Exhibit 99.2 - Corporate Governance Principles
SOUTH TEXAS OIL COMPANY
CORPORATE GOVERNANCE PRINCIPLES
The Board of Directors ("Board") of South Texas Oil Company ("Company" or
"STOC") believes that effective corporate governance is built on adherence to a
number of "best practices." These practices are consistent with the Board's
responsibilities to effectively oversee the Company's strategy, evaluate and
compensate Company executives, and plan for management succession. Most
importantly, these practices are believed to strengthen the Company and protect
shareholders' interests. As such, the Board has developed and follows a program
of corporate governance that includes the following elements:
BOARD INDEPENDENCE
The Board shall be comprised of a majority of independent directors. Director
independence, at a minimum, is consistent with applicable rules and regulations
for Nasdaq-traded issuers. The Board believes that independence is best
achieved when independent directors, their family members, or their primary
employers receive no consulting, legal, or other fees from STOC other than in
their service as Board members.
An Independent Director is specifically defined as a director who:
* Is not an affiliate of the Company, the Company's affiliates, any member
of the Company's senior management, or the Company's suppliers or customers;
* Has not been employed by the Company or its affiliates within the past
five years;
* Has no personal services contract, such as a consulting or advising
relationship, with the Company, its affiliates, or the Company's executives;
* Has no business relationship with the Company or its affiliates (other
than in his or her service as a Board member) that requires STOC to make
disclosure under Nasdaq or Securities and Exchange Commission rules and
regulations;
* Is not affiliated with a not-for-profit organization that receives
substantial contributions from the Company or its affiliates, as specified by
Nasdaq rules or regulations;
* Is not employed by an organization at which an executive of STOC serves
as a Board member;
* Is not a family member of any individuals with the aforementioned
relationships;
* Has not been affiliated with or employed by a present or former auditor
of the Company or its affiliates until five years after the end of either the
affiliation or auditing relationship.
The Board is committed to Board Committee independence. Each Board Committee
will be chaired by an Independent Director of the Board. Committee chairs,
their family members, or their primary employers shall receive no consulting,
legal, or other fees from STOC other than in their service as Board members. In
compliance with Sarbanes-Oxley and Nasdaq rules and regulations, the Audit
Committee is comprised of three Independent Directors. In addition, the Audit
Committee chair shall be deemed a "financial expert", as specified by Nasdaq
rules and Section 407(b) of the Sarbanes-Oxley Act of 2002 and any rules
implemented by the Securities and Exchange Commission. Committee chairs and
members serve one year renewable terms. Any director that is no longer
considered an Independent Director will be required to resign from any
Committee on which he or she serves.
The Board presently believes that it is in the best interests of the Company
for the positions of Chief Executive Officer and Board Chairperson to be
combined, as this structure provides for unified vision and leadership within
the Company. This combined leadership structure will be periodically evaluated.
Should the Board determine that such separation is appropriate, these positions
will be formally separated. The CEO/Chairperson serves a critical role in
establishing and maintaining effective communications with the Company's
shareholders, customers, suppliers, employees, creditors, communities,
governments, and other stakeholders. Communications between the Company and
stakeholders will be primarily through the CEO/Chairperson of the Board.
When the Chief Executive Officer and Board Chairperson positions are combined,
the Board will maintain a Lead Independent Director. This director will be
selected by the Independent Directors of the Board from among the Independent
Directors of the Board. The Lead Independent Director serves as an important
liaison between the Board and Management. A key role of the Lead Independent
Director is to work closely with the Corporate Secretary so that Board members
receive meeting agendas and related materials with sufficient time to
effectively prepare for discussion at Board and/or Committee meetings. The Lead
Independent Director is also responsible for scheduling meetings whereby the
Independent Directors meet in executive session. Executive sessions include
only Independent Directors, with guests invited at the discretion of the
Independent Directors. Management Board members and other Management
representatives will not, as a rule, be present in these sessions. The Lead
Independent Director sets the executive session meeting agendas and presides
over these meetings. The Lead Independent Director also serves a central role
as liaison between the Board and external advisors retained by the Board. The
Lead Independent Director serves for a one year renewable term. The Lead
Independent Director is evaluated by the full Board on an annual basis.
As a matter of policy, and to ensure Board independence, Independent Directors
or directors who are not employed by the Company or its affiliates, their
family members, and their primary employers will refrain from conducting any
business with the Company outside of directors' service as Board members. This
is consistent with the definition of an Independent Director contained herein.
Board member independence will be assessed and affirmed annually. Consideration
will be given to replacing non-management directors no longer considered
independent.
BOARD BUDGET
In recognition of the Board's commitment to maintaining independence, the Board
maintains an operating budget separate from Company funds. These funds are
provided by the Company. This enables the Board to engage in activities such as
determining Director compensation and hiring external experts such as the
external auditors and compensation consultants without having to request such
operating funds from Management. The Board's budget is overseen by the Lead
Independent Director and Audit Committee Chairperson.
COMMITTEE CHARTER
The Board will maintain and make publicly available Board Committee Charters
for the three standing Board committees. These Charters, the Company's
Corporate Governance Guidelines, and the Company's Code of Business Conduct and
Ethics, which may be modified as appropriate, are made available to the public
via the Company's website (www.southtexasoil.com).
BOARD SIZE
The Board shall be comprised of between 3 to 5 members. Board size will be a
function of the current needs of the Company and the ability to effectively
staff standing Board committees. Board size will be, in part, a function of a
purposeful desire to enhance Board member diversity. Diversity is accomplished
through the inclusion of directors with varying background characteristics and
knowledge bases. Directors are selected for their ability to provide unique
diverse perspectives and skills in their service as Board members. Directors
are re-evaluated as to their ability to meet Board member diversity goals and
effectively contribute to the Board in the event their primary occupation or
employment status changes during their term. Consideration will be given to
replacing directors not fulfilling these goals due to their occupational or
employment status change.
Director Compensation
The Board believes that it is important to rely on director compensation
practices that promote director independence. Directors' compensation is
therefore in the form of a Board retainer. No special fees are granted for
Board or Committee meeting attendance. The Lead Independent Director, Board
Committee chairs, and Audit Committee members receive additional compensation
in recognition of their additional service responsibilities. The Board also
believes that its Independent Directors should make a meaningful investment in
Company stock. Consistent with this guideline, 50 percent of an Independent
Director's annual compensation will be, subject to receipt of necessary
approvals, in the form of restricted stock grants until the fair market value
of the Director's stock holdings in the Company reach a level two times that of
the Director's annual Board retainer. Once a Director's stock holdings reach
this level, the Director generally may elect to receive the annual retainer in
the form of cash or a combination of cash and restricted stock grants.
Directors may also choose to have the annual Board retainer paid entirely in
restricted shares. Unless the fair market value of the shares of Common Stock
held by a Director reaches a level of two times that of the annual Board
retainer the Director may not sell any restricted shares issued as part of the
Director's annual Board compensation until six months after the Director's
retirement/resignation from the Board. Once a Director's stock holdings reach
the two times annual retainer level (which holdings shall be measured in
December of each year) all restricted shares previously issued to the Director
as part of the Director's annual Board retainer and all restricted shares to be
issued to the Director in the ensuing year may be sold in the ensuing year
without the need to comply with the restrictions set forth above. Any director
stock transactions will be posted on the Company's website
(www.southtexasoil.com).
BOARD MEETINGS AND ATTENDANCE
The Board is committed to open communication among Board members and between
the Board and Management. Consistent with this, the Board and Board Committees
shall meet on a quarterly basis. Board meeting dates are established on an
annual basis and approved by Board vote. Additional Board and/or Committee
meetings are scheduled on an "as needed" basis. The Board believes that it is
important for directors to participate in scheduled Board and/or Committee
meetings. Directors who participate in less than 75 percent of scheduled Board
and Committee meetings are subject to being terminated as a Board member or not
receiving re-nomination to the Board.
DIRECTOR ACCESS TO MANAGEMENT
Consistent with the need for open communication channels between the Board and
Management, non-management directors have direct access to Company Management
outside of formal Board and/or Committee meetings.
BOARD EDUCATION AND EVALUATION
The Board is committed to ensuring that directors receive ongoing educational
opportunities that enhance their abilities to effectively serve the Company. To
this end, the Board engages in continuing education experiences. Each director
is required to attend one director training seminar per calendar year. Also,
the Board as a whole engages in a joint professional development experience
each year. Additionally, new Board members are provided with a comprehensive
manual that assists in their orientation to the Board and the Company. The
Board is also committed to evaluating the overall effectiveness of the Board
and individual directors. Board and Board Committee evaluation occurs annually.
Directors are formally evaluated at the conclusion of their Board term and
prior to their consideration for re-nomination to the Board.
CHANGE IN DIRECTOR EMPLOYMENT STATUS
All Independent Directors shall notify the Company's Lead Independent Director
in writing upon the occurrence of any change in status of principal occupation,
any change or additional responsibility and any new directorship, or change in
directorships. The Lead Independent Director will notify the Committee of any
such changes and the Committee shall determine the communication provided to
the Board of Directors.