UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 001-11899

THE HOUSTON EXPLORATION COMPANY

Delaware		22-2674487
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)
1100 Louisiana, Suite 2000
Houston, Texas		77002-5215
(Address of Principal Executive Offices)		(Zip Code)

(713) 830-6800
(Registrant’s Telephone Number, including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

		Name of Each
Title of Each Class		Exchange on Which Registered
Common Stock, $0.01 par value		New York Stock Exchange
Series A Junior Participating Preferred Stock, $0.01 par value		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer þ           Accelerated filer o           Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of common stock held by non-affiliates of the registrant was approximately $1.710 billion, based on the closing sales price of $61.19 per share of the registrant’s common stock as reported by on the New York Stock Exchange as of June 30, 2006, the last business day of the registrant’s most recently completed second fiscal quarter. As of February 28, 2007, 28,155,996 shares of common stock were outstanding.

 

 

EXPLANATORY NOTE

The Houston Exploration Company (“Houston Exploration”) is filing this Amendment No. 2 on Form 10-K/A (the “Amendment No. 2”) to include in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2007, as amended by the Annual Report on Form-K/A (Amendment No. 1) filed with the SEC on March 5, 2007 (collectively, the “Original Filing”), the items required by Part III which originally were expected to be incorporated by reference to the definitive proxy statement to be delivered to stockholders in connection with the 2007 Annual Meeting of Stockholders, and the officer certifications associated with same.

Except for the addition of the Part III information and the filing of related certifications, no other changes have been made to the Original Filing. This Amendment No. 2 does not reflect events occurring after the Original Filing or modify or update those disclosures affected by subsequent events.

Available Information

On January 7, 2007, we announced that we had entered into a definitive agreement and plan of merger with Forest Oil Corporation pursuant to which Forest will acquire all of the outstanding shares of Houston Exploration for a combination of cash and Forest common stock. On March 21, 2007, Forest filed an Amendment No. 1 to its Registration Statement on Form S-4 with the SEC, including a preliminary joint proxy statement / prospectus, with respect to the merger. Investors are urged to carefully read the information contained in the materials regarding the proposed transaction once the registration statement is declared effective and the joint proxy statement / prospectus is mailed to stockholders. Investors may obtain a copy of the joint proxy statement / prospectus, free of charge, at the SEC’s web site at www.sec.gov.

TABLE OF CONTENTS

Part III.			3
Item 10. Directors, Executive Officers and Corporate Governance			3
Item 11. Executive Compensation			10
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			36
Item 13. Certain Relationships and Related Transactions, and Director Independence			41
Item 14. Principal Accountant Fees and Services			43
Part IV.			44
Item 15. Exhibits and Financial Statement Schedules			44
Signatures			50
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302

Part III.

Item 10. Directors, Executive Officers and Corporate Governance

Directors of Houston Exploration

The following information reflects the business experience of each individual serving on the Board of Directors (the “Board”) of Houston Exploration:

Name		Age		Director Since
Robert B. Catell		70		1986
John U. Clarke		54		2003
David G. Elkins		65		1999
William G. Hargett		57		2001
Harold R. Logan, Jr.		62		2002
Thomas A. McKeever		63		2005
Stephen W. McKessy		69		2003
Donald C. Vaughn		71		1997

Robert B. Catell has been a director since 1986 and served as Chairman of the Board from 1986 to June 2004. As a result of KeySpan Corporation’s reduced ownership in our stock in June 2004, KeySpan reduced its representation on the Board, and Mr. Catell resigned as Chairman of the Board, but continues to serve as a member of the Board. Mr. Catell is the Chairman and Chief Executive Officer of KeySpan Corporation, a publicly traded diversified energy provider, and has held this position since July 1998. Mr. Catell joined KeySpan’s subsidiary, The Brooklyn Union Gas Company, in 1958 and was elected Assistant Vice President in 1974, Vice President in 1977, Senior Vice President in 1981 and Executive Vice President in 1984. Mr. Catell was appointed Brooklyn Union’s Chief Operating Officer in 1986 and President in 1990. Mr. Catell served as President and Chief Executive Officer of Brooklyn Union from 1991 to 1996 when he was elected Chairman and Chief Executive Officer and held these positions until the formation of KeySpan in May 1998 through the combination of Brooklyn Union’s parent company, KeySpan Energy Corporation, and certain assets of Long Island Lighting Company. Mr. Catell serves on the Boards of Alberta Northeast Gas, Ltd., Keyera Facilities Income Fund, Edison Electric Institute, New York State Energy Research and Development Authority, the Business Council of New York State, Inc., The Partnership for New York City, and is Chairman of the Board of the Long Island Association. Mr. Catell received both his Bachelor’s and Master’s Degrees in Mechanical Engineering from City College of New York. He holds a Professional Engineer’s License in New York State, and attended Columbia University’s Executive Development Program and Harvard Business School’s Advanced Management Program.

John U. Clarke became a director in December 2003. Since December 2004, Mr. Clarke has been Chairman and Chief Executive Officer of NATCO Group Inc., a publicly traded oil services and equipment company. From May 2001 to such time, Mr. Clarke was President of Concept Capital Group, a financial and strategic advisory firm originally founded by Mr. Clarke in 1995. Immediately prior to reestablishing the firm, Mr. Clarke was a managing director of SCF Partners, a private equity investment company focused on the oil and gas services and equipment sectors of the energy industry. From 1999 to June 2000, Mr. Clarke was Executive Vice President of Dynegy, Inc. where he was also an Advisory Director and member of the Office of the Chairman. Mr. Clarke joined Dynegy in April 1997 as Senior Vice President and Chief Financial Officer. Prior to joining Dynegy, Mr. Clarke was a managing director and co-head of a specialty energy practice group with Simmons & Company International, a Houston-based investment banking firm. From 1995 to 1997, he served as president of Concept Capital Group. Mr. Clarke was Executive Vice President and Chief Financial and Administrative Officer with Cabot Oil and Gas from 1993 to 1995. He was with Transco Energy from 1981 to 1993 in various capacities, last serving as Senior Vice President and Chief Financial Officer. Mr. Clarke is a member of the Board of Directors of Harvest Natural Resources, a publicly traded international oil and gas company. He is also Chairman of the Board of Directors of FuelQuest, a privately held market service provider to the petroleum industry. He received a Bachelor of Arts Degree in Economics from the University of Texas in 1975 and Master of Business Administration from Southern Methodist University in 1976.

David G. Elkins has been a director since July 1999. In January 2003, Mr. Elkins retired as President and Co-Chief Executive Officer of Sterling Chemicals, Inc., a chemicals producing company. Prior to joining Sterling Chemicals in 1998, Mr. Elkins was a senior partner in the law firm of Andrews & Kurth L.L.P., where he specialized in corporate and business law, including mergers and acquisitions, securities law matters and corporate governance matters. Mr. Elkins

serves as a director of ZiLOG, Inc. and Pliant Corporation. He received his J.D. degree from Southern Methodist University in 1968.

William G. Hargett was appointed President and Chief Executive Officer and a Director in April 2001, and was appointed Chairman of the Board in June 2004. From September 2000 until joining Houston Exploration, Mr. Hargett was a private investor. From May 1999 until August 2000, Mr. Hargett was President-North America of Santa Fe Snyder Corporation. Prior to that he was President and Chief Operating Officer and a director of Snyder Oil Corporation. Prior to joining Snyder Oil Corporation in April 1997, Mr. Hargett served as President of Greenhill Petroleum Corporation, the U.S. oil and gas subsidiary of Australian-based Western Mining Corporation, from 1994 to 1997, Amax Oil & Gas, Inc. from 1993 to 1994 and North Central Oil Corporation from 1988 to 1993. Mr. Hargett was employed in various exploration capacities by Tenneco Oil Corporation from 1974 to 1988 and Amoco Production Company from 1973 to 1974. Mr. Hargett earned a B.S. and an M.S. from the University of Alabama.

Harold R. Logan, Jr. was appointed to our Board of Directors in December 2002. From 2003 until September 30, 2006 Mr. Logan was a Director and Chairman of the Finance Committee of the Board of Directors of TransMontaigne Inc. and from 1995 through 2002 he was the Chief Financial Officer, Executive Vice President and Treasurer and a Director of TransMontaigne. On October 1, 2006, TransMontaigne was sold to Morgan Stanley Group, Inc. From 1985 to 1994, Mr. Logan was Senior Vice President/Finance and a Director of Associated Natural Gas Corporation. Prior to joining Associated Natural Gas Corporation, Mr. Logan was with Dillon, Read & Co. Inc. and Rothschild, Inc. In addition, Mr. Logan is Chairman of the Board of Supervisors of Suburban Propane Partners, L.P., and a Director of Graphic Packaging Corporation, Rivington Capital Advisors LLC, and Hart Energy Publishing LLP. Mr. Logan received a B.S. in Economics from Oklahoma State University and an M.B.A. – Finance from Columbia University Graduate School of Business.

Thomas A. McKeever was appointed to our Board in February 2005. Mr. McKeever retired as Chairman of Sempra Metals Group, a global metals trading business headquartered in London, on December 31, 2006. He had served in that position since February 2002. From July 2001 to January 2002, Mr. McKeever worked as a private consultant. From July 2000 to July 2001, he served as Vice Chairman of Enron Europe Limited, a subsidiary of Enron Corp., an integrated provider of products and services related to natural gas, electricity and communications, where he oversaw the integration of MG plc, a metals trading group listed on the London Stock Exchange, into Enron Europe. Mr. McKeever resigned from Enron Europe in July 2001. MG plc was spun off from Metallgesellschatf Group, a German-based metals and engineering group, in September 1999 via an initial public offering. Mr. McKeever served as Executive Chairman of MG plc until its acquisition by Enron Europe in July 2000. From 1994 until September 1999, Mr. McKeever worked in various capacities for the Metallgesellschaft Group. From 1977 to 1994, Mr. McKeever worked at AMAX, Inc., a global metals and energy producer. At AMAX he served in a variety of positions, including Executive Vice President and board member. From 1973 to 1976, Mr. McKeever was employed at JWP, a utility holding company in Long Island, New York. From 1965 to 1972 Mr. McKeever worked at Arthur Andersen, New York. Mr. McKeever received a Bachelor of Science degree from Fordham University in 1965 and a Certified Public Accountant license from New York State in 1968.

Stephen W. McKessy was elected to our Board in July 2003. Mr. McKessy is a retired partner of PricewaterhouseCoopers. He was admitted to the partnership as a tax partner and subsequently became the firm’s National Director of State and Local Taxes. Thereafter, and during his 37 years with the firm, he held various management positions. He was the Managing Partner of the Stamford Office and then became the Managing Partner of the New York office and region. He was elected to the firm’s Executive Committee and became Deputy Chairman of U.S. operations. He concluded his career at the firm as Vice Chairman Client Services. He is a member of the Board of Directors of KeySpan Corporation where he serves as the Lead Director. He also serves on the Executive Committee, the Audit Committee and the Compensation & Management Development Committee at KeySpan. He graduated from St. John’s University in New York, where he now serves as a member of the College of Business Administration Board of Advisors. He also serves as a director of the Greater New York Boy Scouts of America.

Donald C. Vaughn has been a Director since 1997 and is retired Vice Chairman of Halliburton Company, a publicly traded oilfield services company, where he served in that capacity from the time Dresser Industries, Inc. merged with Halliburton in 1998 until his retirement on March 2001. Prior to the merger, Mr. Vaughn was President, Chief Operating Officer and member of the board of directors of Dresser starting in 1996. Prior to his appointment as President and Chief Operating Officer of Dresser, Mr. Vaughn served as Executive Vice President of Dresser, responsible for Dresser’s Petroleum Products and Services and Engineering Services Segment from November 1995 to December 1996; Senior Vice President of Operations of Dresser from January 1992 to November 1995; and Chairman, President and Chief Executive Officer of The M.W. Kellogg Company, an international engineering and construction company, from November 1983 to June 1996. Mr. Vaughn joined M.W. Kellogg in 1958 and is a registered Professional Engineer (inactive) in the State of Texas. He has been recognized as a distinguished engineering alumnus of Virginia Polytechnic Institute, from which he holds a B.S. in civil engineering. Mr. Vaughn serves as a director of SHAWCOR Ltd., a publicly traded Canadian oil service company.

Executive Officers of Houston Exploration

The following information concerns our executive officers as of March 28, 2007, including the business experience of each during the past five years:

Name		Age		Executive Since		Office
William G. Hargett		57		2001		Chairman, President and Chief Executive Officer
Steven L. Mueller		54		2001		Executive Vice President and Chief Operating Officer
Robert T. Ray		46		2006		Senior Vice President and Chief Financial Officer
Roger B. Rice		62		2002		Senior Vice President – Administration
Jeffrey B. Sherrick		52		2005		Senior Vice President – Business Development
Carolyn M. Campbell		45		2006		Senior Vice President and General Counsel
John E. Bergeron, Jr.		49		2005		Vice President and General Manager –Southern Division
Joanne C. Hresko		45		2004		Vice President and General Manager – Northern Division
James F. Westmoreland		51		1986		Vice President and Chief Accounting Officer

William G. Hargett was appointed President and Chief Executive Officer and a Director in April 2001 and was appointed Chairman of the Board in June 2004. From September 2000 until joining Houston Exploration, Mr. Hargett was a private investor. From May 5, 1999 until August 29, 2000, Mr. Hargett was President-North America of Santa Fe Snyder Corporation. Prior to that he was President and Chief Operating Officer and a director of Snyder Oil Corporation. Prior to joining Snyder Oil Corporation in April of 1997, Mr. Hargett served as President of Greenhill Petroleum Corporation, the U.S. oil and gas subsidiary of Australian-based Western Mining Corporation from 1994 to 1997, Amax Oil & Gas, Inc. from 1993 to 1994 and North Central Oil Corporation from 1988 to 1993. Mr. Hargett was employed in various exploration capacities by Tenneco Oil Corporation from 1974 to 1988 and Amoco Production Company from 1973 to 1974. Mr. Hargett earned a B.S. and an M.S. from the University of Alabama.

Steven L. Mueller was appointed Executive Vice President and Chief Operating Officer in November 2004. Mr. Mueller joined the Company in 2001 as Senior Vice President and General Manager - Onshore Division. Immediately prior to joining Houston Exploration, Mr. Mueller had been Senior Vice President — Exploration and Production for Belco Oil and Gas Corp. Mr. Mueller joined Belco Oil and Gas Corp. in 1996 and held various senior management positions involving oil and gas exploration. From 1992 to 1996 Mr. Mueller was Exploitation Vice President for American Exploration Company. From 1988 to 1992, Mr. Mueller was Exploration Manager — South Louisiana for Fina Oil and Chemical Company. Mr. Mueller began his career with Tenneco Oil Corporation in 1975 and held various geological and engineering positions with Tenneco from 1975 to 1988. Mr. Mueller received his B.S. in Geological Engineering from the Colorado School of Mines in 1975.

Robert T. Ray was appointed Senior Vice President and Chief Financial Officer in January 2006. Prior to joining Houston Exploration, Mr. Ray was employed as Senior Vice President, Chief Financial Officer and Treasurer of Group 1 Automotive, a Fortune 500 automotive retailer from May 2004 to December 2005. Prior to joining Group 1 Automotive, Mr. Ray worked for more than 13 years at Dynegy Inc., a Houston-based energy company, holding several senior positions in finance and corporate development. From December 2002 through May 2004, he served as Dynegy’s Senior Vice President and Treasurer with responsibility for all corporate finance, treasury, credit, insurance and trust investment activities. Mr. Ray served as Dynegy’s Senior Vice President-Corporate Development from September 2002 through December 2002; Vice President-Strategic Investments from August 2000 through September 2002; Vice President-Corporate Finance from October 1999 through August 2000; and Assistant Treasurer from January 1994 through October 1999. From January 1991 through January 1994, Mr. Ray was responsible for Dynegy’s financial planning and analysis activities. Finally, Mr. Ray’s prior work experience also includes positions in banking, public accounting and petroleum engineering. Mr. Ray received a bachelor’s degree in petroleum engineering from The University of Texas at Austin and master’s degrees in finance and accounting from the University of Houston.

Roger B. Rice was appointed Senior Vice President of Administration in November 2004. Mr. Rice joined the Company as Vice President – Human Resources and Administration in 2002. Prior to that, Mr. Rice worked as a consultant for Houston Exploration since June 2001. From January 2001 to June 2001, Mr. Rice was a private management consultant and oil and gas investor. From December 1998 to December 2000, Mr. Rice was Vice President and General Manager for

Santa Fe Snyder Corporation, where he was responsible for all onshore exploration and production activities in Texas and New Mexico. Mr. Rice had been Vice President — Human Resources with Snyder Oil Corporation from 1997 until its merger with Santa Fe Resources in 1999. From 1992 to 1997, Mr. Rice was Vice President Human Resources and Administration for Apache Corporation. From 1989 to 1992, he was Managing Consultant with Barton Raben, Inc., an executive search and consulting firm specializing in the energy industry. Previously, Mr. Rice was Vice President Administration for The Superior Oil Company and held various management positions with Shell Oil Company. He earned his B.A. and M.B.A. from Texas Technological University.

Carolyn M. Campbell was appointed Senior Vice President and General Counsel in March 2006. Immediately prior to joining Houston Exploration, Ms. Campbell had been Senior Vice President, Group General Counsel and Corporate Secretary of Dynegy, Inc., where she led the corporate finance, securities, and mergers/acquisitions team within the legal department and was also responsible for corporate governance matters. Prior to joining Dynegy in 2004, Ms. Campbell practiced law for nineteen years in Houston with the firms of Akin Gump Strauss Hauer & Feld LLP, King & Spalding LLP, and Griggs & Harrison P.C., representing clients in corporate finance, securities and mergers/acquisitions matters. Ms. Campbell graduated magna cum laude from Louisiana State University in 1982, majoring in Accounting, and earned her J.D. in 1985 from Louisiana State University. She is a member of the State Bar of Texas, the Houston Bar Association, the American Bar Association, and the Louisiana State Bar Association.

Jeffrey B. Sherrick was appointed Senior Vice President of Corporate Development in April 2005. Immediately prior to joining Houston Exploration, Mr. Sherrick was self-employed working in the energy industry. From February 2004 to December 2004, Mr. Sherrick served as Senior Vice President, Production and Non-Regulated Services for El Paso Production Company, an exploration and production company and a wholly-owned subsidiary of El Paso Corporation. From August 2003 until February 2004, Mr. Sherrick was self-employed. From March 2003 to August 2003, Mr. Sherrick was President and Chief Executive Officer of EVP Oil & Gas (formerly Energy Virtual Partners), a privately held company providing asset management services to major oil and gas producers. From January 2003 until joining EVP Oil and Gas in March 2003, Mr. Sherrick was self-employed. From August 1999 to December 2002, Mr. Sherrick was Chairman and Chief Executive Officer of Enron Global Exploration Production, Inc., a wholly-owned subsidiary of Enron Corp., which was engaged in the international exploration and development of natural gas and oil. Prior to that time, Mr. Sherrick held various management positions with Enron Oil & Gas Company. Mr. Sherrick received a B.S. in Petroleum Engineering from Marietta College in Marietta, Ohio.

John E. Bergeron Jr., Vice President and General Manager — Southern Division, is responsible for all aspects of the Company’s South Texas and Gulf Coast operations. Mr. Bergeron joined the Company as Vice President and General Manager — Offshore Division in March 2005. From June 1995 until his employment with Houston Exploration, Mr. Bergeron worked for Fina Oil and Chemical Company, which was subsequently acquired by Total E&P USA Inc. While at Total, he served as the Quality Manager from August 2004 until March 2005, overseeing management systems and operational improvements for the organization’s operations. From November 2002 until August 2004, he was Manager of Total’s exploration operations at Alaska’s North Slope. From January 2000 until November 2002, he served as Deputy & Manager of Total’s U.S. onshore development operations, and from October 1996 until January 2000, he was the Engineering Manager of the Development Division. He has also held positions at Southwest Royalties, Inc., Fina Oil and Chemical, Tenneco Oil Company and Gulf Oil Corporation. Mr. Bergeron is a licensed Professional Engineer in the State of Texas and received a bachelor’s degree in petroleum engineering from The University of Texas at Austin.

Joanne C. Hresko, Vice President and General Manager – Northern Division, is responsible for the Company’s operations in the Rockies, Arkoma and East Texas areas. Ms. Hresko was appointed Vice President and General Manager — Onshore Division in November 2004. Ms. Hresko joined the Company in 1992 as operations manager and has supervised the exploration and production operations for the onshore region for the past several years. Prior to joining Houston Exploration, she worked at Tex/Con Oil & Gas Company, a subsidiary of BP Exploration. Ms. Hresko received both a bachelor’s and master’s degree in petroleum engineering from Texas A&M University.

James F. Westmoreland has been Vice President and Chief Accounting Officer since October 1995, and also held the title of Corporate Secretary from October 1995 until January 2003. Prior to that, Mr. Westmoreland was Vice President and Comptroller from 1986 to 1995. Mr. Westmoreland was supervisor of natural gas and oil accounting at Seagull Energy Corp. from 1983 to 1986. Mr. Westmoreland holds a B.B.A. in Accounting from the University of Houston.

There are no family relationships among any of our executive officers or directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and officers, and certain persons who own more than 10% of our common stock, to file initial reports of ownership and reports of changes in ownership of common stock on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange (the “NYSE”). Directors, executive officers and greater than 10% stockholders are required by SEC regulations to furnish us with copies of any forms that they file. We assist our directors and executive officers in complying with these requirements and are required to disclose in this Amendment No. 2 the failure to file these reports on behalf of any reporting person when due.

With respect to our officers and directors, based on our review of such reports, we believe that all such Section 16(a) reports were timely filed during fiscal year 2006.

Code of Ethics

All of our employees, officers and directors are required to comply with our longstanding Ethical Business Conduct Policy Statement to help ensure that our business is conducted in accordance with the highest standards of moral and ethical behavior. Our Code of Business Conduct covers all areas of professional conduct including:

	•		Conflicts of interest
	•		Customer relationships
	•		Insider trading of our securities
	•		Financial disclosure
	•		Protection of confidential information
	•		Strict legal and regulatory compliance.

Our employees, officers and directors are required to certify their compliance with our Ethical Business Conduct Policy Statement once each year.

In addition to the Ethical Business Conduct Policy Statement, all members of our senior financial management, including our Chief Executive Officer, have agreed in writing to our Code of Ethics for Senior Financial Officers, which prescribes additional ethical obligations pertinent to the integrity of our internal controls and financial reporting process, as well as the overall fairness of all financial disclosures.

The full text of our Ethical Business Conduct Policy Statement and the Code of Ethics for Senior Financial Officers, which were both amended and restated in 2006, can be found under the “Shareholder/Financial — Corporate Governance” section of our website at www.houstonexploration.com, and a copy will be provided, without charge, upon request by contacting the Corporate Secretary at The Houston Exploration Company, 1100 Louisiana Street, Suite 2000, Houston, TX 77002. We intend to promptly disclose via a Current Report on Form 8-K or an update to our website information about any amendment to, or waiver of, these codes with respect to our executive officers and directors.

Procedures for Nominating Directors

Qualifications for Nominations to the Board of Directors

The Nominating and Governance Committee independently identifies qualified candidates for nomination to the Board and evaluates, in the same manner as all other candidates, the qualifications of all candidates that stockholders properly recommend for nomination. All candidates are considered under the Qualifications for Nominations to the Board of Directors Policy which is available under the “Shareholder/Financial — Corporate Governance” section of our website at www.houstonexploration.com. In addition, we have an established process for the selection of nominees as described in Item 8 of the Corporate Governance Guidelines. Nominees are evaluated based on their background, experience and other relevant factors described in the Qualifications for Nominations to the Board of Directors Policy. In accordance with our Bylaws and Corporate Governance Guidelines, stockholders desiring to make director candidate recommendations are required to submit such nominations between 60 and 90 days in advance of the first anniversary of the mailing of the previous year’s Proxy Statement, except that if our annual meeting occurs more than 30 days from the anniversary of the prior year’s annual meeting, stockholders must submit such nominations not later than the later of 90 days in advance of such meeting, or ten days following the date on which we publicly announce the date of the meeting. Such nominations must be submitted to our Corporate Secretary, The Houston Exploration Company, 1100 Louisiana St., Suite 2000, Houston, Texas 77002. As of March 28, 2007, no such recommendations have been received with respect to our 2007 annual meeting.

Audit Committee

The Audit Committee’s purpose is to assist the Board in fulfilling its responsibilities to oversee management activities related to accounting and financial reporting policies, internal controls, auditing practices and related legal and regulatory compliance. In that connection, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent public accountants for the purposes of preparing or issuing an audit report or performing other audit, review or attest services. The Audit Committee determines the independence of our independent public accountants, and our independent public accountants report directly to the Audit Committee, which also must review and pre-approve the current year’s audit and non-audit fees. The Audit Committee is responsible for the appointment, compensation, retention and oversight of the Company’s internal audit function. The Audit Committee has the authority to select, retain and/or replace consultants to provide independent advice to the Committee.

The Audit Committee operates under a charter that was amended and restated in February 2007 and is available under the “Shareholder/Financial — Corporate Governance” section of our website at www.houstonexploration.com and also upon request, without charge, by contacting the Corporate Secretary at The Houston Exploration Company, 1100 Louisiana Street, Suite 2000, Houston, TX 77002.

The Audit Committee Charter prescribes the Committee’s functions, which include the following:

	•		Maintaining our compliance with legal and regulatory requirements relating to financial reporting accounting and controls
	•		Overseeing our whistleblower procedures
	•		Overseeing the pre-approval of audit fees
	•		Appointing and overseeing our independent public accountants
	•		Overseeing our internal audit function
	•		Overseeing the integrity of our financial reporting processes, including the Company’s internal controls
	•		Assessing the effect of regulatory and accounting initiatives, as well as any off-balance sheet structures, on our financial statements
	•		Reviewing our earnings press releases, guidance and SEC filings
	•		Overseeing our risk analysis and risk management procedures
	•		Resolving any disagreements between management and the independent public accountants regarding financial reporting
	•		Overseeing our business practices and ethical standards
	•		Preparing an audit committee report to be included in our public filings pursuant to applicable rules and regulations of the SEC.

John U. Clarke, David G. Elkins, Harold R. Logan, Jr. and Stephen W. McKessy serve on the Audit Committee. All members of the Audit Committee satisfy all NYSE criteria for independence and meet all financial literacy and other NYSE requirements for Audit Committee service. The Board has determined that John U. Clarke is an “audit committee financial expert” as defined by the rules of the SEC.

Report of The Audit Committee of The Board of Directors

The Audit Committee’s purpose is to assist the Board in fulfilling its responsibilities to oversee management activities related to accounting and financial reporting policies, internal controls, auditing practices and related legal and regulatory compliance. In that connection, the Audit Committee reviews and reports to the Board with respect to various auditing and accounting matters, including overseeing the integrity of our quarterly and annual financial statements; our compliance with legal and regulatory requirements; the selection, and annual review of independence, qualifications, performance and compensation of our independent public accountants; the performance of our internal audit function; the review and pre-approval of the current year audit and non-audit fees; compliance with our business practices and ethical standards; and overseeing our risk analysis and risk management. The Audit Committee also performs an annual self-assessment of its effectiveness and reviews its charter annually. This is a report on the Audit Committee’s activities relating to the year ended December 31, 2006.

The Audit Committee is composed of four independent directors. The Board has made a determination that each member

of the Audit Committee is independent and financially literate as required by the Sarbanes-Oxley Act of 2002 and applicable SEC and NYSE rules. The Board has also determined that one or more members of the Audit Committee has accounting or related financial management expertise and that Mr. John U. Clarke is an “audit committee financial expert” as defined by rules of the SEC.

The Audit Committee operates pursuant to a charter that was amended and restated in February 2007 and is available on our website at www.houstonexploration.com under the “Shareholder/Financial - Corporate Governance” section. In addition, a copy of the Audit Committee Charter will be provided, without charge, upon request by contacting the Corporate Secretary at The Houston Exploration Company, 1100 Louisiana Street, Suite 2000, Houston, TX 77002.
As set forth in the charter, management is responsible for the preparation, presentation and integrity of Houston Exploration’s financial statements, and for the procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent public accountants are responsible for auditing the annual financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.

The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting and are not experts in the fields of accounting or auditing, including the issue of auditor independence. Members of the Audit Committee rely, without independent verification, on the information provided to them and on the representations made by management, Houston Exploration’s internal audit firm and the independent public accountants. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that the audit of the financial statements has been carried out in accordance with generally accepted auditing standards, the financial statements are presented in accordance with generally accepted accounting principles, or the independent public accountants are in fact “independent.”

The Audit Committee met 10 times during 2006. At least once each quarter the Audit Committee meets in executive sessions with the independent public accountants outside the presence of management.

In performing its oversight function, the Audit Committee reviews and discusses with management and the independent public accountants the annual audited financial statements and quarterly operating results prior to their issuance. During 2006, management advised the Committee that the financial statements reviewed had been prepared in accordance with generally accepted accounting principles, and reviewed significant accounting and disclosure issues with the Audit Committee. These reviews included discussion with the independent public accountants of matters required to be discussed pursuant to Statement on Auditing Standards No. 61, Communication with Audit Committees, as modified or supplemented. The Audit Committee has received the written disclosures from the independent public accountants required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and has discussed such independence with the independent public accountants. The Audit Committee also reviewed the requirements and Houston Exploration’s compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations.

Based on its reviews and discussions, the Audit Committee recommended to the Board that the Board approve the inclusion of Houston Exploration’s audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the SEC.

The following members of the Audit Committee have given this report:

John U. Clarke – Chairman
David G. Elkins – Committee Member
Harold R. Logan, Jr. – Committee Member
Stephen W. McKessy – Committee Member

     The foregoing report of the Audit Committee will not be deemed to be “soliciting material” or to be incorporated by reference by any general statement incorporating this Form 10-K/A (Amendment No. 2) by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate the Audit Committee Report by reference, and will not otherwise be deemed filed under those Acts.

Item 11. Executive Compensation

Compensation Discussion and Analysis

The Compensation and Management Development Committee, which we refer to as the “Compensation Committee”, has responsibility for establishing, implementing and continually monitoring adherence with our compensation philosophy. The Compensation Committee has engaged and retained Towers Perrin to act as an independent compensation consultants reporting directly to the committee to advise and consult on compensation issues.

Throughout this Form 10-K/A (Amendment No. 2), the individuals who served as our Chief Executive Officer and Chief Financial Officer during fiscal 2006, and each of our three other most highly compensated executive officers, as included in the 2006 Summary Compensation Table on page 18, are referred to as the “Named Executive Officers” or “NEOs”.

Compensation Program Objectives

Houston Exploration’s executive compensation program is designed to achieve three goals:

	•		Attract and retain key executives responsible for our continued growth and profitability;
	•		Motivate management to enhance long-term stockholder value; and
	•		Correlate a substantial portion of management’s compensation to measurable performance, including specific financial and operating goals.

The executive compensation program is designed to achieve these goals by:

	•		Providing competitive levels of total compensation when compared to the companies with whom we compete for executive talent;
	•		Providing approximately half of each executive’s cash compensation in the form of performance-based components (annual incentives);
	•		Providing a significant portion of each executive’s compensation in the form of equity incentives (stock options and restricted stock);
	•		Requiring that executives maintain meaningful levels of share ownership as described on page 16 under the heading “Stock Ownership Guidelines”.

Components of Compensation

In order to accomplish these goals, we have structured an executive compensation program comprised of these primary forms of remuneration:

Component		Attributes		Rationale
Base Salary		Fixed compensation, eligible for annual merit increases, and payable semi-monthly		•		Standard market practice
				•		Compensation for day-to-day responsibilities of position
				•		Reflects the experience, responsibilities and contribution of each individual executive officer
Annual Incentive		Variable cash compensation earned only when established annual performance goals are achieved		•		Standard market practice
				•		Reduces fixed compensation cost
				•		Motivates and rewards executives for achievement of meaningful performance goals on an annual basis
Stock Options		Right to purchase Houston Exploration stock at a fixed price at some date in the future (not to exceed 10 years from the date of grant), earned contingent upon continued employment. Awarded at the closing price on the date of grant. Awards vest in equal portions over a three-year period.		•		Provision of some form of long-term incentive is standard market practice
				•		Motivates and rewards executives for company performance over a multi-year period
				•		Enhances retention of executives by vesting awards over a three-year period
				•		Ties executive rewards to stockholder interests
Restricted Stock		Actual shares of Houston Exploration stock, earned contingent upon continued employment. Awards vest on the third anniversary of the date of grant.		•		Provision of some form of long-term incentive is standard market practice
				•		Motivates and rewards executives for company performance over a multi-year period
				•		Enhances retention of executives by vesting awards at the end of a three-year period
				•		Ties executive rewards to stockholder interests
Retirement Benefits		401(k) Defined Contribution Plan		•		Standard market practice
				•		Provides a form of benefits offered to all employees
		Supplemental Executive Retirement Plan (SERP)		•		Restores certain benefits that are limited by the Internal Revenue Code (the “Code”)
Other Benefits		Fixed component, comprised of health insurance, life insurance, vision, deferred compensation, long-term disability		•		Provides form of benefits offered to all employees
				•		Provides for basic life and income security needs
				•		Provides supplemental benefits to assist in executives’ roles as representatives of Houston Exploration
Severance Benefits		Multiple of salary and bonus, continuation of benefits, and vesting of outstanding equity incentive awards in the case of certain qualifying terminations, including termination following a change-in-control		•		Provides a bridge to future employment in the event an executive is terminated under certain circumstances
				•		Provides additional security to allow executives to focus on issues critical to the success of Houston Exploration even in the face of uncertainty (e.g., a sale of the company)

Compensation Element Details

•

Base Salary

	–		Base compensation is initially established for each executive through negotiation and is reflected in the executive’s employment agreement. Thereafter, salaries are reviewed annually, based on a number of factors, both quantitative, including detailed organizational and competitive analyses performed by Towers Perrin, an independent consultant engaged by the Compensation Committee, and qualitative, including the Compensation Committee’s perception of the executive’s experience, performance and contribution. The Compensation Committee typically follows a practice of maintaining base salaries at approximately the level constituting the fiftieth percentile of our peer group, and deviates from this practice in individual cases when market conditions or other factors warrant. The Compensation Committee does not assign any pre-determined weight to any factors in its annual review process.
	–		Based on a review of executive pay conducted in October 2006 by the consultant, salaries for all of the NEOs were within 10% of the market median.
	–		The average salary increase for the NEOs overall during 2006 was 7.9%. The Chief Operating Officer received a 14.29% salary increase and the Chief Executive Officer received an 11.11% salary increase in October of 2006, in order to better align salaries with peer companies.

•

Annual Incentive

	–		Under our annual incentive compensation program, each executive has the opportunity to earn an additional cash incentive compensation bonus based on the achievement of pre-determined operating and financial performance measures established annually by the Compensation Committee.
	–		Each executive’s bonus opportunity is initially reflected in the executive’s employment agreement and subsequently reviewed annually. Currently, the Compensation Committee has set annual bonus opportunities as a percentage of base salary as follows:

		•		CEO		85% of annual earned salary
		•		COO		65% of annual earned salary
		•		Other executives		55% of annual earned salary

	–		Each of these bonus opportunities reflects the percentage of salary each executive could expect to earn in the form of an incentive bonus, if the Company and the executive achieve target performance under all performance measures established for the year. Depending upon actual performance, each executive may earn between 0% and 200% of his or her bonus opportunity.
	–		During 2006, the following measures determined the size of bonus awards earned by employees, including all NEOs, classified in the corporate group of the program: Cash Flow, Reserve Additions, and Finding Costs. The measures are each significant measures of our business success and are weighted equally. For purposes of the annual incentive compensation program, Cash Flow is defined as cash provided by operating activities (per our audited consolidated statement of cash flows) before the effect of any changes in operating assets and liabilities. Reserve Additions is the net amount of additions from all sources to our oil and gas reserve base at the beginning of the year as determined by our independent, outside reserve engineering consultants. Finding Cost is the total amount of capital expended on exploration, development, and acquisitions compared to the total amount of reserves booked during the year (expressed as $/Mcfe).
	–		The targets for these measures are derived from our 2006 business plan as approved by the Board and are set at or above the levels set within the business plan. Achievement over and above the targets can occur only when the annual business plan is exceeded. Inasmuch as the annual business plan is our estimate of maximum expected achievement for the year, exceeding the targets for the three measures is unusual and difficult.
	–		Under our annual incentive compensation program, the Compensation Committee has discretion to adjust targets, as well as individual awards, either positively or negatively. The Compensation Committee did not exercise discretion in the determination of individual awards to the NEOs for the year ended December 31, 2006. However, the Board noted that the targets established by the Compensation Committee in January 2006 were predicated upon the sale of our offshore assets and the successful redeployment of the proceeds in new properties and that the Board had continued to reevaluate its strategic alternatives throughout the year, resulting in a decision not to make any significant acquisitions of assets. Accordingly, in determining incentive compensation for 2006, the Compensation Committee took into account the impact on its previously established targets of this course of events, which was beyond the ability of the employees to control, and adjusted the target associated with one of the measures applicable to employees, including all NEOs, classified within the corporate group of the plan.
	–		Actual achievement levels for 2006 are highlighted in the table below:

Measure		Weight				Threshold				Target				Maximum				2006 Actual
Cash Flow			33	%			70	%			100	%			200	%			108	%
Reserve Additions			33	%			70	%			100	%			200	%			122	%
Finding Costs			33	%			70	%			100	%			200	%			0	%
Estimated Payout Earned at Each Level of Performance							50	%			100	%			200	%
Total Percent of Individual Target Award Earned at Each Level of Performance																			76.6	%

•

Long-Term Incentives

Under our Amended and Restated 2004 Long-Term Incentive Plan (the “LTIP”), approved by stockholders in 2004, the Compensation Committee has the ability to make long-term incentive awards to NEOs in a variety of forms, including stock options and restricted stock.

–

Stock Options

			Stock options represent rights to purchase shares of Houston Exploration stock at a set price at some date in the future, not to exceed ten years from the date of grant. Stock options are granted with an exercise price equal to the closing stock price on the date of grant.
			In October 2006, stock options were awarded to all NEOs. Consistent with market practice, assuming continued employment with the Company, these stock option awards vest in three equal installments on the first, second, and third anniversary of the date of grant, subject to acceleration in the event of a change of control, such as our pending merger with Forest, and expire ten years from the date of grant. Stock option awards for 2006 represented approximately 50% of the value of all long-term incentive awards provided to each of the NEOs.
			We believe that awards of stock options provide a significant incentive for executives to remain employed in order to achieve and maintain high levels of performance over multi-year periods, and strengthen the connection between executive and stockholder interests. Although no performance-vesting criteria are applied to our stock option awards, we believe that stock options represent a powerful performance-based incentive, as the options become valuable only to the extent that our stock price increases following the date of grant.

–

Restricted Stock

			Restricted stock awards represent awards of actual shares of our common stock, earned contingent upon continued employment.
			In October 2006, restricted stock was awarded to each of the NEOs. Consistent with market practice, these awards vest in their entirety upon the third anniversary of the date of grant, subject to acceleration in the event of a change of control, such as our pending merger with Forest. For 2006, restricted stock awards represented approximately 50% of the total long-term incentive value provided to each NEO.
			We believe that awards of restricted stock provide a significant incentive for executives to achieve and maintain high levels of performance over multi-year periods, and strengthen the connection between executive and stockholder interests. We believe that restricted shares are a powerful tool for helping us retain executive talent. The higher value of a share of restricted stock in comparison to a stock option allows us to use fewer total shares in order to arrive at a competitive total long-term incentive award value, thereby reducing dilution of stockholder value. Furthermore, we believe that the use of restricted stock reflects competitive practice among other independent exploration and production companies with whom we compete for executive talent.

•

Retirement Benefits

–

Qualified:

We maintain a 401(k) plan for our employees. Under the 401(k) plan, eligible employees may elect to contribute up to 12.5% of their compensation on a pre-tax basis in accordance with the limitations imposed under the Code. We match 100% of each employee’s deferrals in accordance with the limitations imposed by the 401(k) plan and the Code. The cash amounts contributed under the 401(k) plan are held in a trust and invested among various investment funds in accordance with the directions of each participant. An employee’s salary deferral contributions under the 401(k) plan are 100% vested. Our matching contributions vest at the rate of 20% per year of service subject to acceleration in the event of a change of control, such as our pending merger with Forest. Participants are entitled to payment of their vested account balances upon termination of employment. On January 7, 2007, the 401(k) plan was amended to provide for the full vesting of all plan account balances at the effective time of the proposed merger with Forest Oil with respect to plan participants who are employed by Houston Exploration immediately prior to the effective time of the merger.

–

Non-Qualified:

			Effective January 1, 2006, we adopted a Supplemental Executive Retirement Plan (“SERP”) to provide retirement benefits to certain management level or other highly compensated employees. The SERP is an unfunded, non-qualified defined benefit pension plan. Participation in the SERP is currently limited to our executive officers. Participants in the SERP will be entitled to a retirement benefit payable monthly for life. The annual amount of this retirement benefit is equal to 2.5% times final average compensation, times years of service with Houston Exploration (not to exceed 20 years), reduced by an annuity based on a hypothetical account that is credited with 6% of the participant’s compensation during each year of employment and investment returns as defined in the plan (we refer to this reduction as the “offset”). Participants are fully vested in their benefits after five years of plan participation or age 65, whichever is earlier. If a vested participant retires prior to age 65, then the monthly retirement benefit as described above (before reduction for the offset) will be reduced by 5% for each year that retirement precedes age 65. In the event a participant is terminated for cause, all benefits under the SERP will be forfeited. All benefits become fully vested upon a change of control (as defined in the plan), including our pending merger with Forest, and may become payable in a lump-sum if a participant’s employment is terminated by us without cause or the participant resigns for good reason within two years following a change of control.
			Since November 2002, we have maintained a deferred compensation plan for the benefit of our employees. We have two such plans that are substantially identical, except for differences attributable to Section 409A of the Code and the regulations and/or guidance promulgated thereunder (collectively “Section 409A”), covering two separate time periods. On July 25, 2006, we amended the 2002 deferred compensation plan to prohibit deferrals or contributions to the plan after December 31, 2004 and to transfer to the 2005 deferred compensation plan all amounts not vested as of December 31, 2004, effectively grandfathering within the 2002 plan all participant deferrals and company matching contributions that were vested as of December 31, 2004, as well as the earnings and losses on those amounts. On July 25, 2006, we also adopted the 2005 deferred compensation plan, which covers all participant deferrals and company matching contributions from and after January 1, 2005, as well as any contributions made prior to such date that were not vested as of December 31, 2004, and the earnings or losses on such amounts. The deferred compensation plan is intended to supplement our 401(k) plan by allowing highly compensated employees to save on a tax deferred basis a portion of their eligible compensation subject to limitations imposed by the plan. Under the terms of the plan, employees who have made the maximum allowable contribution to their 401(k) accounts for any year ($15,000, $14,000 and $13,000 per year, respectively, for 2006, 2005, and 2004, with an additional one-time contribution of $5,000 in 2006, $4,000 in 2005, and $3,000 in 2004 for employees 50 years of age or older) may elect to defer an additional portion of their compensation into the deferred compensation plan. We match 100% of each employee’s deferral up to an aggregate contribution of 12.5% under both the 401(k) plan and the deferred compensation plan. Employer contributions vest 20% per year and become fully vested after a five-year period, subject to acceleration in the event of a change of control, including our pending merger with Forest. All cash contributions to the plan are held in trust and invested, at the direction of the employee, in various investment funds. Participants are entitled to distribution of their deferrals and the vested portion of our matching contributions at predetermined future dates or upon termination of their employment.

•

Other Benefits

–

NEOs are eligible to participate in other benefit plans, which provide for basic health and welfare needs, on an equal basis with our other employees. In addition, NEOs are eligible for certain perquisites which are provided in order to assist NEOs in their roles as representatives of the company. Perquisites offered to executives include a car allowance and luncheon club memberships. See the 2006 Perquisites and Other Personal Benefits table on page 20 for further details.

•

Severance Benefits

–

We provide for severance benefits to provide a bridge to future employment in the event the executive’s job is terminated under a variety of scenarios. Change of control severance benefits are subject to a double trigger (i.e., both a change of control and termination of employment must occur for severance benefits to be paid). We believe it is in the best interest of our stockholders to provide a reasonable degree of economic protection in the event of a change of control to assure that management makes decisions that are in the best interest of stockholders.

Setting the Level of Compensation

As a general principle, the Compensation Committee sets the value of each executive’s total annual compensation package — inclusive of base salary, incentive bonus and stock-based incentive awards — at or about the fiftieth percentile of competitive practice. The Compensation Committee obtains advice from Towers Perrin regarding competitive executive pay practices (salaries, annual incentives, long-term incentives, severance arrangements, etc.) and how Houston Exploration’s pay practices for our executives, and particularly our Chief Executive Officer, compare. The Compensation Committee reviews publicly disclosed pay data from a specific peer group of independent exploration and production companies (summarized below) as well as survey data for similarly sized exploration and production companies, as provided by its independent advisors.

Management also plays a role in the determination of executive compensation levels. The Chief Executive Officer makes recommendations to the Compensation Committee regarding pay levels for NEOs excluding himself. The Senior Vice President, Administration also provides input to the Compensation Committee regarding individual positions and company programs and policies, and interacts with the Compensation Committee’s independent consultant, as necessary, to ensure understanding of individual executive positions and company programs.

Salaries are generally targeted at the median of competitive practice for comparable positions, taking into account competitive practice as well as the skills, experience, and contribution of each individual NEO.

Annual incentive targets are also generally targeted at the median of competitive practice, with payout ranges around those targets consistent with our understanding of typical market practice. Actual payouts as a percent of individual target are based on an almost entirely formulaic assessment of corporate performance.

Finally, the grant date fair value of all long-term incentive award types are intended to approximate the market median in the aggregate. The determination of actual individual award sizes is dependent upon a combination of considerations including competitive data, individual performance, historical grant levels, and current stock holdings.

Target cash compensation (i.e., base salary plus target annual incentive opportunity) is generally intended to comprise 50% of target total compensation for NEOs, with the grant date fair value of equity incentives composing the remaining 50%. The table below provides a summary of the relative mix of actual compensation for the NEOs during 2006:

Element		CEO				Other NEOs – Average
Base Salary			19	%			32	%
Annual Incentive (actual)			12	%			14	%
Long-term Incentives (grant date fair value)			69	%			54	%

Companies Used for Defining Competitive Compensation

Competitive compensation data for salaries, annual incentives and long-term incentives are obtained from two sources:

•

Proxy statement compensation data for a peer group of similarly sized and positioned independent exploration and production companies are used for comparison to that of Houston Exploration’s most senior executives including NEOs. The data from this analysis are valuable in that they provide a summary of competitive practice among companies with similar operations and business challenges with whom we compete most directly for talent. The peer group reviewed in 2006 is set forth below:

		Cabot Oil & Gas		Plains Exploration & Production Company
		Cimarex Energy Co.		Pogo Producing Company
		Forest Oil Corporation		Southwestern Energy Company
		Newfield Exploration Company		Stone Energy Corporation
		Noble Energy, Inc.		XTO Energy, Inc.

•

Data from other Towers Perrin compensation surveys are used to supplement the peer group proxy analysis. Compensation survey data reflect practices among independent exploration and production companies as well as among similarly sized companies in a broader general industry sample. By considering compensation survey data, we are able to review pay data for positions not captured in our

peer group proxy compensation analysis, and we are able to consider practices across a broader market sample, gaining additional perspective.

		Option Pricing and Timing With Respect to Material Non-Public Information
		We generally grant stock option awards in the fourth quarter of each year, following a review of competitive market data by the Compensation Committee, as described below under the heading “Compensation Policies”. Stock options are granted with an exercise price equal to the closing price of a share of our common stock on the date of grant (“at the money”). We do not engage and have not engaged in the practice of backdating options, nor do we have any official policy regarding the timing of option awards to coincide with the release of material non-public information.
		Review of Tally Sheets and Termination Provisions
		The Compensation Committee and management analyzed tally sheets, with the assistance of the Compensation Committee’s independent advisor, in the course of compensation-related deliberations. Tally sheet analyses consider current and historical base salaries, annual incentive compensation, long-term incentive compensation, perquisites, and retirement benefits, as well as the potential cost impact of contractual post-termination payments in the event of a change of control, such as our pending merger with Forest. While historical compensation practices (including past awards of equity incentives) are considered in the course of pay-related deliberations, we have no formal policy or formulaic approach regarding the determination of actual levels of current compensation with respect to past compensation or levels of past wealth accumulation.
		Stock Ownership Guidelines
		While continuing its policy of annual grants of options and restricted stock, in 2006 the Compensation Committee developed stock ownership guidelines for all executive officers. Restricted stock, stock owned outright and stock held in company savings plans, if any, apply toward the target levels of ownership. Under these newly established guidelines, individuals have a five-year period to achieve ownership of stock valued at the recommended target ownership levels as outlined below:

		•		CEO		5 times current salary
		•		Executive Vice Presidents & COO		3 times current salary
		•		Senior Vice Presidents		2 times current salary
		•		Vice Presidents		1 times current salary

Compensation Policies

Stock Option Granting Policy

•

Our policy is to grant all stock options and other equity awards annually, following the regularly scheduled fourth quarter Board meeting, except that newly hired employees may be granted stock options and other equity awards as of the date of initial employment.

Securities Trading Policy

•

We have a policy that executive officers and directors may not purchase or sell exchange traded options to sell or buy Houston Exploration stock (“puts” and “calls”), engage in short sales with respect to Houston Exploration stock or otherwise hedge equity positions in Houston Exploration (e.g., by buying or selling straddles, swaps or other derivatives).

Recall of Incentive Payments

•

We do not have an executive compensation recovery policy. However, Houston Exploration may seek to recover incentive compensation that was based on achievement of financial results if a subsequent restatement of financial results indicates that the executive would not have been entitled to such incentive compensation. To date, there has been no such event.

Deductibility of Compensation

Section 162(m) of the Code places a $1 million per executive cap on the compensation paid to executives that can be deducted for tax purposes by publicly traded corporations each year. Amounts that qualify as “performance based” compensation under Section 162(m)(4)(c) of the Code are exempt from the cap and do not count toward the $1 million limit if certain requirements are satisfied. Although our compensation policy is generally designed to correlate compensation to performance, certain payments may not meet Code requirements because they allow our Compensation Committee and Board to exercise discretion in setting compensation. Generally, stock options will qualify as performance based compensation. The Compensation Committee has discussed and considered and will continue to evaluate the potential impact of Section 162(m) of the Code in making compensation determinations, but has not established a policy with respect to future compensation determinations.

Stock Compensation Expense

On January 1, 2003, we adopted the fair value expense recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” as amended, using the “prospective method” as defined. Accordingly, we recognized compensation expense for all stock options granted subsequent to January 1, 2003. On January 1, 2006, we adopted SFAS 123(R), “Share-Based Payment.” As a result, we now recognize compensation expense for all stock options, including the unvested portion of all grants made prior to our initial adoption of SFAS 123 on January 1, 2003. Prior period amounts have not been restated.

Prior to adopting SFAS 123 in January 2003 and SFAS 123(R) in January 2006, we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations.

2006 Summary Compensation Table

The following table sets forth summary information concerning the compensation we paid or accrued during 2006 to our Named Executive Officers.

																										Change in
																										pension value
																										and non-
																						Non-equity				qualified
																						incentive				deferred
														Stock				Option				plan				compensation				All other
														awards				awards				compensation				earnings				compensation
Name and principal						Salary				Bonus				($)				($)				($)				($)				($)				Total
position		Year				($)				($)				(1)				(1)				(2)				(3)				(4)				($)
William G. Hargett			2006			$	531,250			$	—			$	553,336			$	1,003,920			$	345,897			$	145,000			$	90,731			$	2,670,134
Chairman, President and Chief Executive Officer
Steven L. Mueller			2006			$	362,500			$	—			$	262,269			$	475,949			$	180,489			$	74,200			$	76,252			$	1,431,659
Executive Vice President and Chief Operating Officer
Robert T. Ray			2006			$	310,625			$	85,000	(6)		$	166,675			$	116,467			$	130,866			$	12,600			$	30,854			$	853,087
Senior Vice President and Chief Financial Officer
Jeffrey B. Sherrick			2006			$	292,500			$	100,000	(7)		$	172,450			$	133,993			$	123,230			$	27,100			$	60,532			$	909,805
Senior Vice President - Corporate Development
Roger B. Rice			2006			$	255,250			$	—			$	165,958			$	270,057			$	107,537			$	102,300			$	56,661			$	957,763
Senior Vice President - Administration

— Passage of time
— Change in assumptions
— Change in accrued benefit, including:

• additional years of service
• changes in final average salary
• changes in offset amount
• plan or employment agreement amendments

The present value of accumulated benefits was determined based on compensation and service as of the measurement dates (December 31, 2005 and December 31, 2006). The assumptions used to calculate the present value are shown in the table below. These assumptions are primarily the same as those used for pension plan accounting under Financial Accounting Standards No. 87 (FAS 87) as of each measurement date with two exceptions — pre-retirement turnover and

the age at which participants are assumed to retire. Additional details of the plan provisions and methods used to calculate the present values are included in the Pension Benefits section. (The SERP is fully described on page 25 under the caption “Supplemental Executive Retirement Plan”.)

		Measurement		Date
Assumption		12/31/2005		12/31/2006
Discount Rate		5.50%		5.75%
30-year Treasury Rate		4.50%		4.75%
Form of Payment		Life Annuity		Life Annuity
Preretirement Turnover		None		None
Mortality Assumption: 4Preretirement 4Postretirement		None RP 2000*		None RP 2000*
Assumed Retirement Age (earliest unreduced age):		Age 65		Age 65

2006 Perquisites and Other Personal Benefits

						Matching				Matching				Life Insurance
						Contributions				Contributions Under				and Long-Term
		Car				Under 401(k)				Deferred				Disability				Club
		Allowance(1)				Savings Plan(2)				Compensation Plan(3)				Premiums(4)				Memberships(5)
William G. Hargett		$	8,400			$	20,000			$	54,977			$	4,272			$	3,082
Chairman, President and Chief Executive Officer
Steven L. Mueller		$	8,400			$	20,000			$	45,421			$	2,431			$	—
Executive Vice President and Chief Operating Officer
Robert T. Ray		$	8,050			$	15,000			$	—			$	2,332			$	5,472
Senior Vice President and Chief Financial Officer
Jeffrey B. Sherrick		$	8,400			$	20,000			$	27,647			$	2,208			$	2,277
Senior Vice President - Corporate Development
Roger B. Rice		$	8,400			$	20,000			$	25,138			$	1,923			$	1,200
Senior Vice President - Administration

2006 Grants of Plan Based Awards

The following table summarizes the information regarding our 2006 annual incentive plan and provides certain information with respect to options and restricted stock awards granted to the NEOs during 2006 under the 2004 LTIP.

																																		All Other
																														All Other				Options
																														Stock				Awards:				Exercise				Grant
																		Estimated Future												Awards:				Number of				or Base				Date Fair
						Estimated Future Payouts Under												Payouts Under Equity												Number				Securities				Price of				Value of
						Non-Equity Incentive Plan Awards												Incentive Plan Awards(4)												of Shares				Underlying				Option				Stock and
		Grant				Threshold				Target				Maximum				Threshold				Target				Maximum				of Stock				Options				Awards				Option
Name		Date				($)(1)				($)(2)				($)(3)				(#)				(#)				(#)				(#)(5)				(#)(6)				($/Sh)(7)				Awards(8)
William G. Hargett			10/24/2006																												20,000				54,000			$	55.50			$	1,930,800
Chairman, President and Chief Executive Officer						$	225,781			$	451,563			$	903,125
Steven L. Mueller			10/24/2006																												7,000				20,000			$	55.50			$	692,500
Executive Vice President and Chief Operating Officer						$	117,812			$	235,625			$	471,250
Robert T. Ray			1/18/2006	(9)																											7,500				20,000			$	53.72			$	680,100
Senior Vice President and			10/24/2006																												7,000				19,000			$	55.50			$	677,300
Chief Financial Officer						$	85,422			$	170,844			$	341,687
Jeffrey B. Sherrick			10/24/2006																												3,800				10,400			$	55.50			$	368,980
Senior Vice President - Corporate Development						$	80,438			$	160,875			$	321,750
Roger B. Rice			10/24/2006																												3,600				9,800			$	55.50			$	348,760
Senior Vice President - Administration						$	70,194			$	140,388			$	280,775

Outstanding Equity Awards at 2006 Fiscal Year End

The following table provides information regarding outstanding equity awards held by the NEOs at December 31, 2006.

		Option Awards(1)																				Stock Awards(2)
																														Equity
										Equity																				incentive plan				Equity
										incentive plan																				awards:				incentive plan
										awards:																				Number of				awards:
		Number of				Number of				Number of												Number of								unearned				Market or
		securities				securities				securities												shares or				Market value				shares, units				payout value of
		underlying				underlying				underlying												units of				of shares or				or other				unearned
		unexercised				unexercised				unexercised				Option								stock that				units of stock				rights that				shares, units or
		options				options				unearned				exercise				Option				have not				that have not				have not				other rights
		(#)				(#)				options				price				expiration				vested				vested				vested				that have not
Name		Exercisable				Unexercisable				(#) (3)				($)				date				(#)				($)(4)				(#)(3)				vested ($)(3)
William G. Hargett			7,818				—				N/A			$	25.58				4/4/2011												N/A				N/A
Chairman, President and			20,182				—							$	25.58				4/4/2011
Chief Executive Officer			35,200				—							$	25.48				9/20/2011
			38,000				19,000	(5)						$	30.10				10/16/2012
			27,160				27,160	(5)						$	35.62				10/21/2013
			10,800				16,200	(5)						$	59.16				10/22/2014				13,000	(5)		$	673,140
			12,667				25,333	(5)						$	54.18				10/25/2015				17,000	(5)		$	880,260
			—				54,000	(5)						$	55.50				10/24/2016				20,000	(5)		$	1,035,600
Steven L. Mueller			9,756				—				N/A			$	30.75				10/22/2011												N/A				N/A
Executive Vice President and			25,244				—							$	30.75				10/22/2011
Chief Operating Officer			31,200				7,800	(6)						$	30.10				10/16/2012
			12,180				8,120	(6)						$	35.62				10/21/2013				4,000	(6)		$	207,120
			3,600				5,400	(6)						$	59.16				10/22/2014				6,553	(6)		$	339,314
			4,334				8,666	(6)						$	54.18				10/25/2015				6,000	(6)		$	310,680
			—				20,000	(6)						$	55.50				10/24/2016				7,000	(6)		$	362,460
Robert T. Ray			—				20,000	(7)			N/A			$	53.72				1/18/2016				7,500	(7)		$	388,350				N/A				N/A
Senior Vice President			—				19,000	(7)						$	55.50				10/24/2016				7,000	(7)		$	362,460
and Chief Financial Officer
Jeffrey B. Sherrick			4,000				16,000	(8)			N/A			$	55.09				4/11/2015				7,500	(8)		$	388,350				N/A				N/A
Senior Vice President -			3,000				6,000	(8)						$	54.18				10/25/2015				4,000	(8)		$	207,120
Corporate Development			—				10,400	(8)						$	55.50				10/24/2016				3,800	(8)		$	196,764
Roger B. Rice			5,600				2,800	(9)			N/A			$	30.95				3/1/2012												N/A				N/A
Senior Vice President -			6,690				3,345	(9)						$	29.89				5/17/2012
Administration			1,710				855	(9)						$	29.89				5/17/2012
			8,000				4,000	(9)						$	30.10				10/16/2012
			5,960				5,960	(9)						$	35.62				10/21/2013				3,000	(9)		$	155,340
			2,400				3,600	(9)						$	59.16				10/22/2014				5,266	(9)		$	272,673
			2,334				4,666	(9)						$	54.18				10/25/2015				3,000	(9)		$	155,340
			—				9,800	(9)						$	55.50				10/24/2016				3,600	(9)		$	186,408

Option Exercises and Stock Vested

There were no option exercises by the named executive officers, nor did any stock awards vest, during 2006.

Employee Annual Incentive Compensation Program

We maintain an annual incentive compensation program that provides an annual incentive bonus to all full-time employees if certain performance goals are met during the year. The program is administered by our Chief Executive Officer on behalf of our Board and the Compensation Committee. Annual objectives and incentive opportunity levels are established and approved by the Compensation Committee. Incentive awards are earned based on our actual performance in relation to pre-established objectives and on an assessment of individual contributions during the year. For a full description on the treatment of NEOs under the employee annual incentive compensation program, refer to the “Compensation Discussion and Analysis — Compensation Element Details — Annual Incentive” beginning on page 12.

401(k) Plan

We maintain a tax-qualified defined contribution plan under Section 401(k) of the Code for our employees. All employees are eligible to participate in the plan upon reaching 21 years of age and completing one month of service. Participants may elect to have us contribute on their behalf up to 12.5% of their total compensation (subject to limitations imposed under the Code) on a pre-tax basis. We match 100% of each employee’s deferral, subject to limitations imposed by the 401(k) Plan and the Code. The amounts contributed under the 401(k) plan are held in a trust and invested at the direction of each participant among various investment funds. An employee’s salary deferral contributions to the 401(k) plan are 100% vested. Our matching contributions vest at the rate of 20% per year of service. Participants are entitled to distribution of their vested account balances upon termination of employment. We made contributions to the 401(k) plan of $1.6 million, $1.4 million and $1.2 million, respectively, for the years ended December 31, 2006, 2005 and 2004. On January 7, 2007, the 401(k) plan was amended to provide for the full vesting of all plan account balances at the effective time of the proposed merger with Forest with respect to plan participants who are employed by Houston Exploration immediately prior to the effective time of the merger, whether or not a participant’s employment is terminated.

Nonqualified Deferred Compensation

We maintain a deferred compensation plan for the benefit of our employees, consisting of two plans which are substantially identical, except for differences attributable to Section 409A of the Code, covering two separate time periods. On July 25, 2006, we amended the 2002 deferred compensation plan to prohibit deferrals or contributions to the plan after December 31, 2004 and to transfer to the 2005 deferred compensation plan all amounts not vested as of December 31, 2004, effectively grandfathering within the 2002 plan all participant deferrals and Company matching contributions that were vested as of December 31, 2004, as well as the earnings and losses on those amounts. On July 25, 2006, we also adopted the 2005 deferred compensation plan, which covers all participant deferrals and Company matching contributions from and after January 1, 2005, as well as any contributions made prior to such date that were not vested as of December 31, 2004, and the earnings or losses on such amounts. Each deferred compensation plan is a non-qualified plan and is intended to supplement our 401(k) plan by allowing highly compensated employees to save on a tax deferred basis a portion of their eligible compensation subject to limitations imposed by the plan. Under the terms of the plan, employees who have made the maximum allowable contribution to their 401(k) plan accounts for any year may elect to defer an additional portion of their compensation into the deferred compensation plan. We match 100% of each employee’s deferral up to an aggregate contribution of 12.5% under both the 401(k) plan and the deferred compensation plan. Employer contributions vest 20% per year and become fully vested after a five-year period, subject to acceleration in the event of a change of control, including our pending merger with Forest. We make contributions to a grantor trust to fund plan benefits, but the assets of the trust are subject to the claims of our general creditors. Assets of the grantor trust are invested, at the direction of the employee, in various investment funds. Income on trust assets is treated as our income. Participants are entitled to a benefit attributable to their deferrals and the vested portion of our matching contributions, together with investment income earned thereon, at predetermined future dates or upon termination of their employment.

2006 Non-qualified Deferred Compensation Table

		Executive				Registrant				Aggregate				Aggregate				Aggregate
		contributions				contributions				earnings				withdrawals/				balance at
		in last FY				in last FY				in last FY				distributions				last FYE
Name		($)				($)(1)				($)				($)				($)
William G. Hargett		$	54,977			$	54,977			$	134,376			$	—			$	1,897,171
Chairman, President and Chief Executive Officer
Steven L. Mueller		$	193,585			$	45,421			$	124,511			$	—			$	1,133,079
Executive Vice President and Chief Operating Officer
Robert T. Ray		$	—			$	—			$	—			$	—			$	—
Senior Vice President and Chief Financial Officer
Jeffrey B. Sherrick		$	60,000			$	27,647			$	9,562			$	—			$	120,830
Senior Vice President - Corporate Development
Roger B. Rice		$	45,989			$	25,138			$	49,372			$	—			$	446,676
Senior Vice President - Administration

Supplemental Executive Retirement Plan

Effective January 1, 2006, we adopted a Supplemental Executive Retirement Plan (“SERP”) to provide retirement benefits to certain management level or other highly compensated employees. The SERP is an unfunded, non-qualified defined benefit pension plan. Participation in the SERP is currently limited to all of our executive officers. Participants in the SERP will be entitled to a monthly retirement benefit payable for life. The amount of this monthly retirement benefit is equal to 2.5% times final average compensation times years of service with Houston Exploration (not to exceed 20 years), reduced by an annuity based on a hypothetical account that is credited with 6% of the participant’s annual base salary and bonus paid each year and investment returns as defined in the plan (we refer to this reduction as the “offset”). Participants are fully vested in their benefits after five years of plan participation or age 65, whichever is earlier. If a vested participant retires prior to age 65, then the monthly retirement benefit as described above (before reduction for the offset) will be reduced by 5% for each year that retirement precedes age 65. In the event a participant is terminated for cause before becoming vested in his or her benefits, all benefits under the SERP will be forfeited. In general, benefits will be paid when the participant retires from the Company or beginning at age 65. However, in the event of a change of control (as defined in the plan and including the pending merger with Forest), the benefit will be paid as a lump-sum if a participant’s employment is terminated by us without cause or the participant resigns for good reason within two years following a change of control. All benefits become fully vested upon a change of control, including our pending merger with Forest, whether or not a participant’s employment is terminated. None of the NEO’s are vested as of December 31, 2006.

Our SERP provides benefits to our executive officers. These benefits are not protected from a bankruptcy of the Company. The SERP is intended to provide a retirement benefit to our executive officers substantially similar to retirement benefits provided to executive officers of our peer competitors.

We use a December 31st measurement date for our benefit obligations. The weighted average assumptions used to determine our benefit obligations at December 31, 2006 were (i) a discount rate of 5.75%, and (ii) a rate of 5.00% for increases in compensation.

On January 7, 2007, in connection with our entry into the merger agreement with Forest, the SERP was amended to eliminate provisions relating to the appointment of an independent plan administrator. Assuming the termination of employment of each of our executive officers were to occur as of June 30, 2007 following consummation of our pending merger with Forest, the total lump sum that would be payable under the SERP is estimated to be approximately $3.2 million. Pursuant to the terms of the merger agreement, Forest will assume this payment obligation under our SERP as of the effective time of the merger.

2006 Pension Benefits Table

				Number of				Present Value
				Years				of
				Credited				Accumulated				Payments
				Service				Benefit				During Last
Name		Plan Name		(#)				($)(1)				Fiscal Year ($)
William G. Hargett Chairman, President and Chief Executive Officer		Supplemental Executive Retirement Plan			6			$	649,000			$	–
Steven L. Mueller Executive Vice President and Chief Operating Officer		Supplemental Executive Retirement Plan			5			$	252,700			$	–
Robert T. Ray Senior Vice President and Chief Financial Officer		Supplemental Executive Retirement Plan			1			$	12,600			$	–
Jeffrey B. Sherrick Senior Vice President — Corporate Development		Supplemental Executive Retirement Plan			2			$	53,500			$	–
Roger B. Rice Senior Vice President — Administration		Supplemental Executive Retirement Plan			5			$	394,300			$	–

(1) The present values shown in the table above were developed using the assumptions discussed in Footnote (3) to the 2006 Summary Compensation Table on page 18. The present value is based on the benefit accrued as of December 31, 2006 and does not assume any future accrual of credited service or compensation increases. The weighted average assumptions used to determine our benefit obligations at December 31, 2006 were (i) a discount rate of 5.75%, and (ii) a rate of 5.00% for increases in compensation.

Payouts under the SERP are based on final average salary, years of service and the offset amount. Under the SERP, final average salary means the average of the participant’s highest three consecutive years of compensation during their last five calendar years with Houston Exploration. For purposes of such calculation, compensation includes annual salary and annual bonuses. Years of service recognized under the SERP began as of each participant’s date of hire with the Company. The offset amount is the actuarial equivalent of six percent (6%) of a participant’s total compensation earned for each year of service assuming such amounts earned notional interest based on 120% of the 30-year Treasury Rate from the date earned through the date benefits commence under the plan.

Normal retirement under the SERP is age 65, but an officer is entitled to receive a reduced benefit upon separation from service after age 55 and after completing five years of participation under the SERP. The benefit is reduced by 5% for each year that retirement precedes age 65. None of the named executive officers are currently eligible for a retirement benefit. If a participant’s employment terminates prior to age 55, then the benefit is not payable until age 65.

The estimated annual accrued SERP benefit defined as a life annuity beginning at age 65 is shown below:

		Age 65 Accrued
Name		Benefit
William G. Hargett Chairman, President and Chief Executive Officer		$	95,700
Steven L. Mueller Executive Vice President and Chief Operating Officer		$	45,300
Robert T. Ray Senior Vice President and Chief Financial Officer		$	3,600
Jeffrey B. Sherrick Senior Vice President — Corporate Development		$	10,500
Roger B. Rice Senior Vice President — Administration		$	41,600

Potential Payments Upon Termination or Change of Control

The following table describes the potential payments and benefits under our compensation and benefit plans and arrangements to which the NEOs would be entitled upon termination of employment on December 31, 2006. The closing price of a share of Houston Exploration common stock on the NYSE on December 29, 2006, the last trading day of the year, was $51.78.

Under Section 409A of the Code, certain amounts payable to key employees upon separation of employment must be delayed for six months after separation to avoid the imposition of adverse tax consequences. Any such payments deferred as aforesaid will accrue interest at the “prime rate” reported in The Wall Street Journal until paid.

						For												Without				Change of
Benefit		Voluntary(1)				Cause(2)				Death(3)				Disability(4)				Cause(5)				Control(6)
William G. Hargett
Cash Severance
Multiple of Salary		$	-			$	-			$	500,000			$	180,000	(7)		$	1,669,616			$	1,669,616
Multiple of Bonus		$	-			$	-			$	-			$	-			$	1,397,825			$	1,397,825
Stay-on Bonus(8)		$	-			$	-			$	-			$	-			$	-			$	584,375
Total		$	-			$	-			$	500,000			$	180,000			$	3,067,441			$	3,651,816
Equity(9)
Restricted Stock		$	-			$	-			$	2,589,000			$	2,589,000			$	2,589,000			$	2,589,000
Unexercisable Options		$	-			$	-			$	850,826			$	850,826			$	850,826			$	850,826
Total		$	-			$	-			$	3,439,826			$	3,439,826			$	3,439,826			$	3,439,826
Retirement Benefits
Unvested 401(k) Plan Matching Contributions		$	-			$	-			$	-			$	-			$	-			$	-
Unvested Deferred Compensation Plan Matching Contributions		$	-			$	-			$	-			$	-			$	-			$	-
SERP(10)		$	-			$	-					(11)				(12)				(12)		$	759,500
Total		$	-			$	-			$	-			$	-			$	-			$	759,500
Other Benefits
Health & Welfare(13)		$	-			$	-			$	-			$	-			$	16,500			$	16,500
Outplacement(14)		$	-			$	-			$	-			$	-			$	25,000			$	25,000
Tax Gross-Ups(15)		$	-			$	-			$	-			$	-			$	-			$	-
Total		$	-			$	-			$	-			$	-			$	41,500			$	41,500
Total Pre-Tax Benefit		$	-			$	-			$	3,939,826			$	3,619,826			$	6,548,767			$	7,892,642
Steven L. Mueller
Cash Severance
Multiple of Salary		$	-			$	-			$	400,000			$	180,000	(7)		$	1,221,116			$	1,221,116
Multiple of Bonus		$	-			$	-			$	-			$	-			$	777,400			$	777,400
Stay-on Bonus(8)		$	-			$	-			$	-			$	-			$	-			$	325,000
Total		$	-			$	-			$	400,000			$	180,000			$	1,998,516			$	2,323,516
Equity(9)
Restricted Stock		$	-			$	-			$	1,219,574			$	1,219,574			$	1,219,574			$	1,219,574
Unexercisable Options		$	-			$	-			$	300,323			$	300,323			$	300,323			$	300,323
Total		$	-			$	-			$	1,519,897			$	1,519,897			$	1,519,897			$	1,519,897
Retirement Benefits
Unvested 401(k) Plan Matching Contributions		$	-			$	-			$	-			$	-			$	-			$	-
Unvested Deferred Compensation Plan Matching Contributions		$	-			$	-			$	-			$	-			$	-			$	-
SERP(10)		$	-			$	-					(11)				(12)				(12)		$	309,900
Total		$	-			$	-			$	-			$	-			$	-			$	309,900
Other Benefits						$	-			$	-
Health & Welfare(13)		$	-			$	-			$	-			$	-			$	16,500			$	16,500
Outplacement(14)		$	-			$	-			$	-			$	-			$	25,000			$	25,000
Tax Gross-Ups(15)		$	-			$	-			$	-			$	-			$	-			$	1,204,485
Total		$	-			$	-			$	-			$	-			$	41,500			$	1,245,985
Total Pre-Tax Benefit		$	-			$	-			$	1,919,897			$	1,699,897			$	3,559,913			$	5,399,298