Based on the experience and knowledge of members of the Committee, data generally available to us from industry surveys and input from outside experts, the Committee identified potential terms, including benefits that would be appropriate to offer to Mr. Heinemann. The Committee engaged the services of an outside tax consulting firm to provide calculations of the relative cost to us under various assumptions as directed by the Committee for the total compensation package, with particular focus on the cost of the change in control and the tax gross up provisions of a new contract with Mr. Heinemann.

On June 23, 2006, we entered into an amended and restated employment agreement with Mr. Heinemann (the Amended and Restated Employment Agreement) that amended and restated Mr. Heinemann's existing employment agreement. The Amended and Restated Employment Agreement extended the term of Mr. Heinemann's employment until January 31, 2010 and provides that we may annually elect to extend the term for an additional year by giving two years prior notice. It provides for an annual salary of $500,000 and eligibility for a discretionary annual bonus with a target of 100% of the base salary, provided that the bonus may range from 50% to 200% of the base salary (though in certain circumstances it may be less) and a one-time grant of RSUs representing 161,300 shares of Common Stock which vests on January 31, 2010, assuming Mr. Heinemann's continuing service as CEO on that date. Effective January 2008, the Board raised Mr. Heinemann’s salary to $600,000 and on December 14, 2007 awarded him 89,470 options and 29,810 RSUs, each vesting over four years, for a total value of $2,600,002 in recognition of his performance in 2007. A cash bonus of $720,000 was paid to Mr. Heinemann in February 2008 for 2007 performance. In December 2007, the Board exercised its right to give notice to Mr. Heinemann of an additional one year extension of the Amended and Restated Employment Agreement such that his agreement now expires January 31, 2011.

Mr. Heinemann’s compensation incentives are primarily derived from short term incentive compensation and the 2005 Equity Incentive Plan. The ultimate value of the stock options and RSUs received and other equity incentives that may be granted in the future are directly related to our current and future stock performance.

In the event we terminate Mr. Heinemann's employment without cause, or Mr. Heinemann terminates employment for good reason, Mr. Heinemann will be entitled to severance in an amount equal to two times (1) his annual base salary, (2) his highest annual bonus in the last two years, and (3) our then maximum annual matching contribution to our 401(k) Plan, plus certain other benefits for a two year period. Mr. Heinemann's unvested stock options and RSUs will also fully vest upon such an event. He will also have additional time to exercise stock options granted under our 1994 Stock Option Plan.

In the event we terminate Mr. Heinemann's employment without cause, or Mr. Heinemann terminates employment for good reason within two years after (or in certain cases within six months before) a change in control, as defined, Mr. Heinemann will be entitled to the above benefits with respect to his stock options and RSUs, and enhanced severance representing three times (1) his annual base salary, (2) highest annual bonus in the last two years, and (3) our then maximum annual matching contribution to our 401(k) Plan, and to continue certain other benefits for a period of three years. We also agree to pay Mr. Heinemann for any taxes on parachute payments imposed as a result of the foregoing benefits. See page 25 of this Proxy Statement for a table that summarizes these benefits under certain assumptions.

If Mr. Heinemann resigns or if we terminate his employment for cause, Mr. Heinemann is not eligible for any separation benefits and will forfeit all unvested stock options and RSUs when his employment ends. The independent Directors acted unanimously to approve the Amended and Restated Employment Agreement, including the concurrent restricted stock unit grant, upon the recommendation of the Committee, and as an inducement and incentive to Mr. Heinemann to continue in his employment with us and likewise unanimously approved the compensation awards to him based on 2007 performance and the notice of extension of the term of his Amended and Restated Employment Agreement.

When Mr. Heinemann was recruited to join our Board, he maintained his residence in Texas. When his role expanded with us, first as interim Chief Executive Officer, and then as President and Chief Executive Officer, being able to maintain his residence in Texas was a condition of his employment. Our Board readily accepted that condition when balanced against all of the other significant attributes Mr. Heinemann brought to the Chief Executive Officer position. A great deal of travel is required as part of the performance of our Chief Executive Officer’s position whether to corporate headquarters in Bakersfield, California, to the regional office in Denver, Colorado or to tour our properties now located in multiple locations over many states. In addition, travel is required to meet with Directors in their various states of residence and with a wide variety of third parties including investors in our stock and Notes located throughout the United States.

17

 

Travel to many of our locations is difficult on a commercial basis, and ultimately, in order to maximize Mr. Heinemann’s and other executives’ productivity, we began using chartered aircraft, commencing in 2005. In 2006, our Board evaluated the use of chartered aircraft and determined that it was in our best interests, both from an efficiency and an economic perspective, that we purchase our own corporate aircraft which we did in July 2006. An aircraft-use policy was adopted which placed certain restrictions on the use of the aircraft and certain protocols to ensure safety considerations at all times and to avoid non-prior approved personal use. In December 2006, we sold the aircraft and leased back the aircraft in an agreement with the purchaser. The aggregate incremental cost to us for Mr. Heinemann’s non-business, primarily commuter, use of our chartered or leased aircraft in 2007, was $170,134. To the extent that any of the cost for travel is deemed to be taxable income to Mr. Heinemann under applicable tax laws, Mr. Heinemann pays those taxes on such deemed income.

 

Other Executive Officers Compensation

 

Other than the Severance Protection Agreements described below, we have no employment agreements with our other Executive Officers. See the Summary Compensation Table on page 20 of this Proxy Statement for compensation descriptions for our Executive Officers.

 

Change in Control Agreements

 

Since the late 1980s, we have provided salary continuation agreements for certain of our executives which provided for a multiple from two times to one half times the executive’s salary and bonus, as defined, in the event of a defined change in control. These contracts are generally known as “single trigger” in that the payment was due without regard to future status of employment of that executive in the event that the change in control occurred. As part of the execution of the Amended and Restated Employment Agreement with Mr. Heinemann in June 2006, his salary continuation agreement was terminated and replaced by a provision that would pay Mr. Heinemann three times his compensation as described above, but would only be paid in the event there was both a change in control and either Mr. Heinemann was terminated or he resigned for good reason as defined. This approach is known as a “double trigger.”

 

On August 22, 2006, upon recommendation of the Committee, our Board authorized a plan pursuant to which we would enter into a Change in Control Severance Protection Agreement (Severance Protection Agreement) in an approved form with each of our Executive Vice Presidents, Vice Presidents, the Controller, the Treasurer and the Corporate Secretary. The Severance Protection Agreements provide for payment of severance to the executive upon the termination of the executive's employment without cause or the resignation of employment by the executive for good reason, in either case within two years after a change in control of Berry. These Severance Protection Agreements are designed to attract and retain executives as we compete for talented employees in an environment where such protections are routinely provided.

 

For the Executive Vice Presidents, the severance will be in an amount equal to two and one half times (1) annual base salary, (2) highest annual bonus in the last two years, (3) our then maximum annual matching contribution to our 401(k) Plan, and (4) the executive's car allowance, if any. For Vice Presidents, the severance will be in an amount equal to two times the foregoing amounts, and for the Controller, Treasurer and Corporate Secretary, the payment will be in an amount equal to one and one half times the foregoing amounts. Such amounts will include any annual bonus earned by the executive for the calendar year in which a qualifying termination occurs, and no separate bonus will be paid. The Severance Protection Agreements also provide that we will, upon a qualifying termination, continue to pay the portion of the premium for the executive's health coverage that we paid before the qualifying termination, and continue to pay for term life insurance coverage at the level in effect before the qualifying termination, for a number of years equal to the compensation multiple approved for the executive. In addition, the Severance Protection Agreements provide that all unvested stock options and RSUs will fully vest upon a qualifying termination, and the executive will have additional time to exercise stock options granted under our 1994 Stock Option Plan. The Severance Protection Agreements also provide that we will pay the executive for any taxes on “parachute payments” imposed as a result of the foregoing benefits. The Committee and our Board believe that having these Severance Protection Agreements in place is an important retention incentive for our officers.

 

See “Potential Payments Upon Termination and Change in Control” beginning on page 25 for an analysis of the Severance Protection Agreements under described assumptions.

 

18

 

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Compliance with Section 162(m) of the Internal Revenue Code

 

Our policy with respect to compensation paid to our Executive Officers is, to the extent possible, to deduct compensation that qualifies under Section 162(m) of the IRC, as amended, as an expense. Section 162(m) of the IRC and related Treasury Department regulations restrict deductibility of executive compensation paid to our Chief Executive Officer and each of the four other most highly compensated Executive Officers holding office at the end of any year to the extent such compensation exceeds $1,000,000 for any of such officers in any year and does not qualify for an exception under the statute or regulations. The Committee endeavors to maximize deductibility of compensation under Section 162(m) of the IRC to the extent practicable while maintaining a competitive, performance-based compensation program. However, tax consequences, including but not limited to tax deductibility, are subject to many factors (such as changes in the tax laws and regulations or interpretations thereof) that are beyond our control or the Committee’s control. In addition, the Committee and the Board believe that it is important to retain maximum flexibility in designing compensation programs that meet our stated objectives and fit within the Committee’s guiding principles. For all of the foregoing reasons, the Committee, while considering tax deductibility as one of our factors in determining compensation, has not and will not limit compensation to those levels or types of compensation that will be deductible. The Committee will, of course, consider alternative forms of compensation that preserve deductibility, consistent with our compensation goals. The Committee expects that some of the Executive Officers' compensation as currently designed may not be fully deductible under Section 162(m) under some circumstances.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Compensation Committee of our Board of Directors

 

March 18, 2008

Thomas J. Jamieson (Chairman)

Ralph B. Busch III

 

Joseph H. Bryant

 

 

 

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SUMMARY COMPENSATION TABLE

 

The following table summarizes the total compensation paid or earned by each of the following Executive Officers for the fiscal year ended December 31, 2007 and 2006. With the exception of Mr. Heinemann, our President and Chief Executive Officer, we have not entered into an employment agreement with any of the Executive Officers.

(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)
Name and Principal Position	Year	Salary ($)	Bonus ($) (1)	Stock Awards ($) (2)	Option Awards ($) (3)	Non- Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($) (4)	Total ($)
Robert F. Heinemann President and Chief Executive Officer	2007 2006	$ 583,333 $ 490,000	$720,000 $697,500	$1,658,242 $   933,940	$1,268,047 $   796,530	$                    - $                    -	$                    - $                    -	$   354,405 $   337,851	$4,584,028 (5) $3,255,821 (5)
Ralph J. Goehring Executive Vice President and Chief Financial Officer	2007 2006	$ 267,628 $ 248,958	$212,625 $170,888	$   158,025 $     83,397	$   347,654 $   267,296	$                    - $                    -	$                    - $                    -	$     53,721 $     50,006	$1,039,653 $   820,545
Michael Duginski Executive Vice President and Chief Operating Officer	2007 2006	$ 288,109(6) $ 248,542	$245,025 $218,550	$   168,963 $     83,397	$   428,415 $   300,824	$                    - $                    -	$                    - $                    -	$     56,758 $     47,531	$1,187,270 $   898,844
Daniel G. Anderson Vice President of Production Rocky Mountain Region	2007 2006	$ 214,103 $ 191,250	$  99,000 $111,600	$     99,619 $       4,749	$   319,791 $   216,636	$                    - $                    -	$                    - $                    -	$     44,678 $     36,800	$   777,190 $   561,035
Bruce S. Kelso Vice President of Exploration Rocky Mountain Region	2007 2006	$ 214,103 $ 191,250	$  76,500 $  93,000	$     43,207 $       3,392	$   318,037 $   216,636	$                    - $                    -	$                    - $                    -	$     43,878 $     36,800	$   695,724 $   541,078

 

 

(1)

The amounts shown in column (d) reflect the dollar amount of the bonus declared by our Board in December 2007 and December 2006 and paid in February 2008 and March 2007, respectively, to the Executive Officers pursuant to our Incentive Compensation Plan which is discussed in further detail on page 14 under the heading "Short Term Incentive Compensation Plan".

 

(2)

The amounts in column (e) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal years ended December 31, 2007 and 2006, in accordance with Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payment of stock unit awards pursuant to our 2005 Equity Incentive Plan and thus may include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of this amount under the Black Scholes method are included in footnote 12 to our audited financial statements for the fiscal year ended December 31, 2007 included in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on February 27, 2008.

 

20

 

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(3)

The amounts in column (f) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal years ended December 31, 2007 and 2006, in accordance with Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payment of stock option awards pursuant to our 2005 Equity Incentive Plan and thus may include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of this amount under the Black Scholes method are included in footnote 12 to our audited financial statements for the fiscal year ended December 31, 2007 included in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on February 27, 2008. The assumed value of the stock option award to Executive Officers made at December 14, 2007 and December 15, 2006 was $14.53 and $11.11, respectively per share of the award. In addition, a stock option award was made on March 22, 2006 to two Executive Officers and the assumed value of that grant was $11.73 per share of the award.

 

(4)	The amount shown in column (i) reflects for each Executive Officer:

•

Matching contributions for each of the Executive Officers pursuant to our 401(k) Thrift Plan;

o

The 401(k) match was $18,000 and $17,587 for Mr. Heinemann, $16,000 and $17,533 for Mr. Goehring, $18,000 and $17,600 for Mr. Duginski, $17,128 and $15,300 for Mr. Anderson and $17,128 and $15,300 for Mr. Kelso, respectively for 2007 and 2006.

•

The amount paid to each Executive Officer as a 401(k) excess match allowance as more fully described under the heading "Perquisites and Other Personal Benefits;"

o

The amount paid for the 401(k) excess match was $22,013 and $15,281 for Mr. Heinemann, $2,383 and $2,973 for Mr. Goehring, $2,283 and $431 for Mr. Duginski, $0 and $0 for Mr. Anderson and $0 and $0 for Mr. Kelso, respectively for 2007 and 2006.

•

The value attributable to life insurance benefits provided pursuant to our executive life insurance program as more fully described under the heading "Perquisites and Other Personal Benefits;"

o

The Executive Life Insurance compensation was $28,750 and $25,000 for Mr. Heinemann, $13,125 and $12,500 for Mr. Goehring, $13,750 and $12,500 for Mr. Duginski, $10,500 and $8,500 for Mr. Anderson and $10,500 and $8,500 for Mr. Kelso, respectively for 2007 and 2006.

•

The amount paid to the Executive Officer for financial planning services as more fully described under the heading "Perquisites and Other Personal Benefits;"

o

The amount paid for financial planning services was $15,000 and $7,500 for Mr. Heinemann, $6,838 and $5,000 for Mr. Goehring, $7,350 and $5,000 for Mr. Duginski, $3,700 and $2,500 for Mr. Anderson and $3,500 and $2,500 for Mr. Kelso, respectively for 2007 and 2006.

•

The amount paid to each Executive Officer as an auto allowance as more fully described under the heading "Perquisites and Other Personal Benefits;"

o

The amount paid for the auto allowance was $9,750 and $4,500 for Mr. Heinemann, $10,125 and $9,000 for Mr. Goehring, $10,125 and $9,000 for Mr. Duginski, $10,125 and $9,000 for Mr. Anderson and $10,125 and $9,000 for Mr. Kelso, respectively for 2007 and 2006.

•

The amount paid to each Executive Officer as dividend equivalents on the shares of RSUs that were outstanding as more fully described under the heading "Perquisites and Other Personal Benefits;"

o

The amount paid as dividend equivalents was $58,890 and $33,421 for Mr. Heinemann, $5,250 and $3,000 for Mr. Goehring, $5,250 and $3,000 for Mr. Duginski, $3,225 and $1,500 for Mr. Anderson and $2,625 and $1,500 for Mr. Kelso, respectively for 2007 and 2006.

 

(5)	In addition to the items noted in footnote (4) above, the amount in (j) for Mr. Heinemann reflects:

 

•

The cost attributable to Mr. Heinemann in the amount of $170,134 and $234,562 relating to non-business, primarily commuter, use of charter aircraft and for our corporate aircraft, including related travel expenses, respectively for 2007 and 2006;

 

o

The aggregate incremental cost of Mr. Heinemann's non-business, primarily commuter, use of the corporate aircraft is determined on a per flight basis and includes the cost of actual fuel used, the hourly cost of aircraft maintenance for the applicable number of flight hours, landing fees, trip related hangar and parking costs and other variable costs specifically incurred.

 

(6)	As of September 1, 2007, Mr. Duginski was promoted to Executive Vice President and Chief Operating Officer and his salary was adjusted to $302,500 annually.

 

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GRANTS OF PLAN BASED AWARDS

 

The following table summarizes the Option and Restricted Stock Unit Awards Granted during the fiscal year ended December 31, 2007.

 

(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)	(k)	(l)
		Estimated Future Payouts Under Non- Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards
Name	Grant Date	Threshold (1) ($)	Target (1) ($)	Maximum (1) ($)	Threshold (1) ($)	Target (1) ($)	Maximum (1) ($)	All Other Stock Awards: Number of Shares of Stock or Units (#) (2)	All Other Option Awards: Number of Securities Underlying Options (3) (#)	Exercise or Base Price of Option Awards (4) ($/sh)	Grant Date Fair Value of Stock and Option Awards ($)
Robert F. Heinemann	12/14/2007	-	-	-	-	-	-	29,810	89,470	$43.61	$2,600,013
Ralph J. Goehring(5)	-	-	-	-	-	-	-	-	-	-	-
Michael Duginski	12/14/2007	-	-	-	-	-	-	12,039	36,133	$43.61	$1,050,033
Daniel G. Anderson	12/14/2007	-	-	-	-	-	-	4,759	14,279	$43.61	$415,014
Bruce S. Kelso	12/14/2007	-	-	-	-	-	-	2,752	8,258	$43.61	$240,003

 

(1)	Our 2005 Equity Incentive Plan does not provide for any formula grants in the amount of Non-Equity Incentive Plan Awards and therefore no amounts are shown in these columns.
(2)	The amounts shown in this column reflect the amount of RSUs granted to the Executive Officer pursuant to our 2005 Equity Incentive Plan on December 14, 2007
(3)	The amounts shown in this column reflect the number of stock options granted to the Executive Officer pursuant to our 2005 Equity Incentive Plan on December 14, 2007
(4)	The price reflected in this column is the average of the high and low stock price on the date our Board approved the grants.
(5)	Mr. Goehring announced his planned retirement in late 2007 effective mid-2008 and as such received no equity awards in 2007.

 

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table summarizes the Outstanding Equity Awards as of the fiscal year ended December 31, 2007.

 

	Option Awards					Stock Awards
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)
Name	Number of Securities Underlying Unexercised Options # Exercisable	Number of Securities Underlying Unexercised Options # Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options #	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (1) #	Market Value of Shares or Units of Stock That Have Not Vested (2) ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested #	Equity Incentive Plan Awards: Market Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Robert F. Heinemann	-	89,470	-	$  43.61	12/13/2017	29,810	$1,325,055	-	-
	43,750	131,250	-	$32.565	12/14/2016	15,000	$   666,750	-	-
	75,000	75,000	-	$30.645	12/14/2015	10,000	$   444,500	-	-
	-	-	-	$          -	6/22/2016	161,300(3)	$7,169,785	-	-
	97,500	32,500	-	$  21.58	11/22/2014	-	-	-	-
	150,000	50,000	-	$ 14.375	6/15/2014	-	-	-	-
	10,000	-	-	$    9.61	12/2/2013	-	-	-	-
	10,000	-	-	$    8.07	12/2/2012	-	-	-	-
Ralph J. Goehring	-	-	-	$          -	12/13/2017	-	$      -	-	-
	10,000	30,000	-	$32.565	12/14/2016	7,500	$   333,375	-	-
	20,000	20,000	-	$30.645	12/14/2015	5,000	$   222,250	-	-
	36,700	17,500	-	$  21.58	11/22/2014	-	-	-	-
Michael Duginski	-	36,133	-	$  43.61	12/13/2017	12,039	$   535,134	-	-
	14,000	42,000	-	$32.565	12/14/2016	7,500	$   333,375	-	-
	25,000	25,000	-	$30.645	12/14/2015	5,000	$   222,250	-	-
	52,500	17,500	-	$  21.58	11/22/2014	-	-	-	-
	60,000	-	-	$    9.97	12/5/2013	-	-	-	-
	30,000	-	-	$    8.25	12/6/2012	-	-	-	-
	20,000	-	-	$  7.445	2/1/2012	-	-	-	-
Daniel G. Anderson	-	14,279	-	$  43.61	12/13/2017	4,759	$   211,538	-	-
	5,000	15,000	-	$32.565	12/14/2016	5,250	$   233,363	-	-
	-	40,000 (4)	-	$  34.06	3/21/2016	-	-	-	-
	10,000	10,000	-	$30.645	12/14/2015	2,500	$   111,125	-	-
	22,500	7,500	-	$  21.58	11/22/2014	-	-	-	-
	3,000	-	-	$    9.97	12/5/2013	-	-	-	-
	10,000	-	-	$    8.95	8/23/2013	-	-	-	-
Bruce S. Kelso	-	8,258	-	$  43.61	12/13/2017	2,752	$   122,326	-	-
	4,000	12,000	-	$32.565	12/14/2016	3,750	$   166,688	-	-
	-	40,000 (4)	-	$  34.06	3/21/2016	-	-	-	-
	10,000	10,000	-	$30.645	12/14/2015	2,500	$   111,125	-	-
	7,500	7,500	-	$  21.58	11/22/2014	-	-	-	-
	1,000	-	-	$    9.97	12/5/2013	-	-	-	-
	5,000	-	-	$    8.95	8/23/2013	-	-	-	-

 

 

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(1)

All of the RSUs listed vest at a rate of 25% per year over the first four years of the term of the stock award unit, except for item (3) below and further provided the grants made December 14, 2007, once vested, are payable on the earlier of January 2012 or the year following separation of service subject to the terms of further deferral elections.

 

(2)	The Fair Market Value of the Stock Awards is based on the closing price for the last trading day of 2007 of $44.45 per share of the award.

 

(3)	This Stock Unit vests 100% in one installment on January 31, 2010, provided Mr. Heinemann continues to serve as our CEO on such date, or earlier under certain conditions.

 

(4)	These Options vest 100% in one installment on March 22, 2009.

 

OPTION EXERCISES AND STOCK VESTED

 

The following table summarizes the Option Exercises and Restricted Stock Unit Awards that vested for the fiscal year ended December 31, 2007.

 

	Option Awards		Stock Awards
(a) Name	(b) Number of Shares Acquired on Exercise (#)	(c) Value Realized on Exercise	(d) Number of Shares Acquired on Vesting (1)	(e) Value Realized on Vesting ($) (2)
Robert F. Heinemann	-	$               -	10,000	$   436,100
Ralph J. Goehring	115,800	$ 3,382,039	5,000	$   218,050
Michael Duginski	-	$               -	5,000	$   218,050
Daniel G. Anderson	-	$               -	3,000	$   130,830
Bruce S. Kelso	13,500	$    191,401	2,500	$   109,025

 

 

(1)	The number of shares acquired on vesting is on a gross basis before mandatory withholding of shares to cover income taxes on the vesting.

 

(2)

The RSUs reflected in this table granted to the Executive Officers vests 25% per year on the anniversary date of the grants. This column reflects the value of the awards that vested on December 14, 2007 at the Fair Market Value price of $43.61, which was the average of the high and low stock price on that date as reported by the New York Stock Exchange, times the number of shares acquired on vesting. The Restricted Stock units awarded on December 14, 2007 are subject to a deferral election in addition to the vesting schedule. This deferral election delays the issuance of the underlying stock after full vesting until the earlier of January 2012 or cessation of employment.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

The purpose of this section is to present calculations made under described assumptions of the value of potential benefits to be paid to our Executive Officers upon termination or upon termination in conjunction with a change in control.

 

When calculating the potential benefits to be paid, we have relied on the following assumptions, some of which are required by SEC regulations:

 

1.	We experienced a change in ownership or effective control (as considered under IRC Section 280G) on December 31, 2007, the last business day of our last completed fiscal year. Such event did not actually occur.

 

2.	The closing market stock price of the Class A Common Stock as of December 31, 2007 which was $44.45.

 

3.

Each Executive Officer’s base amount was calculated using W-2, Box 1 compensation history amounts for the 2003 through 2007 calendar years. We annualized partial year compensation based on the date the Executive Officer commenced services for us and any extraordinary one time payments in the year such services commenced.

 

4.	The 120% semi-annual applicable federal rates for December 2007 which were as follows: 4.61% (short-term); 4.91% (mid-term); and 5.60% (long-term).

 

5.	The applicable tax rates for purposes of computing the IRC Section 4999 excise tax gross-up were as follows: 35% (Federal); 10.3% (CA state); 4.63% (CO state); 0% (TX state); 1.45% (Medicare), and 20% (IRC Section 4999).

 

6.	Each Executive Officer terminated employment with us on December 31, 2007. Such event did not actually occur.

 

A)	Potential Payments on Termination Without Cause or with Good Reason

 

Per Mr. Heinemann's Amended and Restated Employment Agreement, if we terminate Mr. Heinemann's employment without cause, or Mr. Heinemann terminates his employment for good reason, he is entitled to severance in an amount equal to two times (1) his annual base salary, (2) the highest annual bonus in the last two years, and our then maximum annual matching contribution to our 401(k) Plan, plus certain other benefits for a period of two years. Mr. Heinemann's unvested stock options and RSUs will also fully vest upon such an event, and he will have additional time to exercise stock options granted under our 1994 Stock Option Plan. This section describes various termination scenarios as well as the payments and benefits payable under those scenarios.

 

	Base Salary ($) (1)	Annual Incentive ($) (2)	Health and Welfare ($) (3)	Other Perquisites ($) (4)	Vesting of Unvested Equity ($)	Total Estimated Payout Following Termination ($)
Robert F. Heinemann	1,150,000	1,395,000	32,760	149,600	14,614,236	17,341,596

 

 

(1)	Represents the base salary rate at December 31, 2007 multiplied times a factor of two times.

 

(2)	Represents the highest annual bonus in the last two years multiplied times a factor of two times for Mr. Heinemann.

 

(3)	Represents the normal Health Care and Life Insurance Coverage for a period of two years for Mr. Heinemann.

 

(4)	Represents the maximum annual matching contribution to the Company’s 401(k) Plan, plus certain other benefits for a period of two years for Mr. Heinemann.

 

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B)	Potential Payments on Death or Disability

 

Per Mr. Heinemann's Amended and Restated Employment Agreement, if Mr. Heinemann dies or becomes disabled while employed by the Company, Mr. Heinemann's unvested stock options and RSUs will fully vest upon such an event, and he or his estate will have additional time to exercise stock options granted under our 1994 Stock Option Plan. The value of that scenario amounts to $14,523,551.

 

C)	Potential Payments on Termination and Change in Control

 

Our Executive Officers are eligible to receive certain benefits in the event of termination of employment following a change in control. As discussed in the sections "Chief Executive Officer" and "Change in Control Agreements," the Company has agreements with its Executive Officers which require that in conjunction with a change in control, as defined, if we terminate the employment without cause or if the Executive Officer terminates employment for good reason within two years following a change in control, the Executive Officer is entitled to severance consisting of 1) annual base salary; 2) the highest annual bonus in the last two years; 3) our then maximum annual matching contribution to our 401(k) Plan; 4) car allowance; 5) welfare benefit continuation; and 6) life insurance premium continuation. In addition, the Executive Officer's unvested stock options and RSUs will fully vest upon such as event and the Internal Revenue Code Section 280 tax gross up for severance will be paid if applicable. The time period for the calculation of the payments is: 1) three years for Mr. Heinemann; 2) two and one-half years for Mr. Goehring and Mr. Duginski; and 3) two years for Mr. Anderson and Mr. Kelso. See table below for certain calculations:

 

Termination in Conjunction with a Change in Control

 

	Base Salary ($) (1)	Annual Incentive ($) (2)	Health and Welfare ($) (3)	Other Perquisites ($) (4)	Vesting of Unvested Equity ($) (5)	Excise Tax Gross-Up ($) (6)	Total Estimated Payout Following Termination upon Change in Control ($)
Robert F. Heinemann	1,725,000	2,092,500	101,160	165,000	14,614,236	3,981,045	22,678,941
Ralph J. Goehring	656,250	463,750	60,390	75,000	1,612,476	-	2,867,866
Michael Duginski	756,250	546,375	65,430	83,000	2,397,403	972,789	4,821,247
Daniel G. Anderson	420,000	223,000	43,080	51,600	1,418,106	443,865	2,608,651
Bruce S. Kelso	420,000	186,000	43,080	51,600	1,281,520	380,486	2,362,685

 

(1)	Represents the base salary rate at December 31, 2007 multiplied times a factor of: three times for Mr. Heinemann; two and one-half times for Mr. Goehring and Mr. Duginski; and two times for Mr. Anderson and Mr. Kelso.

 

(2)	Represents the highest annual bonus in the last two years multiplied times a factor of: three times for Mr. Heinemann; two and one-half times for Mr. Goehring and Mr. Duginski; and two times for Mr. Anderson and Mr. Kelso.

 

(3)	Represents the normal Health Care and Life Insurance Coverage for a period of three times for Mr. Heinemann; two and one-half times for Mr. Goehring and Mr. Duginski; and two times for Mr. Anderson and Mr. Kelso.

 

(4)	Represents the maximum annual matching contribution to the Company’s 401(k) Plan, plus certain other benefits for a factor of: three times for Mr. Heinemann; two and one-half times for Mr. Goehring and Mr. Duginski; and two times for Mr. Anderson and Mr. Kelso.

 

(5)

Represents the value calculated for the acceleration of vesting of unvested options and RSUs and the highest value calculated for the stock option life extension that would apply to amounts triggered by the termination of employment in conjunction with a change in control (as shown in the Vesting of Unvested Equity column) and amounts triggered by an eligible termination following a change in control (as shown in the above table). The amounts shown in the table above use the upper range of the tax gross up amounts calculated.

 

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If the bottom range of the stock option life extension were used, the amounts shown would be reduced by $90,686 for Mr. Heinemann, $23,976 for Mr. Goehring, $31,772 for Mr. Duginski, $13,311 for Mr. Anderson and $6,649 for Mr. Kelso.

 

(6)

Represents the excise tax gross-up payment that would apply to amounts triggered by a termination in conjunction with a change in control (as shown in the Vesting of Unvested Equity column) and amounts triggered by an eligible termination following a change in control (as shown in the above table). The amounts shown in the table above use the upper range of the tax gross up amounts calculated. If the bottom range of the tax gross up were used, the amounts shown would be reduced by $124,519 for Mr. Heinemann, $0 for Mr. Goehring, $47,604 for Mr. Duginski, $17,451 for Mr. Anderson and $9,566 for Mr. Kelso.

 

DIRECTOR COMPENSATION

 

The table below summarizes the compensation paid by us to non-employee Directors for the fiscal year ended December 31, 2007.

 

Name (1)	Fees Earned or Paid in Cash or Deferred ($) (2)	Stock Awards ($) (3)	Option Awards ($) (3)	Change in Pension Value and Deferred Compensation Earnings ($)	All Other Compensation ($) (4)	Total ($)
Martin H. Young, Jr.	$ 174,000	$ 57,522	$ 57,480	$          -	$ 10,930	$ 299,932
Joseph H. Bryant	$   59,200	$ 57,522	$ 57,480	$          -	$      929	$ 175,131
Ralph B. Busch, III	$   59,200	$ 57,522	$ 57,480	$          -	$   4,351	$ 178,553
William E. Bush, Jr.	$   65,500	$ 57,522	$ 57,480	$          -	$          -	$ 180,502
Stephen L. Cropper	$   60,400	$ 57,522	$ 57,480	$          -	$          -	$ 175,402
J. Herbert Gaul, Jr.	$   77,800	$ 57,522	$ 57,480	$          -	$   8,349	$ 201,151
Thomas J. Jamieson	$   75,200	$ 57,522	$ 57,480	$          -	$   9,376	$ 199,578
J. Frank Keller	$   56,800	$ 57,522	$ 57,480	$          -	$          -	$ 171,802
Ronald J. Robinson	$   58,000	$ 57,522	$ 57,480	$          -	$          -	$ 173,002

 

(1)	Robert F. Heinemann, our CEO, is not included in this table as he is our employee and thus receives no compensation for serving as a Director.

 

(2)

Represents the fees earned by each of the Directors under our Board of Director fee arrangements disclosed on page 10 of this Proxy Statement. Each Director is able to defer his fees in full or in part into the Non-Employee Director Deferred Compensation Plan as disclosed on page 10 of this Proxy Statement. Mr. Young, Mr. Bryant, Mr. Gaul and Mr. Jamieson are currently deferring 100% of their Director's fees into the Plan and Mr. Busch and Mr. Robinson are deferring a portion of their Director's fees into the Plan.

 

(3)

Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007 in accordance with SFAS 123(R). The Options awarded to Directors vest immediately so the totals reflected do not include any option awards from prior years. The fair market value of the 3,956 options granted on December 14, 2007 was $14.53 per share of the award under the Black-Scholes option pricing model and the fair market value was $43.61 per RSU for the 1,319 RSUs granted to each Director on December 14, 2007.

 

(4)

Reflects the dollar value of dividend equivalents earned by the Directors in 2007 and deferred in the Non-Employee Director Deferred Compensation Plan. At December 31, 2007, each Director had the following aggregate number of deferred stock units accumulated in their deferral accounts for all of their years of service for which they deferred compensation into the Plan as a Director, including additional share units credited as a result of the reinvestment of dividend equivalents: Mr. Young, 38,212 units, Mr. Bryant, 3,672 units; Mr. Busch, 15,029 units; Mr. Gaul, 28,667 units; Mr. Jamieson, 32,114 units; and Mr. Robinson, 391 units. These share units are not included in the Security Ownership Table below because the share units are not issued nor do they have any voting power until such time as the Director retires or resigns from our Board. Mr. Heinemann has 3,048 deferred stock units under this Plan that relate back to the time he served as a Director prior to his employment with the Company.

 

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SECURITY OWNERSHIP

 

Security Ownership of Directors and Executive Officers

 

The following table sets forth the beneficial ownership of our Class A Common Stock as of March 17, 2008 for each Director and nominee for Director, each Executive Officer in the Summary Compensation Table herein, and by all Directors (including nominees) and our Executive Officers and other officers as a group.

 

Name (1)	Class A Common Stock (2)	Options Currently Exercisable or within 60 days	Total Stock and Stock Based Holdings (3)	Percent of Class (4)
Martin H. Young, Jr.	20,000	83,956	103,956
Robert F. Heinemann (5)	16,439	386,250	402,689
Joseph H. Bryant	-	23,956	23,956
Ralph B. Busch, III (6)	368,935	73,956	442,891	1.00%
William E. Bush, Jr. (7)	260,646	33,956	294,602
Stephen L. Cropper	5,000	53,956	58,956
J. Herbert Gaul, Jr.	4,000	83,956	87,956
Thomas J. Jamieson (8)	112,800	93,956	206,756
J. Frank Keller	-	23,956	23,956
Ronald J. Robinson	403	13,956	14,359
Ralph J. Goehring	73,171	65,262	138,433
Michael Duginski	20,998	201,500	222,498
Daniel G. Anderson	3,404	50,500	53,904
Bruce S. Kelso	3,619	21,500	25,119
All Directors, Executive Officers and other Officers as a group – (19 persons) (9)	901,066	1,369,491	2,270,557	4.99%

 

(1)	All Directors and beneficial owners listed above can be contacted at Berry Petroleum Company, 5201 Truxtun Avenue, Suite 300, Bakersfield, CA 93309.

 

(2)

Includes shares held directly or in joint tenancy, shares held in trust, by broker, bank or nominee or other indirect means and over which the individual or member of the group has sole voting or shared voting and/or investment power. Unless otherwise noted, each individual or member of the group has sole voting and investment power with respect to the shares shown in the table above.

 

(3)

Does not include 121,133 units in a stock account owned by the Directors which represent the economic equivalent of shares of Class A Common Stock which have been earned by seven of the Directors through the Non-Employee Directors Deferred Compensation Plan. These share equivalents are subject to Class A Common Stock market price fluctuations and are non-voting. The stock account unit shares can not be issued until the Director resigns or retires from our Board so none of these shares are projected to be issued within 60 days. Stock account units owned as of March 17, 2008 were 38,212 by Mr. Young, 3,048 by Mr. Heinemann, 3,672 by Mr. Bryant, 15,029 by Mr. Busch, 28,667 by Mr. Gaul, 32,114 by Mr. Jamieson and 391 by Mr. Robinson. Mr. Heinemann’s participation relates to the time he was a Director prior to his employment by us.

 

(4)	No current Director or Executive Officer, except Mr. Busch, owns more than 1% of the total outstanding shares of Class A Common Stock.

 

(5)	Includes 11,079 shares held directly and 5,360 shares which Mr. Heinemann holds in the 401(k) Plan.

 

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(6)

Includes 144,238 shares held directly, 126,665 shares held in the B Group Trust at Union Bank of California which Mr. Busch votes, 90,000 shares held in a family trust for which Mr. Busch shares voting and investment power as co-trustee, 7,500 shares held in a family foundation for which Mr. Busch shares voting and investment power with his parents and siblings and 532 shares held in trust for his minor children.

 

(7)	Includes 259,846 shares held directly and 800 shares held in trust for his grandchildren.

 

(8)

Includes 28,000 shares held directly, 33,800 shares held indirectly by Mr. Jamieson through Jaco Oil Company, a corporation, 26,000 shares held indirectly through a trust and 25,000 shares held indirectly by Mr. Jamieson through a partnership, all entities for which he has investing and voting power for the shares.

 

(9)	Also includes an additional 8,252 shares held directly by our other officers not included above and 3,399 shares held indirectly by our other officers in our 401(k) Plan.

 

PRINCIPAL SHAREHOLDERS

 

The following table sets forth, as of December 31, 2007, information regarding our voting securities owned beneficially, within the meaning of the rules of the Securities and Exchange Commission, by persons, other than Directors or officers, known by us to own beneficially more than 5% of the indicated class:

 

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class
Class A Common Stock	Winberta Holdings, Ltd. c/o Berry Petroleum Company 5201 Truxtun Avenue, Suite 300 Bakersfield, CA 93309	1,954,206 (1)	4.5%
Class B Stock	Winberta Holdings, Ltd. c/o Berry Petroleum Company 5201 Truxtun Avenue, Suite 300 Bakersfield, CA 93309	1,797,784 (1)	100%
Class A Common Stock	William F. Berry c/o Berry Petroleum Company 5201 Truxtun Avenue, Suite 300 Bakersfield, CA 93309	2,978,396 (2)	7.0%
Class A Common Stock	Neuberger Berman Inc. 605 Third Avenue New York, NY 10158	3,233,398 (3)	7.6%
Class A Common Stock	UnionBanCal Corporation 445 South Figueroa St., Third Floor Los Angeles, CA 90017	2,366,378 (4)	5.6%

 

 

(1)

As reflected in Schedule 13G/A, dated February 14, 2008, and filed with the Securities and Exchange Commission by Winberta Holdings Ltd. (Winberta). According to the Schedule 13G/A, Winberta has sole voting and dispositive power on all of the shares indicated. The Class B Stock shares are convertible into Class A Common Stock at the request of Winberta. The Class A Common Stock and Class B Stock are voted as a single class, as noted on Page 1 of this Proxy Statement. Winberta’s combined shares comprise 8.5% of our total Capital Stock outstanding.

 

(2)	As reflected in Schedule 13G/A, dated February 14, 2008, and filed with the Securities and Exchange Commission by William F. Berry. Mr. Berry served as a Director from 1985 to 2006 and retired from our Board

 

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of Directors on May 17, 2006. According to the Schedule 13G/A, Mr. Berry has sole voting and dispositive power on all of the shares indicated.

 

(3)

As reflected in Schedule 13G, dated February 12, 2008, and filed with the Securities and Exchange Commission by Neuberger Berman. According to the Schedule 13G, Neuberger Berman has shared power to dispose or direct the disposition on 3,233,398 shares. In addition, Neuberger Berman has sole power to direct the vote on 239,998 shares and shared power to direct the vote on 1,926,000 shares.

 

(4)

As reflected in Schedule 13G/A, dated February 4, 2008, and filed with the Securities and Exchange Commission by UnionBanCal Corporation (Union Bank). According to the Schedule 13G/A, Union Bank is the trustee of certain trusts to which the trustors retain voting and investment power and Union Bank has shared dispositive power on 2,338,628 shares. In addition, Union Bank has sole power to vote and control the investment power on another 27,750 shares.

 

To our knowledge, the above numbers remain accurate as of March 17, 2008 with the exception of Mr. Berry who gifted 2,400 of his shares in March 2008.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 and related Securities and Exchange Commission rules require that Directors, officers and beneficial owners of 10% or more of any class of equity securities report to the Securities and Exchange Commission changes in their beneficial ownership of our Capital Stock and that any late filings be disclosed. Based solely on a review of the copies of such forms furnished to us, or written representations that no Form 5 was required, we believe in 2007 that there was compliance with all Section 16(a) filing requirements except for Mr. Busch, a Director, who filed one late Form 4 to report the sale of shares from a family trust at Union Bank for which he is not a trustee but does have an ownership interest. In addition, the Form 4 filings to report the December 14, 2007 equity grants for all officers and Directors were filed late by one to two days due to delays in determining the quantity of the equity grants as the method was changed in 2007 to a dollar value grant rather a grant based on the number of shares.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Our Board is committed to maintaining the highest legal and ethical obligations and recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest. Our Charter of the Corporate Governance and Nominating Committee requires that members of the Corporate Governance and Nominating Committee, all of whom are independent Directors, review, approve, and publicly disclose related party transactions for which such approval is required under applicable law, including Securities and Exchange Commission and New York Stock Exchange rules. The Corporate Governance and Nominating Committee, to the extent feasible, reviews related party transactions in advance to approve such transactions. However, our Board has determined that the Chairman of the Committee can pre-approve or ratify, as the case may be, any related transaction in which the aggregate amount involved is expected to be less than $250,000 so long as each such transaction is presented to the Corporate Governance and Nominating Committee at its next regularly scheduled meeting. Additionally, the Corporate Governance and Nominating Committee annually reviews and assesses each approved related party transaction to see that each transaction is in compliance with the Corporate Governance and Nominating Committee’s guidelines and that the related party transaction remains appropriate.

 

We have determined that the Corporate Governance and Nominating Committee shall, subject to certain defined exceptions, review and approve any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which:

 

•

the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year;

•

we are a participant; and

•

any “Related Person” has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity).

 

 

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We define a “Related Person” to be:

 

•

any of our senior officers (which shall include at a minimum each Executive Vice President and any Section 16(a) officer) or Directors;

•

a shareholder owning (either directly or beneficially) in excess of 5 percent of our outstanding stock;

•

a person who is an immediate family member of any of the foregoing; or

•

an entity which is owned or controlled by someone listed above, or an entity in which someone listed above has a substantial ownership interest or control of such entity. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee).

 

The Corporate Governance and Nominating Committee has reviewed the general types of related party transactions described below and determined that each of the following general related party transactions is deemed to be pre-approved by the Corporate Governance and Nominating Committee and does not rise to the level of deeming the relevant Related Person to become non-independent, even if the aggregate amount involved will exceed $100,000:

 

•

any employment by us of an Executive Officer if: (a) the related compensation is required to be reported in our Proxy Statement under Item 402 of the Securities and Exchange Commission’s (SEC’s) compensation disclosure requirements (generally applicable to Named Executive Officers); or (b) the officer is not an immediate family member of another of our officers or Directors, the related compensation would be reported in our Proxy Statement under Item 402 of the SEC’s compensation disclosure requirements if the Executive Officer was a Named Executive Officer, and our Compensation Committee approved (or recommended that our Board approve) such compensation;

 

•

any compensation paid to a Director if the compensation is required to be reported in our Proxy Statement under Item 402 of the SEC’s compensation disclosure requirements;

 

•

any transaction with another company at which a Related Person’s only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 10% of that company’s outstanding stock, if the aggregate amount involved does not exceed the greater of $1,000,000, or 2 percent of that company’s total annual revenues;

 

•

any charitable contribution, grant or endowment by us to a charitable organization, foundation or university at which a Related Person’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1,000,000, or 2 percent of the charitable organization’s total annual receipts;

 

•

any transaction where the Related Person’s interest arises solely from the ownership of our Common Stock and all holders of our Common Stock received the same benefit on a pro rata basis (e.g. dividends);

 

•

any transaction involving a Related Person where the rates or charges involved are determined by competitive bids;

 

•

any transaction with a Related Person involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority;

 

•

the purchase by us of up to $1,000,000 annually of oilfield parts and supplies from S&D Supply Company, a division of Eagle Creek Mining & Drilling, Inc; or

 

•

the purchase or sale through a third party for investment purposes by a Related Person of any of our Senior Subordinated Notes as issued from time to time.

 

When considering the Eagle Creek Mining & Drilling, Inc. transactions and the purchase of our Senior Subordinated Notes as well as the Victory Settlement Trust, the Corporate Governance and Nominating Committee acknowledged that while each of these is considered a “related party transaction” pursuant to our Corporate

 

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Governance Guidelines, they do not rise to the level of deeming the relevant Related Party to become non-independent, and that the Corporate Governance and Nominating Committee and our Board have therefore determined that those transactions set forth below do not require further analysis by the Corporate Governance and Nominating Committee or our Board unless such transactions materially change in the future.

 

Eagle Creek Mining & Drilling, Inc.

 

Eagle Creek Mining & Drilling, Inc. (Eagle Creek), a California corporation, was a wholly-owned subsidiary of our predecessor, Berry Holding Company, until it was spun off to the majority shareholders of the predecessor in 1984. On November 30, 1989, Eagle Creek purchased the assets of S&D Supply Company (S&D), a California partnership. S&D, a retail distributor of oilfield parts and supplies, is now a division of Eagle Creek. The five-year contract whereby we purchased oilfield parts and supplies from S&D at competitive prices expired November 30, 1999 and was not renewed. Even though the contract expired, based on competitive pricing, we continue to purchase oilfield parts and supplies from S&D. The amounts paid to S&D in 2007, 2006 and 2005 were $560,216, $776,365 and $890,919, respectively. Our total purchases of oilfield pipe, parts and supplies in 2007 from competing vendors selling similar items were in excess of $27 million such that our purchases from S&D were less than 2% of our total purchases. We believe we pay competitive prices for our purchases from S&D. Mr. Bush is a director of Eagle Creek and collectively Mr. Bush and his immediate family and Mr. Busch and his immediate family own more than 10% but less than 30% of the stock of Eagle Creek.

 

Senior Subordinated Notes

 

We have been informed that on November 20, 2006, Falcon Seaboard Investment Company (Falcon Investment), an affiliate of Falcon Seaboard Diversified, Inc., purchased $3,000,000 of our 8.25% Senior Subordinated Notes from an independent broker. As a result of its purchase of the notes, Falcon Investment is treated like any other holder of the notes and receives interest payments and a return of principal in accordance with terms of the notes as set forth in our registration statement filed October 19, 2006. Mr. Young is the Senior Vice President and Chief Financial Officer of Falcon Seaboard Diversified, Inc. While the purchase or sale of our equity securities would not be deemed a related transaction under SEC regulations, the purchase or sale of our debt securities is not afforded the same treatment even though the purchaser of such debt security receives the same benefits on a pro rata basis as all other holders of the debt securities and the holder did not purchase the debt securities directly from us. In addition, we are informed that on February 23, 2007, the Busch Charitable Trust of which Mr. Busch is a Trustee, purchased from an independent third party, $100,000 of our Notes. We are also informed that Mr. William Bush has purchased $150,000 of our Notes. We encourage our insiders to hold our securities and consider such ownership to be in our shareholders' interest.

 

Victory Settlement Trust

 

In connection with our reorganization in 1985, a shareholder of Berry Holding Company (BHC), Victory Oil Company (Victory), a California partnership, brought suit against Berry Holding Company (one of our predecessor companies prior to the reorganization in 1985) and all of its Directors and Officers and certain significant shareholders seeking to enjoin the reorganization. As a result of the reorganization, Victory's shares of BHC stock were converted into shares of our Class A Common Stock representing approximately 9.7% of the shares of our Class A Common Stock outstanding immediately subsequent to the reorganization. In 1986, we, along with Victory, together with certain of its affiliates, entered into the Instrument for Settlement of Claims and Mutual Release (the Settlement Agreement).

 

The Settlement Agreement provided for the exchange (and retirement) of all shares of our Class A Common Stock held by Victory and certain of its affiliates for certain assets (the Settlement Assets) conveyed by us to Victory. The Settlement Assets consisted of (i) a 5% overriding royalty interest in the production removed or sold from certain real property situated in the Midway-Sunset field which is referred to as the Maxwell property (Maxwell Royalty) and (ii) a parcel of real property in Napa, California.

 

The shares of BHC originally acquired by Victory and the shares of our Class A Common Stock issued to Victory in exchange for the BHC Stock in the reorganization (the Victory Shares) were acquired subject to a legend provision designed to carry out certain provisions of the Will of Clarence J. Berry, the founder of our predecessor companies. The legend enforces an Equitable Charge (the Equitable Charge) which requires that 37.5% of the dividends declared and paid on such shares from time to time be distributed to a group of lifetime income beneficiaries (the B Group).

 

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As a result of the Settlement Agreement, the B Group was deprived of the distributions related to the stock that they would have received on the Victory Shares under the Equitable Charge. In order to protect the interests of the B Group, we executed a Declaration of Trust (the Victory Settlement Trust). In recognition of our, and Victory’s, obligations with respect to the Equitable Charge, Victory agreed in the Settlement Agreement to pay to us in our capacity as trustee under the Victory Settlement Trust, 20% of the 5% Maxwell Royalty (Maxwell B Group Payments). The Maxwell B Group Payments will continue until the death of the last surviving member of the B Group, at which time the payments will cease and the Victory Settlement Trust will terminate. There is one surviving member of the B Group.

 

Under the Settlement Agreement, we agreed to guarantee that the B Group will receive the same distributions under the Equitable Charge that they would have received had the Victory shares remained as issued and outstanding shares. Accordingly, when we declare and pay dividends on our capital stock, we are obligated to calculate separately the applicable distribution (the Trust Payment). We will make payments from the Victory Settlement Trust to the surviving member of the B Group, which payments may constitute all or a part of the Trust Payment in March and September of each year. Such payments will be made to the surviving member of the B Group for the remainder of his life. Typically, the Maxwell B Group Payments have contributed to a portion or all of the Trust Payment. Pursuant to the Settlement Agreement, we paid $124,925 to the Victory Settlement Trust in 2007.

 

Bakersfield Fuel & Oil Company

 

Our predecessors originally acquired an ownership in the entity that became Bakersfield Fuel & Oil Company (BFO) in the late 1890s. We succeeded to an ownership of approximately 20% of BFO upon our reorganization in 1985. Mr. Thomas J. Jamieson, through his affiliates and related persons, has been the majority owner of the stock of BFO for many years. Mr. Duginski and Mr. Goehring served on the board of directors of BFO. In 2007, BFO tendered at a price of $671.13 per share to purchase all of the outstanding shares of BFO not owned by Mr. Jamieson and his affiliates. Management reviewed the offer and recommended to the Board of Directors that we accept the offer. This matter was reviewed under our policy by the Corporate Governance and Nominating Committee. It was also reviewed for valuation purposes by the Audit Committee at a meeting at which Mr. Jamieson was not present. Both the Corporate Governance and Nominating Committee and the Audit Committee recommended to the Board of Directors that we accept the offer. The Board approved the sale of the shares on November 15, 2007, again with Mr. Jamieson abstaining. Upon the completion of the shares tender, we received $2,931,503.47 in December 2007. Mr. Duginski and Mr. Goehring resigned from BFO’s board of directors in December 2007.

 

Report of the Audit Committee of our Board of Directors

 

The Audit Committee of our Board of Directors consists of Mr. Cropper, Mr. Gaul, Mr. Jamieson, and Mr. Young. Our Board has determined that each of Mr. Cropper, Mr. Gaul, Mr. Jamieson and Mr. Young is an audit committee financial expert as defined in Item 401(h) of Regulation S-K and that each member of the Audit Committee is an independent director as defined in the Securities Exchange Act of 1934. Mr. Gaul serves as the Chairman of the Committee. In 2007, the Audit Committee met ten times. The Audit Committee reviews, acts on, and reports to our Board of Directors with respect to our auditing performance and practices, risk management, financial and credit risks, accounting policies, internal control, internal audit practices, tax matters, financial reporting and financial disclosure practices. The Committee is responsible for: 1) reviewing and selecting our independent registered public accounting firm, 2) reviewing the scope of the annual audit, 3) pre-approving the nature of non-audit services, 4) approving the fees to be paid to the independent registered public accounting firm, 5) reviewing the performance of our independent registered public accounting firm, 6) approving the outside accounting firms hired for special projects and internal audits and reviewing their reports, 7) reviewing our accounting practices and 8) any other tasks as described in the Audit Committee’s Charter, which is available at http://www.bry.com or by writing to us, attention Investor Relations.

 

We have reviewed and discussed with Management our audited financial statements as of, and for the year ended December 31, 2007.

 

We have discussed with the independent registered public accounting firm, PricewaterhouseCoopers LLP (PwC), the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, by the Auditing Standards Board of the American Institute of Certified Public Accountants.

 

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We have received and reviewed the written disclosures and the letter from PwC required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and have discussed with PwC the auditors’ independence. The Audit Committee has reviewed the services provided by PwC and has specifically pre-approved all services performed by the auditor and determined that all fees billed by PwC for non-audit services are compatible with maintaining the auditor’s independence. PwC representatives do meet with and directly report to the Audit Committee (and the Audit Committee Chairman).

 

Based on the reviews and discussions referred to above, we recommended to our Board of Directors that the financial statements referred to above be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange Commission.

 

Audit Committee of our Board of Directors

 

March 18, 2008	J. Herbert Gaul, Jr. (Chairman)	Stephen L. Cropper
	Thomas J. Jamieson	Martin H. Young, Jr.

 

 

Fees to Independent Registered Public Accounting Firm for 2007 and 2006

 

The following table presents fees for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements for 2007 and 2006, and also includes fees billed for audit-related services, tax services and all other services rendered by PwC for 2007 and 2006 (in thousands):

 

		2007		2006
Audit Fees		$  1,021		$   1,077
Audit Related Fees		389		118
Tax Fees		143		124
All Other Fees		3		-

 

Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Form 10-K annual report, Form 10-Q quarterly reports, and services that are normally provided by PwC in connection with statutory and regulatory filings and submittals or engagements for those years. This also includes attestation services required by statute or regulation including, without limitation, the report on our internal controls as specified in Section 404 of the Sarbanes-Oxley Act of 2002.

 

Audit Related Fees - This category consists of assurance and related services provided by PwC that are reasonably related to the performance of the audit or review of our financial statements that are not included above under Audit. For 2007 this consisted of approximately $193,000 for audit services related to the sale of our Montalvo property which we expect to be reimbursed by the buyer and approximately $194,000 for audit services related to our proposed master limited partnership.

 

Tax Fees - This category consists of professional services rendered by PwC, primarily in connection with our tax compliance, including tax return assistance and technical advice related to the preparation of tax returns, various tax issues and tax planning.

 

All Other Fees - This category consists of the aggregate fees billed for products and services, including software licenses and other services provided by PwC, not reported above. PwC did not provide any financial information systems design or implementation services during 2007 or 2006.

 

The 2007 audit and non-audit services provided by PwC were approved by the Audit Committee. The non-audit services which were approved by the Audit Committee were also reviewed to ensure compatibility with maintaining the accounting firm's independence.

 

The Audit Committee implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, the Audit Committee members or the Audit Committee Chairman pre-approves both the type of services to be provided by PwC and the estimated fees related to these services. During the approval process, the Audit Committee considers the impact of the types of services and the related fees on the

 

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independence of the accounting firm. The services and fees must be deemed compatible with the maintenance of the accounting firm’s independence, including compliance with SEC rules and regulations. Throughout the year, the Audit Committee reviews any revisions to the estimates of audit and non-audit fees initially approved. All of the engagements and fees for 2007 were approved by the Audit Committee.

 

SHAREHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING

 

Any proposal of a shareholder intended to be presented at the next Annual Meeting of Shareholders expected to be held on May 13, 2009, must be received at the office of our Secretary on or before December 2, 2008, if such proposal is to be considered for inclusion in our proxy statement relating to that meeting.

 

ANNUAL REPORT

 

Our 2007 Annual Report to Shareholders has been mailed or made available to shareholders previously or is being mailed or made available concurrently herewith, but such report is not incorporated in this Proxy Statement and is not deemed to be a part of this proxy solicitation material.

 

On February 27, 2008, we filed our Annual Report on Form 10-K/A with the Securities and Exchange Commission. This Report contains detailed information concerning us and our operations and supplementary financial information which, except for exhibits, are included in the Annual Report to Shareholders. A COPY OF THE EXHIBITS WILL BE FURNISHED TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, BERRY PETROLEUM COMPANY, 5201 TRUXTUN AVENUE, SUITE 300, BAKERSFIELD, CA 93309.

 

EXPENSES OF SOLICITATION

 

The total cost of this solicitation will be borne by us. In addition to use of the mails, certain Officers, Directors and our regular employees, without receiving additional compensation, may solicit proxies personally by telephone, e-mail or facsimile. We may reimburse persons holding shares in their own names or in the names of their nominees for expenses they incur in obtaining instructions from beneficial owners of such shares.

 

OTHER MATTERS

 

Management knows of no other business to be presented at the Meeting, but if other matters do properly come before the Meeting, it is intended that the persons named on the Form of Proxy Card will vote on said matters in accordance with the recommendations of our Board of Directors.

 

The above Notice of Annual Meeting of Shareholders, Proxy Statement and Form of Proxy Card are sent by Order of our Board of Directors.

 

	KENNETH A. OLSON
	Corporate Secretary

April 1, 2008

 

 

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The Board of Directors Recommends a Vote FOR the Proposals.		Please Mark Here for Address Change or Comments	o
		SEE REVERSE SIDE

				FOR all nominees listed (except as marked to the contrary below)		WITHHOLD AUTHORITY TO VOTE FOR all nominees listed below
1.  ELECTION OF DIRECTORS				o		o
01 J. Bryant		06 R. Heinemann
02 R. Busch III		07 T. Jamieson
03 W. Bush		08 J. Keller
04 S. Cropper		09 R. Robinson
05 J. Gaul		10 M. Young
(Instruction: To withhold authority to vote for any nominee, strike a line through that nominee’s name in the list above).

			FOR		AGAINST		ABSTAIN
2.	Ratification of the appointment of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm (Independent Auditors).		o		o		o
3.	The Proxies are authorized to vote upon such other business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted FOR Proposal 1 and FOR Proposal 2 and in accordance with the recommendations of the Board of Directors on any other matters that may properly come before the meeting.

		THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
		PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.

Signature			Signature			Date		, 2008
Please sign exactly as your name appears. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. If a limited liability company, please sign in limited liability company name by authorized person.

  FOLD AND DETACH HERE  

WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.

Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.

Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.

INTERNET http://www.proxyvoting.com/bry Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site.

OR

TELEPHONE 1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.

If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.

Choose MLink^SM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect^® at www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment.

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BERRY PETROLEUM COMPANY

Proxy for the Annual Meeting of Shareholders

The undersigned shareholder of Berry Petroleum Company, a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement and hereby appoints Robert F. Heinemann and Kenneth A. Olson, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of the Common Stock or Class B Stock of Berry Petroleum Company held of record by the undersigned on March 17, 2008 at the Annual Meeting of Shareholders to be held on Wednesday, May 14, 2008 or any adjournment thereof.

(Continued and to be signed on reverse side)

Address Change/Comments (Mark the corresponding box on the reverse side)

5  FOLD AND DETACH HERE  5

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