termination

 

The Gran Tierra Board may suspend or terminate the Incentive Plan without stockholder approval or ratification at any time or from time to time.

 

The Gran Tierra Board may at any time, or from time to time, amend or revise the Incentive Plan as follows: (a) to make amendments to the Incentive Plan or a Stock Award of a housekeeping or administrative nature; (b) if the common stock is listed on the Toronto Stock Exchange subject to any required approval of the TSX, to change the vesting or termination provisions of a Stock Award or the Incentive Plan; (c) amendments necessary to comply with provisions of applicable law or stock exchange requirements or for grants to qualify for favourable treatment under applicable laws; and (d)  any other amendment, fundamental or otherwise, not requiring stockholder approval under the Code. However, no amendment will be effective unless approved by the stockholders of Gran Tierra within 12 months before or after its adoption by the Gran Tierra Board to the extent such approval is necessary to satisfy the requirements of Section 422 of the Code. The Gran Tierra Board may submit any other amendment to the Incentive Plan for stockholder approval. Pursuant to the amendment to the Incentive Plan, as proposed herein, the Board will no longer have the authority to reduce the exercise price of an option held by a non-insider by amendment to the Incentive Plan or a stock award under the Incentive Plan without the approval of Gran Tierra stockholders.

 

For so long as Gran Tierra’s stock is listed on the TSX, under the rules and policies of the TSX any amendment to the Incentive Plan is subject to pre-clearance of such amendment by the TSX, and no amendment, suspension or discontinuance of the Incentive Plan may contravene the requirements of the TSX.

 

U.S. Federal Income Tax Information

 

Stock Options, Restricted Stock Purchase Awards and Stock Bonuses

 

Stock options, restricted stock purchase awards and stock bonuses granted under the Incentive Plan generally have the following federal income tax consequences.

 

There are no tax consequences to the participant or Gran Tierra by reason of the grant. Upon acquisition of the stock, the participant normally will recognize taxable ordinary income equal to the excess, if any, of the stock’s fair market value on the acquisition date over the purchase price. However, to the extent the stock is subject to certain types of vesting restrictions, the taxable event will be delayed until the vesting restrictions lapse unless the participant elects to be taxed on receipt of the stock. With respect to employees, Gran Tierra is generally required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, Gran Tierra will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the participant.

 

22

---

 

Upon disposition of the stock, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon acquisition (or vesting) of the stock. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year. Slightly different rules may apply to participants who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act.

 

Stock Appreciation Rights

 

No taxable income is realized upon the receipt of a stock appreciation right, but upon exercise of the stock appreciation right the fair market value of the shares (or cash in lieu of shares) received must be treated as compensation taxable as ordinary income to the participant in the year of such exercise. Generally, with respect to employees, Gran Tierra is required to withhold from the payment made on exercise of the stock appreciation right or from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, Section 162(m) of the Code and the satisfaction of a reporting obligation, Gran Tierra will be entitled to a business expense deduction equal to the taxable ordinary income recognized by the participant.

 

Potential Limitation on Company Deductions

 

Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to such covered employee exceeds $1 million. It is possible that compensation attributable to awards, when combined with all other types of compensation received by a covered employee from Gran Tierra, may cause this limitation to be exceeded in any particular year.

 

Certain kinds of compensation, including qualified “performance-based compensation”, are disregarded for purposes of the deduction limitation. In accordance with Treasury Regulations issued under Section 162(m), compensation attributable to stock options and stock appreciation rights will qualify as performance-based compensation if (i) the award is granted by a compensation committee comprised solely of “outside directors,” (ii) the plan contains a per-employee limitation on the number of shares for which such awards may be granted during a specified period, (iii) the per-employee limitation is approved by the stockholders, and (iv) the exercise price of the award is no less than the fair market value of the stock on the date of grant. Subject to stockholder approval of this Proposal 2, it is intended that all options and stock appreciation rights granted under the Incentive Plan qualify as performance-based compensation that is exempt from the $1 million deduction limitation.

 

Compensation attributable to all other Awards granted under the Incentive Plan will not qualify as performance-based compensation, and therefore will remain subject to the $1 million deduction limitations imposed by Section 162(m) of the Code.

 

Stockholder Approval of Stock Plans

 

        See the information under “Stockholder Approval of Stock Plans” below for additional information on our stock plans.

PROPOSAL 3

 

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

 

The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP as Gran Tierra’s independent registered public accounting firm for the fiscal year ending December 31, 2010 and has further directed that management submit the selection of independent registered public accounting firm for ratification by the stockholders at the annual meeting.  Deloitte & Touche LLP has audited Gran Tierra’s financial statements since its inception in 2005.  Representatives of Deloitte & Touche LLP are expected to be present at the annual meeting.  They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Neither Gran Tierra’s Bylaws nor other governing documents or law require stockholder ratification of the selection of Deloitte & Touche LLP as Gran Tierra’s independent registered public accounting firm.  However, the Audit Committee of the Board is submitting the selection of Deloitte & Touche LLP to the stockholders for ratification as a matter of good corporate practice.  If the stockholders fail to ratify the selection, the Audit Committee of the Board will reconsider whether or not to retain that firm.  Even if the selection is ratified, the Audit Committee of the Board in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of Gran Tierra and its stockholders.

 

23

---

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and voting at the annual meeting will be required to ratify the selection of Deloitte & Touche LLP.  Abstentions and broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.

 

Principal Accountant Fees and Servcies

 

Set forth below is a summary of fees paid to Deloitte & Touche LLP, our independent registered Chartered Accountants, for services in the fiscal periods ended December 31, 2009 and December 31, 2008.  In determining the independence of Deloitte & Touche LLP, the Audit Committee considered whether the provision of non-audit services is compatible with maintaining Deloitte & Touche LLP’s independence.

		Fiscal Year Ended (in thousands)
		2009				2008
Audit Fees		$	833,408			$	726,741
Audit-related Fees			45,068				172,331
Tax Fees			5,661				90,201
All Other Fees			86,256				–
Total Fees		$	970,393			$	989,273

Audit Fees

The total audit fees and reimbursement of expenses paid to Deloitte & Touche LLP were for audits, reviews of the quarterly financial statements, and the preparation of comfort letters and consents.

Audit Related

Audit related fees include miscellaneous advisory services related to the acquisitions and share registration activities of Gran Tierra during the year.

  

Tax Fees

Tax fees, including reimbursement of expenses, paid to Deloitte & Touche LLP were for the review of our 2007 US, Canadian, Colombian and Argentinean tax returns (prepared by a third party) in 2008, and review of tax planning strategies for 2008.

All Other Fees

Other Fees included a project related to vulnerability assessment of Gran Tierra’ information systems as well as public accounting board information and comments letters.

All fees described above were approved by the Audit Committee.

 

Pre-Approval Policies and Procedures.

 

Before Gran Tierra engages an independent registered public accountant to render audit services, any engagement covering audit or non-audit services by the auditors is approved by Gran Tierra’s Audit Committee or the engagement to render services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee.  The pre-approval policy adopted by Gran Tierra’s Audit Committee on March 9, 2006 to permit pre-approval of non-audit services is attached as Schedule A to the charter of the Audit Committee, which was filed as Exhibit 99.1 to Gran Tierra’s Annual Report on Form 10-KSB for 2005.  This policy requires that the Audit Committee consider, prior to pre-approving any non-audit services, multiple factors taken as a whole, including whether the services are prohibited pursuant to SEC rules, whether the auditors are best positioned to provide the services, and the percentage of total services the non-audit services will comprise.  Requests for non-audit services will be made in writing to Gran Tierra’s independent auditor specifying the services requested and the reasons for the request, and the chairperson of the Audit Committee will be copied on the communication.  Gran Tierra’s independent auditor must respond to Gran Tierra’s request with a description of the services, the fees that it will charge, and a request for pre-approval of the services plus pre-approval of 10% over the amount.  The chairperson of the Audit Committee will then make a determination based on all of the relevant factors, and if approved report back to the Audit Committee at the next Audit Committee meeting for ratification.

 

The Audit Committee has determined that the rendering of the services other than audit services by Deloitte & Touche LLP is compatible with maintaining the principal accountant’s independence.

 

The Board Of Directors Recommends

A Vote In Favor Of Proposal 3.

 

24

---

 

SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of Gran Tierra common stock as of February 15, 2010 by (1) each of its directors and named executive officers and (2) all of Gran Tierra’s executive officers and directors as a group. To Gran Tierra’s knowledge, there is no person who beneficially owns more than 5% of the outstanding shares of its common stock. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is 300, 625-11th Avenue, S.W., Calgary, Alberta T2R 0E1, Canada. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days following February 15, 2010 are deemed outstanding for computing the share and percentage ownership of the person holding such options and warrants, but are not deemed outstanding for computing the percentage of any other person. All share numbers and ownership percentage calculations below assume that all Exchangeable Shares have been converted on a one-for-one basis into corresponding shares of our common stock.  

 

Name and Address of Beneficial Owner (1)		Amount and Nature of Beneficial Ownership				Percentage of Class
Dana Coffield (2)			2,555,496				1.0	%
Martin Eden (3)			364,000				*
Shane O’Leary (4)			176,966				*
Julian Garcia			—				*
Júlio César Moreira (5)			4,000				*
Jeffrey Scott (6)			3,005,526				1.2	%
Walter Dawson (7)			3,247,619				1.2	%
Verne Johnson (8)			1,679,559				*
Nicholas G. Kirton (9)			171,666				*
Ray Antony (10)			427,536				*
J. Scott Price (11)			6,759,049				2.7	%
Directors and officers as a group (total of 12 persons) (12)			20,546,933				8.8	%

* Less than 1%  

(1)

Beneficial ownership is calculated based on 248,639,134 shares of common stock issued and outstanding as of February 15, 2010, which number includes 12,629,999 shares of common stock issuable upon the exchange of the Exchangeable Shares issued to certain former holders of Gran Tierra Canada’s common stock and 8,642,857 shares of common stock issuable upon the exchange of the Exchangeable Shares issued to certain former holders of Solana’s common stock. Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. The number of shares beneficially owned by a person includes shares of common stock underlying options or warrants held by that person that are currently exercisable or exercisable within 60 days of February 15, 2010. The shares issuable pursuant to the exercise of those options or warrants are deemed outstanding for computing the percentage ownership of the person holding those options and warrants but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite that person’s name, subject to community property laws, where applicable.

(2)

The number of shares beneficially owned includes options to acquire 720,833 shares of common stock exercisable within 60 days of February 15, 2010, and shares issuable upon exercise of warrants to acquire 48,328 shares of common stock exercisable within 60 days of February 15, 2010. The number of shares beneficially owned also includes 1,689,683 Exchangeable Shares.

(3)	The number of shares beneficially owned includes options to acquire 350,000 shares of common stock exercisable within 60 days of February 15, 2010. The number beneficially owned includes 14,000 shares of common stock directly owned by Mr. Eden’s spouse.

(4)	The number of shares beneficially owned includes options to acquire 166,666 shares of common stock exercisable within 60 days of February 15, 2010.  The number of shares beneficially owned includes 10,300 shares of common stock jointly owned with Mr. O’Leary’s spouse.

(5)	Consists solely of shares held by Saba Investment Holdings Ltd, of which Mr. Moreira is a director.

 

25

---

 

(6)

The number of shares beneficially owned includes an option to acquire 491,665 shares of common stock exercisable within 60 days of February 15, 2010, and shares issuable upon exercise of warrants to acquire 274,991 shares of common stock exercisable within 60 days of February 15, 2010. The number of shares beneficially owned also includes 1,688,889 Exchangeable Shares.

 

(7)

The number of shares beneficially owned includes an option to acquire 275,000 shares of common stock exercisable within 60 days of February 15, 2010. The number of shares beneficially owned also includes 825,000 shares of common stock directly owned by Perfco Investments Ltd. (“Perfco”) and 158,730 shares of common stock directly owned by Mr. Dawson’s spouse. The number of shares beneficially owned includes 1,688,889 Exchangeable Shares, of which 1,587,302 are held by Perfco. Mr. Dawson is the sole owner of Perfco and has sole voting and investment power over the shares beneficially owned by Perfco. Mr. Dawson disclaims beneficial ownership over the shares owned by Mr. Dawson’s spouse.

(8)

The number of shares beneficially owned includes an option to acquire 275,000 shares of common stock exercisable within 60 days of February 15, 2010, and shares issuable upon exercise of a warrant to acquire 112,496 shares of common stock exercisable within 60 days of February 15, 2010. The number of shares beneficially owned includes 1,292,063 Exchangeable Shares, of which 396,825 are held by KristErin Resources, Inc. (“KristErin”), a private family-owned business of which Mr. Johnson is the President. Mr. Johnson has sole voting and investment power over the shares held by KristErin.

(9)	The number of shares beneficially owned includes an option to acquire 141,666 shares of common stock exercisable within 60 days of February 15, 2010.

(10)

The number of shares beneficially owned includes an option to acquire 75,000 shares of common stock exercisable within 60 days of February 15, 2010. The number of shares beneficially owned also includes 352,536 Exchangeable Shares, of which 285,840 are held by DCR Investments Inc. (“DCR”). Mr. Antony has sole voting and investment power over the shares held by DCR.

(11)

The number of shares beneficially owned includes an option to acquire 75,000 shares of common stock exercisable within 60 days of February 15, 2010, and shares issuable upon exercise of warrants to acquire 3,572,969 shares of common stock exercisable within 60 days of February 15, 2010. Mr. Price exercised and sold all of the shares subject to the warrants in early March 2010.  The number of shares beneficially owned also includes 3,111,080 Exchangeable Shares.

(12)

The number of shares beneficially owned includes options to acquire 2,916,663 shares of common stock exercisable within 60 days of February 15, 2010, and warrants to acquire 4,048,784 shares of common stock exercisable within 60 days of February 15, 2010. The number of shares beneficially owned also includes 11,512,823 Exchangeable Shares.

  

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires Gran Tierra’s directors and executive officers, and persons who own more than ten percent of a registered class of Gran Tierra’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Gran Tierra.  Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish Gran Tierra with copies of all Section 16(a) forms they file.

 

To Gran Tierra’s knowledge, based solely on a review of the copies of such reports furnished to Gran Tierra and written representations that no other reports were required, during the fiscal year ended December 31, 2009, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.

 

EXECUTIVE COMPENSATION AND RELATED INFORMATION

 

All dollar amounts discussed below are in U.S. dollars. To the extent that contractual amounts are in Canadian dollars, they have been converted into U.S. dollars for the purposes of the discussion below.  For a discussion of 2009 bonus amounts, the conversion rate at December 31, 2009 of one Canadian dollar to US $0.9555 is used.  For discussion of 2009 salary and 2008 bonus amounts, the conversion rate at December 31, 2008 of one Canadian dollar to US $0.8661 is used. For discussion of 2008 salary and 2007 bonus amounts, the conversion rate at December 31, 2007 of one Canadian dollar to US $0.9881 is used.

 

26

---

 

Compensation Discussion and Analysis

 

Executive Summary

 

Gran Tierra has designed its executive compensation program to motivate and reward our executives for company performance and to attract and retain talented executives.  Gran Tierra’s compensation program consists of three basic elements—base salary, cash bonus and equity incentives.  We focus on providing a majority of our total compensation for the executive officers listed in the Summary Compensation Table below, which we refer to as the “named executive officers”, linked to both the company’s performance and to individual performance through performance-based cash awards, and equity awards which are only valuable if the company’s stock price increases.  This focus is not entirely reflected in the summary compensation table for 2009 because the timing of granting annual equity incentives was changed from the end of the year to the beginning of the following year.  As a result, annual equity incentives were granted in December 2008, and then again on March 3, 2010, and so no annual equity incentives were granted in 2009.  We believe our focus on providing a majority of our total compensation for the named executive officers linked to both the company’s performance and to individual performance provides our executives an opportunity to earn above average compensation if Gran Tierra delivers superior results.

 

We link a portion of our executives’ cash compensation to the company’s performance as measured by achievement of budget targets for items such as production, reserves, capital expenditures, revenues and operating costs, as well as other factors such as liquidity, share price performance given overall market conditions, and other objectives specific to the company’s situation at the time.  In addition, we provide long-term incentives to our executives and employees in the form of stock options.  Options generally vest over three years, linking executives’ rewards directly to their ability to create value for our shareholders and providing an incentive for our executives to remain with Gran Tierra over the long term.

 

The price of oil directly impacts the performance of Gran Tierra.  In 2009, we have seen fluctuations in the price of West Texas Intermediate Crude oil (the reference price for most of our contracts) of $33.98 to $81.04.  However, due to past financing activities and strong positive cash flow, Gran Tierra is in a very strong position from a liquidity standpoint.  We have no debt and have the resources with current cash balances and our project cash flows for 2010 to complete our budgeted capital program and remain debt free.

 

Compensation Objectives

 

The overall objectives of Gran Tierra’s compensation program are to attract, retain and motivate key executives who are the best suited to make Gran Tierra successful and to reward individual performance to focus Gran Tierra’s executives on accomplishing Gran Tierra’s goals.

 

Compensation Process     

 

The Compensation Committee of the Gran Tierra Board recommends amounts of compensation for Gran Tierra’s Chief Executive Officer for approval by the Gran Tierra Board. The Chief Executive Officer recommends amounts of compensation for Gran Tierra’s other executive officers to the Compensation Committee, which considers these recommendations in connection with the goals and criteria discussed below. The Compensation Committee then makes its determination, taking the Chief Executive Officer’s recommendations into account, and makes its recommendations to the Gran Tierra Board for approval.

 

In 2009/2010 Gran Tierra changed the timing its compensation cycle.  Previously Gran Tierra’s practice was to consider compensation annually (at year-end), including the award of equity based compensation. In order to allow time for a more deliberate and objective process, Gran Tierra now makes its compensation decisions for the coming year, and reviews performance for the prior year, in the first quarter.  Annual bonuses in respect of 2009 performance, as well as equity incentive awards and salary increases for 2010, were approved in February 2010.  Bonuses in respect of 2009 performance were paid in February 2010 and equity incentives were issued on March 3, 2010.

 

Compensation Consultants

 

The Compensation Committee relies upon external advisors and third-party compensation surveys as well as the knowledge and experience of committee members and other members of the Board to set appropriate levels of salary and other compensation.

 

In 2009, the Compensation Committee retained the services of Lane Caputo Compensation Inc. to develop a more relevant group of peers against which the Compensation Committee can benchmark executive compensation.  The compensation practices of this peer group, along with data from the 2009 Mercer Total Compensation Survey for the Petroleum Industry (“2009 Survey”), for which a peer group was also developed by Lane Caputo in order to extract comparative information, provided the Compensation Committee with relevant and supportable market compensation data to both retrospectively evaluate the company’s 2009 executive compensation and make recommendations to the Board on the structure of the 2010 executive compensation arrangements. Services performed by Lane Caputo Compensation are pre-approved by the Compensation Committee and any additional work to be performed, including at the request of management, must be pre-approved by the Chair of the Compensation Committee. The retention of independent compensation advisors to the company are to be assessed on an annual basis.

 

27

---

 

Third Party Source Used

 

To assist in establishing 2009 salary and target compensation, a group of 33 companies from the “2008 Mercer Total Compensation Survey for the Petroleum Industry” was recommended by management and approved by the Compensation Committee for use for comparative purposes.  This survey covers oil and gas companies located in Canada, and presents compensation components and statistical ranges by position description for peer groupings within the industry. The survey is published annually and is widely recognized as a leading survey for the energy industry in Canada to provide information for salaries and bonuses. The 33 companies selected from the 2008 survey were: ARC Resources Ltd., Anderson Energy Ltd., Baytex Energy Trust, Bonavista Energy Trust, Breaker Energy Ltd., Compton Petroleum Corporation, Connacher Oil and Gas Limited, Crescent Point Energy Trust, Crew Energy, Daylight Resources Trust, Enerplus Resources Fund, Fairborne Energy Ltd., First Calgary Petroleums Ltd., Harvest Energy Trust, Highpine Oil & Gas Limited, Iteration Energy Ltd., NuVista Energy Ltd., Paramount Energy Trust, Paramount Resources, Pengrowth Corporation, Penn West Energy Trust, PetroKazakhstan Inc., Petrobank Energy and Resources Ltd., Progress Energy Trust, ProspEx Resources Ltd., Rock Energy Inc., Sherritt International, TriStar Oil & Gas Ltd., Trilogy Energy Trust, True Energy Trust, Vermilion Energy Trust, WesternZagros Resources Ltd., and Zargon Energy Trust.

 

To assist in establishing 2009 bonuses and 2010 compensation structure, Lane Caputo Compensation Inc. developed a more relevant group of industry peers (the “Custom Peer Group”) against which to benchmark executive compensation.  The Custom Peer Group included Canadian- (mostly) and U.S.-headquartered peers with predominantly international operations and of a similar size to the company based on market capitalization, annual revenues and average daily production volumes. The 18 companies in this Custom Peer Group were: Addax Petroleum Corp., Antrim Energy Inc., Bankers Petroleum Ltd., BPZ Resources Inc., Calvalley Petroleum Ltd., Cirrus Energy Corp., Niko Resources Ltd., Pacific Rubiales Energy Corp., Pan Orient Energy Corp., Petro Andina Resources Inc., Petrolifera Petroleum Ltd., Petrominerales Ltd., TransAtlantic Petroleum Corp., TransGlobe Energy Corp., Verenex Energy Inc., Vermilion Energy Trust, WesternZagros Resources Ltd. and Winstar Resources Ltd. Compensation data for these peers was provided from Lane Caputo’s database and/or the information circulars of the peer companies.

 

To ensure the Compensation Committee also considered local market factors impacting executive compensation, an additional group of 19 companies from the 2009 Survey was developed (the “Mercer Peer Group”) on the basis of similar characteristics to the company, including market capitalization, annual revenues and average daily production volumes. The Mercer Peer Group was recommended by Lane Caputo and approved by the Compensation Committee and was used in conjunction with the Custom Peer Group.  The 19 companies in the Mercer Peer Group were: Advantage Oil & Gas Ltd., Baytex Energy Trust, Birchcliff Energy Ltd., Bonavista Energy Trust, Breaker Energy Ltd., Crew Energy, Daylight Resources Trust, Fairborne Energy Ltd., Harvest Energy Trust, NuVista Energy Ltd., Paramount Resources, Petro Andina Resources Inc., Progress Energy Trust, Provident Energy Trust., Storm Exploration Inc., Trilogy Energy Trust, Vermilion Energy Trust, WesternZagros Resources Ltd., and Zargon Energy Trust.

 

While our Compensation Committee believes that compensation survey data are useful guides for comparative purposes, we believe that a successful compensation program also requires that the Compensation Committee apply its own judgment and subjective determination of individual performance by our executives.  Therefore, the Compensation Committee applies its judgment in reconciling the program’s objectives with the realities of rewarding excellent performance and retaining valued employees.

 

Elements of Compensation

 

The Compensation Committee, which consists of four non-executive directors, has determined that Gran Tierra shall have three basic elements of compensation — base salary (including benefits), cash bonus and equity incentives. Each component has a different purpose.

 

The Compensation Committee believes that base salaries at this stage in Gran Tierra’s growth and especially within the international exploration and production sector, must be competitive to retain executives. The Compensation Committee believes that principal performance incentives should be in the form of long-term equity incentives given the longer-term nature of Gran Tierra’s business plan. Long-term incentives to date have been in the form of stock options but Gran Tierra’s equity plan also provides for other equity incentive forms, such as restricted stock and stock bonuses, which the Compensation Committee is not considering at this time. Short-term cash bonuses are a common element of compensation in Gran Tierra’s industry and among Gran Tierra’s peers to which Gran Tierra must pay attention.  The Compensation Committee ultimately considers the split between the three forms of compensation relative to Gran Tierra’s peers for each position, relative to the contributions of each executive, and the operational and financial achievements of Gran Tierra. This exercise has been based on the evaluation of the achievement of goals set by the Chief Executive Officer at the beginning of the year and consensus among the members of the Compensation Committee, all of whom have significant experience in the oil and gas exploration business.

 

28

---

 

Salary

 

The Compensation Committee determined 2009 base salaries based upon its review of the 2008 Survey and, based on the very competitive nature of the international exploration and production sector and corresponding shortage of experienced senior talent, determined that a target of between the 50-75th percentile of the survey data as being appropriate to retain the services of Gran Tierra’s executives, the exact amount determined by the Compensation Committee’s subjective assessment of the appropriate salary for each executive given their performance and roles within Gran Tierra.

 

The Compensation Committee recommended to the Gran Tierra Board, and the Gran Tierra Board approved, the following annual salaries for 2009 as follows:

 

Mr. Coffield — $286,642

Mr. O’Leary – $267,532

Mr. Eden — $239,824

Mr. Garcia - $293,509

Mr. Moreira - $260,933

Mr. Coffield’s and Mr. O’Leary’s salaries were slighty below the 50th percentile of the 2008 survey.  Mr. Eden’s salary was close to the 75th percentile of the 2008 survey.  Mr. Coffield and Mr. O’Learys’ salaries were below the target range due to various factors, including the level of compensation previously paid to Mr. Coffield,and Gran Tierra’s position relative to it’s peers.  Mr. Eden’s salary was close to the top of the target range, reflecting the complexity of Gran Tierra’s regulatory environment related to being listed in the United States and Canada, tax position based on international complexity and other factors effecting financial performance.  Salaries for Mr. Garcia and Mr. Moreira were determined primarily based on arms-length negotiations, and information on the compensation received by each at their previous employer.

Bonus     

 

For 2009 performance bonuses, the Compensation Committee had, until late in 2009, been using the same methodology of targeting bonus between the 50th – 75th percentiles of the Mercer survey for the appropriate year.  In late 2009, the Compensation Committee received the recommendations of Lane Caputo Compensation Inc. with respect to the go-forward bonus structure for 2010.  As, in the opinion of the Compensation Committee, the new structure and the data upon which the new structure was based was more relevant and rigorous than the existing methodology, the Committee made the decision to adopt the 2010 bonus structure for the purposes of calculating the 2009 performance bonus (see below).

For 2010, the Compensation Committee altered their compensation philosophy such that, rather than targeting salary and bonus levels independently and risk having aggregate compensation be different than what was intended using an element by element approach, total cash compensation (salary + bonus) would be targeted at the 75th percentile of the Custom Peer Group for target levels of performance. The 75th percentile was chosen to reflect the quality of talent that Gran Tierra wishes to retain in order to complete our plans for growth in the near term.  Based on the previously-determined salaries, target bonus levels were established for each executive in early 2010 for 2010 performance (also retroactively applied to 2009 bonus calculations).  The data from the Mercer Peer Group was used as a secondary check for reasonableness of the final numbers. Targets are expressed as a percentage of base salary, as follows:

 

Mr Coffield			80	%
Mr. O’Leary			70	%
Mr. Eden			70	%
Mr. Garcia			60	%
Mr. Moreira			60	%

Bonuses for 2010 will be based on corporate, business unit and personal performance as to the following weightings:

 

		Corporate Performance				Business Unit Performance				Personal Performance
Mr Coffield			100	%			0	%			0	%
Mr. O’Leary			70	%			0	%			30	%
Mr. Eden			70	%			0	%			30	%
Mr. Garcia			30	%			40	%			30	%
Mr. Moreira			30	%			40	%			30	%

 

29

---

 

For 2009, the Compensation Committee determined bonuses for Gran Tierra’s executives based on a subjective assessment of corporate, business unit and personal performance in 2009, in addition to consideration of Gran Tierra’s overall operational and financial results.

The Compensation Committee, using its subjective judgment of the performance of the company in 2009 measured against the performance goals set forth for the Chief Executive Officer and the company, determined a score of 75% as the performance score of the Chief Executive Officer and the company for 2009.  For corporate executives other than the Chief Executive Officer, the corporate performance score applied to 70% of their target bonus, and the remaining 30% of target bonus was determined based upon individual performance as measured against the specific executive’s individual performance objectives. For business unit executives, the corporate performance score applied to 30% of their target bonus, 40% of target bonus was determined based upon business unit performance and the remaining 30% of target bonus was determined based upon individual performance.

 

Individual objectives defined for 2009 were as follows:

 

Chief Executive Officer - The principal objectives in 2009 for Gran Tierra’s Chief Executive Officer and President, and therefore the company, which were recommended by the Compensation Committee and approved by the Gran Tierra Board in February, 2009, were as follows:

 

·

Corporate Strategy (10%)

o

Develop 5-Year Strategic Plan.

o

Identify and capture material new asset base, representing 30-70% of Gran Tierra Energy today (measured in net-asset value, reserves, and/or production) with identifiable near-term (2 year) reserve and production growth potential of at least 10%/year near-term to establish second core asset outside the Putumayo Basin, and to support 5-Year Plan.

o

Rationalize assets within existing portfolio that do not have potential to contribute material growth to Gran Tierra Energy.

·

2009 Budget (10%)

o

Complete capital expenditure program within 10% (+/-) of approved capital budget.

o

Drill 8 exploration wells in Colombia and add 10 million barrels of oil (MMBO) of working-interest 3P reserves at year-end; subject to appropriate rationalization.

o

Drill 5 development wells in Colombia (4 in Costayaco and 1 in Juanambu; plus one water injector), execute associated field workover and maintenance programs.

·

Reserves (15%)

o

Exit 2009 with 49 million barrels of oil of net after royalty 3P reserves; excluding merger and acquisition additions or rationalizations.

·

Production (15%)

o

Establish 15,000 barrels of oil per day (BOPD) net after royalty production in 1Q09 and maintain through 2Q09.

o

Establish 20,000 BOPD net after royalty production in 3Q09 and maintain through 4Q09.

·

Finding and development costs (5%)

o

Attain Finding cost of $3.44/barrel of oil (BO) (sum of net 2009 seismic and drilling divided by 3P exploration reserve additions) following farmouts and rationalizations.

o

Achieve company F&D of US$9.17/barrel of oil equivalent (boe) on a 2P basis based on capital plus changes in future capital (US$7.53/boe on a 2P basis for Colombia alone).

·

General & Administrative expenses (G&A)and Operating expenses (Opex) (5%)

o

Attain average cash Opex of $7.55/BO.

o

Attain average cash G&A of $3.57/BO.

·

Environmental, Health, Safety and Security (5%)

o

Ensure appropriate Environmental, Health, Safety and Security programs are maintained to meet or exceed relevant industry standards.  Target zero Lost Time Incidents amongst employees.

·

Community Relations (4%)

o

Ensure effective community relations programs are designed, implemented and monitored in all of Gran Tierra Energy’s operating environments.

·

Regulatory Compliance (10%)

o

Ensure all regulatory compliance with SEC, NYSE, TSX and Sarbanes-Oxley requirements are maintained.

o

Ensure all contractual obligations with host governments and agencies, partners and contractors are maintained in all jurisdictions where Gran Tierra Energy operates.

 

30

---

 

·

Financial Management and Reporting (4%)

o

Ensure Solana Resources Ltd. and Gran Tierra finance and accounting integration is effectively completed in 1H09.

o

Ensure financial reporting systems are maintained.

o

Ensure budgeting and forecasting systems are maintained.

o

Ensure new tax planning is effectively implemented and maintained.

·

Information Technology (4%)

o

Ensure IT systems are effectively delivered to support growing Corporate and Business Unit operational and financial demands.

·

Investor Relations (5%)

o

Maintain active investor relations program targeting existing and potential new investors (press releases, road shows, analysts’ coverage and website).

·

Risk Management (4%)

o

Ensure Risk Management system is maintained, and risk mitigation programs are established, implemented and managed

·

Human Resources (4%)

o

Ensure Human Resource staffing, procedures and policies are consistent with the needs to meet the 2009 Budget and commitments, and future growth of the company.

Chief Financial Officer - The principal objectives in 2009 for Gran Tierra’s Chief Financial Officer were as follows:

 

	Overall Objectives		Detailed Objectives
1	Ensure compliance with shareholder and regulatory reporting requirements in US and Canada		-         Ensure that all requirements are met for US filings (Form 10-K, Form 10-Q, Form 8-K, registration statements, proxy statements) and other disclosures -         Ensure all requirements are met for Canadian filings (annual, quarterly and other reports) -         Ensure all insider reporting requirements are maintained -         Monitor changes and compliance with US GAAP/Canadian reporting requirements/International Financial Reporting Standards
2	Ensure compliance with Sarbanes Oxley requirements, including implementation of corporate governance, internal controls and financial disclosure controls		-         Finalize 2008 financial reports (Form 10-K) with no material weaknesses -         Resolve and remove the 2007 material weakness resulting from the restatement of cash flows and resolve the significant deficiencies relating to calculation of depletion -         Further develop SOX maintenance program for 2009 and future periods with emphasis on integrating SOX procedures into regular procedures and controls -         Continue to develop and improve corporate governance, internal controls and financial disclosure controls
3	Maintain, develop and enhance management and financial reporting systems		-         Further develop monthly financial reporting package and generate monthly management reports from the IDEAS system -         Develop monthly reporting template for senior management meetings -         Establish monthly Board report including operating and financial statistics -         Develop and improve the IDEAS financial reporting system -         Continue to hold monthly financial meetings to review monthly financial results and monitor performance against budget -         Monitor overhead and other costs and improve and maintain cost controls -         Develop and maintain contract management and procurement procedures and systems -         Further develop Crosby reporting procedures

 

31

---

 

4	Develop and enhance budgeting and forecasting systems		-         Record budget numbers in financial reporting system -         Further develop quarterly outlooks, budget updates -         Continue to work with Business Development Manager to prepare annual budget on a timely basis
5	Tax planning strategies		-         Continue to work with tax advisers to optimize the company’s taxable position -         Develop procedures to manage the new GTE Cayman Islands structure for US tax purposes -         Develop procedures to ensure compliance with Canadian mind and management considerations for Solana Cayman Islands subsidiaries -         Ensure compliance with all income and other tax requirements in jurisdictions where company operates
6	Treasury		-         Monitor the company’s cash position and ensure cash management procedures are in place -         Develop cash forecasting systems and procedures -         Continue to focus on maintaining a strong cash and working capital position -         Continue to monitor and maintain insurance policies
7	Corporate Secretary		-         Liaise with Transfer Agent and legal counsel to ensure all share and warrant related activities are maintained -         Ensure all minute books and related records are maintained and up to date for GTE and its subsidiaries -         Organize Annual and other shareholder meetings -         Work with legal counsel on preparing proxy statements and other shareholder communications -         Participate in Board and Committee Meetings and work with external counsel and other advisors to provide guidance to the Board on regulatory requirements and other issues
8	Assist President and CEO and new COO in developing corporate strategy and long-term plan		-         Assist President and new COO in formalizing the company’s corporate strategy -         Assist in developing 3-5 year Plan -         Assist in identifying and developing new business opportunities to maintain the company’s growth -         Assist in implementation of takeover defense strategies -         Develop and maintain risk management strategy
9	Secure additional sources of financing as required		-         Monitor the company’s requirements for additional financing -         Continually review potential sources of financing  - debt/equity/other -         Monitor and review status of equity markets -         Work with Standard Bank and BNP to increase credit facility
10	Assist President and CEO in developing and implementing an investor relations strategy		-         Continue to monitor performance of investor relations consultants and make changes and additions where necessary -         Provide support to President in investor presentations where requested -         Work with President to continue improve website, investor presentations and other investor communications
11	Assist President and CEO in developing administration and human resources function		-         Continue to implement administration and human resources procedures and policies in accordance with SOX and company requirements -         Assist Business Units in developing HR procedures, systems and strategies -         Develop compensation strategy and performance measurement procedures
12	Develop IT systems		-         Develop and maintain IT strategic plan and specific project requirements -         Maintain SOX IT requirements and IT controls -         Continue to review, assess and develop IT systems for Corporate and Business Units
13	Solana Integration		-         Assist in completing the integration of Solana for finance, legal, HR, administration and IT activities

 

32

---

 

Chief Operating Officer - The principal objectives in 2009 for the Chief Operating Officer were as follows

 

·

Establish 15MB/D net after royalty production in 2Q2009 and maintain through 4Q09

·

Identify and capture material new asset base representing at least 30% of GTE today with identifiable near term reserve and production growth potential of at least 10%/year near term to establish second core asset outside the Putumayo basin

·

Lost time incident ratio (percentage of lost time incidents per 200,000 person hours) of less than 0.90

·

Exit 2009 with 49 MMBO of net alter royalty 3P reserves, excluding merger and acquisition additions or rationalizations

·

Develop 5-year Strategic Plan

·

Work with team and Colombia Business Unit to come up with optimum production profile target for Putumayo

·

Establish industry safety targets for Business Units

·

Evaluate at least 5 new venture opportunities

·

Work with CEO to ensure staffing is consistent with needs to meet the 2009 budget

·

Obtain Board Approval For a New Country Entry and establish a presence by year end.

 

President, Gran Tierra Energy Brazil and the President, Gran Tierra Colombia - The principal objectives for the President, Gran Tierra Energy Colombia and the President, Gran Tierra Brazil for 2009 were defined in context of the 2009 Budget, which defines a work program, capital expenditure budget and operating results for the year. No personal objectives were defined and the personal performance score for each was assessed subjectively by the CEO and recommended to the Compensation Committee, which approved the performance scored.

 

Equity Incentives     

 

As described above, Gran Tierra recently changed the timing its compensation cycle.  Previously Gran Tierra’s practice was to consider compensation annually (at year-end), including the award of equity based compensation grants at the end of the year.  Gran Tierra is now establishing compensation early in the following year.  As a result, Gran Tierra made equity incentive grants in late 2008, and then again in March 2010, and did not grant equity award grants in 2009 other than new hire grants.

 

On March 2, 2009, Mr. O’Leary was granted options to purchase 500,000 shares of Gran Tierra’s common stock , and on December 1, 2009 Mr. Garcia was granted options to purchase 300,000 shares of Gran Tierra’s common stock.  Each of these grants were made in conjunction with the commencement of employment of the executive at Gran Tierra. The exercise price per share of the options was the fair market value of Gran Tierra’s common stock on the date of grant.  The Compensation Committee considered both Mr. O’Leary’s and Mr. Garcia’s experience, job responsibilities and internal equity within the relevant executive teams, in determining the level of these grants and negotiated these grants with each person as part of their initial compensation package.

 

In February 2010, the Compensation Committee considered elements of individual, business unit and corporate performance, as well as hire dates and the number of options granted upon hire, in determining grant levels and granted options under the terms of Gran Tierra’s 2009 Equity Incentive Plan to each of Gran Tierra’s executive officers as follows:  Mr. Coffield, 200,000 shares; Mr. Eden, 125,000 shares; Mr. O’Leary, 125,000 shares; and Julio Cesar Moreira, 50,000 shares. Mr. Garcia was not awarded any additional options apart from his commencement options granted on December 1, 2009. The levels of these awards were based on recommendations from Lane Caputo Compensation Inc., taking into account: Gran Tierra’s desired competitive positioning, as stated in the company’s compensation philosophy; the fair value of awards at time of grant versus the Custom Peer Group; the absolute number of awards versus the Custom Peer Group; and each award as a percentage of total shares outstanding versus the Custom Peer Group, with each element targeting the 65th percentile of the Custom Peer Group.

 

Termination and Change in Control Provisions

 

Gran Tierra’s employment agreements with Gran Tierra’s executive officers contain termination and change in control provisions. These provisions provide that Gran Tierra’s executive officers will receive severance payments in the event that their employment is terminated other than for “cause” or if they terminate their employment with us for “good reason”, as discussed in “Agreements with Executive Officers” below. The termination and change-in control provisions are industry standard clauses at the time that they entered into the employment agreements with us.

 

33

---

 

Benefits

 

The employment agreements entered into with Messrs. Coffield, Eden, O’Leary, Moreira, and Garcia have virtually identical terms, which allows for full participation in all rights and benefits under any life insurance, disability, medical, dental, health and accident plans maintained by Gran Tierra for its employees and executives. In addition, these Executives will be paid their base salary in the event they become disabled, until such time as the Executive begins to receive long-term disability insurance benefits.  These are standard basic benefits in the industry.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on this review and discussion, the Compensation Committee has recommended to the Gran Tierra Board that the Compensation Discussion and Analysis be included in this Joint Proxy Statement.   

 

Verne Johnson

Walter Dawson

J. Scott Price

Ray Antony

 

Compensation Policies and Practices as They Relate to Risk Management

 

Management of Gran Tierra analyzed Gran Tierra's compensation policies and practices as they relate to risk management, and made a presentation to the Compensation Committee and the Board.  The Compensation Committee and the Board then reviewed Gran Tierra’s compensation policies and practices as they relate to risk management practices and risk-taking incentives.  In the course of this review the Compensation Committee and the Board noted that the fixed (or salary) portion of compensation is designed to provide a steady income regardless of Gran Tierra’s stock price performance so that executives do not feel pressured to focus exclusively on stock price performance to the detriment of other important business metrics.  The variable (cash bonus and equity) portions of compensation are designed to reward both short term and long term corporate performance.  For short-term performance, Gran Tierra’s cash bonus is awarded based on a formula using the achievement of a combination of corporate goals, personal goals and business goals (if applicable) except in the case of the Chief Executive Officer who was evaluated in 2009 on the basis of the achievement of corporate goals only.  For long-term performance, the stock option awards cliff vest annually over three years and are only valuable if Gran Tierra’s stock price increases over time.  These variable elements of compensation are a sufficient percentage of overall compensation to motivate executives to produce superior short-and long-term corporate results, while the fixed element is also sufficiently high that the executives are not encouraged to take unnecessary or excessive risks in doing so.  Finally:

 

·

significant weighting towards long-term incentive compensation discourages short-term risk taking;

 

·

goals are appropriately set to avoid targets that, if not achieved, result in a large percentage loss of compensation;

 

·

incentive awards are decided by the Compensation Committee and recommended to the Board of Directors for approval; and

 

·

as an oil and gas exploration company, Gran Tierra does not face the same level of risks associated with compensation for employees at financial services (traders and instruments with a high degree of risk) or technology companies (rapidly changing markets).

 

Based on the above, the Compensation Committee concurred with the assessment by management and concluded that the risks arising from Gran Tierra's compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on Gran Tierra.

 

Executive Compensation

 

Summary Compensation Table     

 

All dollar amounts set forth in the following tables reflecting executive officer and director compensation are in U.S. dollars.

 

The following table shows for the fiscal years ended December 31, 2009, 2008 and 2007, compensation awarded to or paid to, or earned by, Gran Tierra’s Chief Executive Officer, Chief Financial Officer and Gran Tierra’s three other most highly compensated executive officers at December 31, 2009 which we refer to collectively as Gran Tierra’s “named executive officers”:

 

34

---

Summary Compensation Table

 

Name and principal position		Year		Salary ($)(1)				Bonus ($)				Option Awards ($) (2)(3)				All Other Compensation  ($)(4)				Total ($)
Dana Coffield President and Chief Executive Officer		2009		$	286,642			$	171,234			$	0			$	2,326			$	460,202
		2008		$	216,399			$	285,810			$	912,342			$				$	1,414,551
		2007		$	214,525			$	148,215			$	307,569			$				$	670,309
Martin Eden Vice President, Finance and Chief Financial Officer		2009		$	239,824			$	136,389			$	0			$	2,326			$	378,539
		2008		$	192,922			$	163,320			$	608,228			$				$	964,470
		2007		$	193,073			$	74,108			$	303,319			$				$	570,500
Shane O’Leary		2009		$	222,944			$	147,131			$	716,563			$	1,733			$	1,088371
Julian Garcia, President, Gran Tierra Colombia		2009		$	19,959			$	0			$	1,048,404			$				$	1,068,363
Julio Moreira, President, Gran Tierra Brasil Ltda.		2009		$	87,069			$	45,661			$	356,190			$	65,857			$	554,777

 

(1)

Dana Coffield, Martin Eden and Shane O’Leary salaries and bonus are paid in Canadian dollars and converted into U.S. dollars for the purposes of the above table.  The exchange rate for 2007 information is the December 31, 2007 exchange rate of one Canadian dollar to US $0.9881; the exchange rate for 2008 information is the December 31, 2008 exchange rate of one Canadian dollar to US $0.8661; and the exchange rate for 2008 information is the December 31, 2009 exchange rate of one Canadian dollar to 0.9555. Julio Moreira’s salary and bonus is paid in Brazilian Reals and is converted into U.S. dollars for the purposes of the above table at the December 31, 2009 exchange rate of one Brazilian Real to US $0.5746.

 

(2)	Granted under terms of Gran Tierra’s 2005 and 2007 Equity Incentive Plans.

 

(3)	Assumptions made in the valuation of stock options granted are discussed in Note 6 to Gran Tierra’s 2008 Consolidated Financial Statements. Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.

 

(4)	Includes life insurance premiums paid by the Company on behalf of Dana Coffield, Martin Eden, Shane O’Leary and Julio Moreira.  Includes $8,551 paid by the Company on behalf of Julio Moreira for a health plan and  $56,280  for a golf club membership.

 

Grants of Plan-Based Awards

 

The following table shows for the fiscal year ended December 31, 2009, certain information regarding grants of plan-based awards to Gran Tierra’s named executive officers:

 

Grants of Plan-Based Awards

Name		Grant Date		Date of Corporate Approval(2)		All Other Option Awards: Number of Securities Underlying Options (#)				Exercise or Base Price of Option Awards ($/Sh)				Grant Date Fair Value of Stock and Option Awards ($)(1)
Mr. O’Leary		03/04/2009		01/25/2009			500,000			$	2.37			$	716,563
Mr. Moreira		09/08/2009		06/03/2009			150,000			$	3.95			$	356,190
Mr. Garcia		12/01/2009		10/23/2009			300,000			$	5.99			$	1,048,404

(1)	Represents the grant date fair value of such option award as determined in accordance with SFAS 123R. These amounts have been calculated in accordance with FASB ASC Topic 718 using the Black Scholes valuation model.

 

(2)	Represents the date, if such date is different than the grant date, that the Compensation Committee took the action to grant the option on the grant date.

 

35

---

 

Agreements with Executive Officers

 

The employment agreements entered into with Messrs. Coffield, Eden, O’Leary, Moreira, and Garcia have virtually identical terms except for:

 

·

the position held by each such person;

 

·

limitations on business class travel (Messrs. Moreira and Garcia may only travel business class for international flights and coach class for domestic travel whereas Messrs. Coffield, O’Leary and Eden may travel business class for most flights);

 

·

Mr. Moreira receives a Private Retirement Savings Allowance (“allowance”) of 8% of his Base Salary, paid on a monthly basis by Gran Tierra.  The allowance vests one-third per year following deposit on a rolling basis.

 

·

Mr. Moreira and Mr. Garcia also receive golf club memberships, a company car and driver and, in the case of Mr. Garcia, a second car allowance.

 

The employment agreements provide that the respective executive will:

 

·

receive a base salary, as determined by the Gran Tierra Board;

 

·

be eligible to receive an annual bonus, as determined by the Board; and

 

·

be eligible to participate in the stock option plans of Gran Tierra.

 

The bonuses are to be paid within 60 days of the end of the preceding year based on the executive performance.

 

The employment agreements do not have terms of specified duration. The employment agreements provide for severance payments to each executive, in the event the executive is terminated without cause or the executive terminates the agreement for good reason, in the amount of two times total compensation for the prior year (in the case of Mr. Coffield ) or in the amount of one times total compensation for the prior year (in the case of Messrs. Eden, Garcia and Moreira) or an amount equal to 18 months of prior period compensation for Mr. O’Leary.

 

With respect to the employment agreement with all of the executive officers other than Mr. Moreira, the definitions of “cause,” “good reason” and “change in control” are set forth below.  Mr. Moreira’s employment agreement contains definitions of these terms that are similar but not entirely consistent with these definitions.