UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.    )

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

(AS PERMITTED BY RULE 14A-6(E)(2))

CABOT OIL & GAS CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

March 29, 2007

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of Cabot Oil & Gas Corporation to be held on Wednesday, May 2, 2007, at 8:00 a.m., local time, in the First Floor Auditorium of our corporate headquarters, located at 1200 Enclave Parkway, Houston, Texas.

The attached Notice of Annual Meeting of Stockholders and Proxy Statement cover the formal business of the meeting. To better acquaint you with the directors, the Proxy Statement contains biographical information on each nominee and each director continuing in office. Directors and officers of the Company will be present at the meeting to respond to your questions.

Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented. Please complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided, or if your proxy card or voting instructions form so indicates, vote electronically via the Internet or telephone.

Sincerely,

DAN O. DINGES Chairman, President and Chief Executive Officer

CABOT OIL & GAS CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 2, 2007

The Annual Meeting of Stockholders of Cabot Oil & Gas Corporation (the “Company”), a Delaware corporation, will be held at the Company’s corporate headquarters, First Floor Auditorium, 1200 Enclave Parkway, Houston, Texas 77077, on Wednesday, May 2, 2007, at 8:00 a.m., local time, for the following purposes:

Only holders of record of the Common Stock at the close of business on March 20, 2007 are entitled to receive notice of and to vote at the Annual Meeting. The transfer books of the Company will not be closed. The Board of Directors of the Company has declared a two-for-one split of the Common Stock, to be effected by means of a stock dividend to stockholders of record on March 16, 2007, with a distribution date of March 30, 2007. Accordingly, the additional shares of Common Stock issued in the stock split will not be entitled to vote at the annual meeting.

It is important that your shares be represented and voted at the Annual Meeting. Stockholders are urged to vote their shares by one of the following methods whether or not they plan to attend the Annual Meeting:

You may vote in person if you attend the Annual Meeting.

Please exercise your right to vote at your earliest convenient time.

BY ORDER OF THE BOARD OF DIRECTORS,

LISA A. MACHESNEY Vice President, Managing Counsel and Corporate Secretary

Houston, Texas

March 29, 2007

CABOT OIL & GAS CORPORATION

1200 Enclave Parkway

Houston, Texas 77077

PROXY STATEMENT

Annual Meeting of Stockholders

To Be Held May 2, 2007

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Cabot Oil & Gas Corporation (the “Company”) of proxies for use at its 2007 Annual Meeting of Stockholders, to be held at the Company’s corporate headquarters, 1200 Enclave Parkway, Houston, Texas, on Wednesday, May 2, 2007, at 8:00 a.m., or any adjournment or postponement thereof (the “Annual Meeting”), for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. You may revoke your proxy at any time prior to its use by a written communication to Ms. Lisa A. Machesney, Corporate Secretary of the Company, or by a duly executed proxy bearing a later date.

Stockholders attending the Annual Meeting may vote their shares in person even though they have already executed a proxy. Properly executed proxies not revoked will be voted in accordance with the specifications thereon at the Annual Meeting and at any adjournment thereof. Proxies on which no voting instructions are indicated will be voted FOR the election of the candidates named herein and FOR Proposal II and in the best judgment of the proxy holders on any other matters that may properly come before the meeting.

Only holders of record of the Company’s Common Stock, par value $.10 per share (“Common Stock”), as of the close of business on March 20, 2007, are entitled to vote at the Annual Meeting. As of that date, the Company had outstanding and entitled to vote 48,423,766 shares of Common Stock. The Board of Directors of the Company has declared a two-for-one split of the Common Stock, to be effected by means of a stock dividend to stockholders of record on March 16, 2007, with a distribution date of March 30, 2007. Accordingly, the additional shares of Common Stock issued in the stock split will not be entitled to vote at the annual meeting.

Each share of Common Stock is entitled to one vote per share. There is no provision for cumulative voting. A quorum for the consideration of business at the Annual Meeting consists of a majority of all outstanding shares of stock entitled to vote at the Annual Meeting. The Proxy Statement and form of Proxy are being first sent or given to shareholders on or about March 29, 2007.

In accordance with Delaware law, a stockholder entitled to vote for the election of directors can withhold authority to vote for all nominees for director or can withhold authority to vote for certain nominees for director. Abstentions and broker non-votes (proxies submitted by brokers that do not indicate a vote for a proposal because they do not have discretionary voting authority and have not received instructions as to how to vote on that proposal) are counted as present in determining whether the quorum requirement is satisfied. For purposes of determining the outcome of any question as to which the broker has physically indicated on the proxy that it does not have discretionary authority to vote, these shares will be treated as not present and not entitled to vote with respect to that question, even though those shares are considered entitled to vote for quorum purposes and may be entitled to vote on other questions. Because the vote required for approval of Proposal II is a majority of the shares present in person or by proxy at the meeting and entitled to vote on the proposal, abstentions will have the same effect as votes against the proposal, but broker non-votes will not generally affect the outcome of the voting on the proposal.

PROPOSAL I.

ELECTION OF DIRECTORS

The Board of Directors is divided into three classes of directors serving staggered three-year terms. John G. L. Cabot, David M. Carmichael and Robert L. Keiser are currently directors and have been nominated for election at the Annual Meeting for terms of three years, each to hold office until the expiration of his term in 2010 and until his successor shall have been elected and shall have qualified.

It is the intention of the persons named in the enclosed form of proxy to vote such proxies FOR the election of Messrs. Cabot, Carmichael and Keiser for terms of three years. If any one of the nominees is not available at the time of the Annual Meeting to serve, proxies received will be voted for substitute nominees to be designated by the Board of Directors or, in the event no such designation is made by the Board, proxies will be voted for a lesser number of nominees. In no event will the proxies be voted for more than the number of nominees set forth below.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF MESSRS. CABOT, CARMICHAEL AND KEISER TO THE BOARD OF DIRECTORS.

Certain Information Regarding Nominees and Directors

Set forth below, as of March 1, 2007, for each current director and for each nominee for election as a director of the Company, is information regarding age, position(s) with the Company, membership on committees of the Board of Directors, the period served as a director and term of office, business experience during at least the past five years, and other directorships currently held. Mr. Dinges, Chairman, President and Chief Executive Officer, is the only employee or former employee of the Company on the Board of Directors.

2

3

4

CORPORATE GOVERNANCE MATTERS

Board of Directors Independence

The Company’s Corporate Governance Guidelines require that at least a majority of the Company’s directors be independent under the New York Stock Exchange (“NYSE”) listing standards and all other applicable legal requirements. Additionally, all members of the audit committee, compensation committee and corporate governance and nominations committee are required to be independent.

As contemplated by NYSE listing standards, the board has adopted categorical standards to assist it in making independence determinations, under which relationships that fall within the categorical standard are not required to be disclosed in the proxy statement and their impact on independence need not be separately discussed. The board, however, considers all material relationships with each director and all facts and circumstances it deems relevant in making its independence determinations. A relationship falls within the categorical standard if it:

The Board of Directors has determined that each director’s relationship with the Company, with the exception of Mr. Dinges, the Chairman, President and Chief Executive Officer, falls within the categorical standard and that all directors, with the exception of Mr. Dinges, are independent. In 2006, the Board of Directors determined that Messrs. Robert F. Bailey and C. Wayne Nance, who retired from the Board of Directors in 2006, were independent. Further, the Board of Directors has determined that all members of the audit committee, compensation committee and corporate governance and nominations committee are independent.

Corporate Governance Guidelines

In 2003, the Board of Directors adopted the Cabot Oil & Gas Corporation Corporate Governance Guidelines. These guidelines outline the functions and responsibilities of the board, director qualifications, and various processes and procedures designed to ensure effective and responsive governance. The guidelines are reviewed from time to time in response to changing regulatory requirements and best practices and are revised accordingly. The full text of the Corporate Governance Guidelines can be found on the Company’s website at www.cabotog.com by clicking “Investor Relations,” and then clicking “Corporate Governance,” and a copy will be provided, without charge, to any shareholder upon request.

5

Code of Business Conduct

All employees, officers and directors are required to comply with the Company’s long-standing Code of Business Conduct to help ensure that the Company’s business is conducted in accordance with the highest standards of moral and ethical behavior. The Code of Business Conduct covers all areas of professional conduct including, conflicts of interest, customer relationships, insider trading, financial disclosure, intellectual property and confidential information, as well as requiring strict adherence to all laws and regulations applicable to the Company’s business. Employees, officers and directors annually are required to reply to a Code of Conduct Questionnaire, which is designed to elicit information related to any known or possible violation of the Code. The full text of the Code of Business Conduct can be found on the Company’s website at www.cabotog.com by clicking “Investor Relations,” and then clicking “Corporate Governance,” and a copy will be provided, without charge, to any shareholder upon request.

Executive Sessions of the Board of Directors

The Board of Directors holds an executive session of the non-management directors during each of its regularly scheduled meetings. The executive sessions are presided over by the Lead Director, Mr. P. Dexter Peacock.

Communications with the Board of Directors

The Company’s Board of Directors has a process for shareholders and other interested parties to send communications to the board. That process can be found in Item 9 of the Company’s Corporate Governance Guidelines found at the Company’s website at www.cabotog.com. Communications should be addressed to the “Board of Directors,” a specified committee of the board, an individual director or the “Non-management Directors” in care of:

Vice President, Managing Counsel and Corporate Secretary

Corporate Legal Department

1200 Enclave Parkway

Houston, Texas 77077-1607

(281)589-4891

(281)589-4808 (fax)

(Outside the U.S. or U.S. long distance-call collect)

lisa.machesney@cabotog.com (email)

All communications received as described above and intended for the Board of Directors, a committee of the Board of Directors, an individual director, or the non-management directors as a group will be relayed to the appropriate directors.

Annual Meeting Attendance

The Company’s policy is that it expects all members of the Board of Directors to attend the Company’s annual meeting of stockholders. In 2006, all but one of the members of the board attended the annual meeting.

Board of Directors and Committee Meeting Attendance

The Board of Directors held six meetings during 2006. All directors attended 100% of the meetings of the Board of Directors and of the committees held, with the exception of Mr. Carmichael who attended 67% of the meetings of the Board of Directors and committees held, while they were members during 2006.

Director Compensation

During 2006, non-employee directors’ annual compensation was based upon a fee of $55,000, payable quarterly, for their services on the Company’s Board of Directors and its committees. The Audit Committee Chairman receives an additional $10,000 annual retainer, the remaining committee chairmen receive an additional $5,000 annual retainer and the Lead Director receives an additional $5,000 annual retainer, each payable quarterly, for their service. In May 2006, the annual retainer for the committee chairmen (other than audit) and the Lead Director increased from $5,000 to $7,500. There are no per meeting fees paid.

Prior to February 2007 non-employee directors received nondiscretionary automatic grants of non-qualified options to purchase 15,000 shares of the Common Stock at a price equal to 100% of the fair market value on the date first elected to the Board of Directors under the 2004 Incentive Plan. Messrs. Carmichael and Keiser, who joined the board in February 2006, received this award. We amended the 2004 Incentive Plan in February 2007 to eliminate this automatic grant to new non-employee directors. The options granted to Messrs. Carmichael and Keiser vest one-third on the first, second and third anniversary of the date of award and have a five-year term. In addition, in 2006, a

6

discretionary award was made to the non-employee directors of 2,460 restricted stock units each under the 2004 Incentive Plan, the restrictions on which lapse the date the non-employee director leaves the Board of Directors.

Directors who are employees of the Company receive no additional compensation for their duties as directors. All directors were reimbursed for travel expenses incurred for attending Board and committee meetings. Spouses of the directors were invited to attend one meeting during 2006 and travel expenses incurred by the spouses for attendance at this meeting were reimbursed by the Company. For more information on director compensation, see “Director Compensation” on page 30.

Director Retirement

It is the policy of the Board of Directors that directors of the Company retire at the Annual Meeting following a director’s 73^rd birthday, unless a determination is otherwise made by the Board of Directors. Messrs. Robert F. Bailey and C. Wayne Nance retired from the Board of Directors in 2006.

Information on Standing Committees of the Board of Directors

The Board of Directors has five standing committees: the Corporate Governance and Nominations Committee, the Audit Committee, the Compensation Committee, the Safety and Environmental Affairs Committee and the Executive Committee. Membership on each committee during 2006 is as discussed below. All standing committees, with the exception of the Executive Committee, are composed entirely of independent, non-employee directors.

Corporate Governance and Nominations Committee—The Corporate Governance and Nominations Committee (the “CGN Committee”) is composed of four members: Messrs. Kelley (Chairman), Carmichael, Peacock and Vititoe. During 2006, the CGN Committee held two meetings. Each member of the CGN Committee satisfies the independence requirements of the NYSE listing standards. The CGN Committee Charter is available to shareholders on the Company’s website at www.cabotog.com by clicking “Investor Relations,” and then clicking “Corporate Governance,” and a copy will be provided, without charge, to any shareholder upon request.

The CGN Committee will consider director candidates recommended by shareholders. Under its charter, the CGN Committee seeks out and evaluates qualified candidates to serve as board members as necessary to fill vacancies or the additional needs of the board, and consider candidates recommended by shareholders and management of the Company. Any stockholder desiring to propose a nominee to the Board of Directors should submit such proposed nominee for consideration by the CGN Committee, including the proposed nominee’s qualifications, to Ms. Lisa A. Machesney, Corporate Secretary, Cabot Oil & Gas Corporation, 1200 Enclave Parkway, Houston, Texas 77077.

The CGN Committee seeks to select candidates who have personal and professional integrity, who have demonstrated ability and judgment and who shall be effective, in conjunction with the other nominees and board members in collectively serving the long-term interests of the shareholders.

The CGN Committee generally identifies nominees through recommendations made by incumbent directors. A resume is reviewed and if merited, an interview follows. A qualified candidate identified by a shareholder follows the same committee process. There are no differences in the manner in which the CGN Committee evaluates nominees for director based on whether the nominee is recommended by a shareholder or recommended by the incumbent directors. The appointment of Messrs. Carmichael and Keiser as directors of the Company in February 2006 was recommended to the CGN Committee by non-management directors.

Audit Committee – The Audit Committee is composed of four members: Messrs. Cabot (Chairman), Keiser, Kelley and Peacock. During 2006, the Audit Committee held four meetings. Each member of the Audit Committee satisfies the financial literacy and independence requirements of the NYSE listing standards. The Board has determined that Messrs. Cabot and Kelley meet the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission. Mr. Kelley sits on four audit committees, including the Company’s. The Board of Directors has determined that this simultaneous service does not impair Mr. Kelley’s ability to serve on the Company’s Audit Committee. The Audit Committee Charter is attached to this proxy statement as Appendix A. The charter is also available to shareholders on the Company’s website at www.cabotog.com by clicking “Investor Relations,” and then clicking “Corporate Governance,” and a copy will be provided, without charge, to any shareholder upon request.

The function of the Audit Committee is to review and report to the Board of Directors with respect to various auditing and accounting matters, including overseeing the integrity of the financial statements of the Company, the compliance by the Company with legal and regulatory requirements, the selection, independence, qualifications, performance and compensation of the Company’s independent auditors and the performance of the Company’s internal audit function.

7

It is the policy of the Audit Committee to pre-approve all audit, review or attest engagements and permissible non-audit services, including the fees and terms thereof, to be performed by the independent auditors, subject to, and in compliance with, the de minimis exception for non-audit services described in Section 10A(i)(l)(B) of the Securities Exchange Act of 1934 and the applicable rules and regulations of the SEC.

The Audit Committee has delegated to each member of the Audit Committee authority to pre-approve permissible services to be performed by the independent auditors. Decisions of a member to pre-approve permissible services must be reported to the full Audit Committee at its next scheduled meeting.

Compensation Committee – The Compensation Committee is composed of four members: Messrs. Vititoe (Chairman), Carmichael, Floyd and Kelley. During 2006, the Compensation Committee held three meetings. Each member of the Compensation Committee satisfies the independence requirements of the NYSE listing standards. The Compensation Committee Charter is available to shareholders on the Company’s website at www.cabotog.com by clicking “Investor Relations,” and then clicking “Corporate Governance,” and a copy will be provided, without charge, to any shareholder upon request.

The function of the Compensation Committee is to recommend to the independent members of the Board of Directors the annual compensation of the Chief Executive Officer, to provide counsel and oversight of the annual compensation of the other officers of the Company, to review the annual compensation of the directors, to oversee and make recommendations to the Board of Directors with respect to incentive compensation plans and equity based plans and other executive benefit plans, and to provide guidance in the area of employee benefits.

Safety and Environmental Affairs Committee – The Safety and Environmental Affairs Committee is composed of three members: Messrs. Floyd (Chairman), Cabot and Keiser. During 2006, the Safety and Environmental Affairs Committee held two meetings. Each member of the Safety and Environmental Affairs Committee satisfies the independence requirements of the NYSE listing standards.

The function of the Safety and Environmental Affairs Committee is to review the Company’s safety and environmental management programs and evaluate major hazard analyses. From time to time, it also reviews the nature of and extent of Company spending for safety and environmental compliance and consults with outside and internal advisors regarding the management of the Company’s safety and environmental programs.

Executive Committee - The Executive Committee is composed of four members: Messrs. Peacock (Chairman), Cabot, Dinges and Floyd. During 2006, there were no Executive Committee meetings held.

The function of the Executive Committee is to exercise all power and authority of the Board of Directors, except as limited by the Company’s by-laws or applicable law.

PROPOSAL II.

APPOINTMENT OF INDEPENDENT AUDITORS

The Audit Committee has approved and recommended the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm to examine the Company’s financial statements for 2007. Neither such firm nor any of its associates has any relationship with the Company except in their capacity as auditors. The persons named in the accompanying proxy will vote in accordance with the choice specified thereon, or, if no choice is properly indicated, in favor of the ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company.

A representative of PricewaterhouseCoopers LLP is expected to attend the Annual Meeting and to be available to respond to appropriate questions raised during the Annual Meeting. The representative will also have an opportunity to make a statement during the meeting if the representative so desires.

See Audit Committee Report on page 9 for further information.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE APPOINTMENT OF THE FIRM OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR ITS 2007 FISCAL YEAR.

8

AUDIT COMMITTEE REPORT

The Audit Committee is composed of four independent, non-employee directors. The Board of Directors has made a determination that the members of the Audit Committee satisfy the requirements of the NYSE listing standards as to independence, financial literacy and experience. The Board determined that two of the members of the Audit Committee, Messrs. Cabot and Kelley, are “audit committee financial experts” as defined by rules of the Securities and Exchange Commission. The responsibilities of the Audit Committee are set forth in the Audit Committee Charter, which was adopted in December 2003 by the Board of Directors. The function of the Audit Committee is to review and report to the Board of Directors with respect to various auditing and accounting matters, including overseeing the integrity of the financial statements of the Company, the compliance by the Company with legal and regulatory requirements, the selection, independence, qualifications, performance and compensation of the Company’s independent registered public accounting firm and the performance of the Company’s internal audit function. The Audit Committee also reviews its charter annually. This is a report on the Audit Committee’s activities relating to the calendar year 2006.

Review of Audited Financial Statements with Management

The Audit Committee reviewed and discussed the audited financial statements and management’s discussion and analysis of the Company’s financial condition and results of operations with the management of the Company.

Review of Financial Statements and Other Matters with Independent Registered Public Accounting Firm

The Audit Committee discussed with the independent registered public accounting firm the matters required to be discussed as described in Statement on Auditing Standards (“SAS”) No. 61-Communication with Audit Committees, as updated by SAS No. 89-Audit Adjustments, and SAS No. 90-Audit Committee Communications. The Audit Committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP (“PWC”), the Company’s independent registered public accounting firm, required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with PWC the independent registered public accounting firm’s independence. These discussions included a review of all audit and non-audit services (including tax services) provided by PWC to the Company.

Recommendation that Financial Statements be Included in Annual Report

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year 2006 for filing with the Securities and Exchange Commission.

FEES BILLED BY INDEPENDENT PUBLIC ACCOUNTANTS

FOR SERVICES IN 2006 AND 2005

9

EXECUTIVE COMPENSATION

The share information in this Executive Compensation section does not give effect to the two-for-one split of the Common Stock on March 30, 2007.

Compensation Discussion and Analysis

Introduction

The function of the Compensation Committee of the Cabot Oil & Gas Board of Directors (“Committee”) is to design and maintain an executive compensation program to attract, retain, align and engage highly qualified executives in a performance based compensation structure, which rewards executives for creating sustained shareholder value. The Committee has developed a structured executive compensation program, which it formally evaluated and approved. This program includes a compensation committee charter, total compensation philosophy and strategy, industry peer group definition, annual calendar and general policy framework.

Philosophy and Objectives of the Company’s Compensation Programs

The guiding philosophy and specific objectives of the Company’s compensation programs are: (1) to align executive compensation design and outcomes with business strategy, (2) to encourage management to create sustained value for the stockholders, (3) to attract, retain, align and engage our executives and (4) to support a performance-based culture throughout the Company. These primary objectives are evaluated annually by: (a) measuring and managing the mix of named executive officer (“NEO”) compensation, with a goal of making a majority of total compensation performance based that is balanced between short-term and long-term incentives, (b) tying incentive plan metrics and goals to shareholder value principles and (c) having a balanced, open and objective discussion by the Committee in setting goals and measuring performance. The Committee believes that each of these objectives carry an equal amount of importance in the Company’s compensation program. The Company’s compensation program is designed to reward the Company’s executives for meeting or exceeding the short-term (one year) financial and operating targets and the long-term strategy of the Company.

The Company uses various components of executive compensation, with an emphasis on variable compensation and long-term incentives. The components of executive compensation are presented in the table below and discussed in more detail later in this report.

10

The Committee’s competitive philosophy for executive compensation is to assess and offer a total compensation package that is targeted slightly above the median level for the comparative peer industry group. In that total, a greater weight is placed on long-term equity awards versus annual cash to foster an environment where stock price appreciation over the long-term is a major executive focus, which in turn benefits the stockholders. The competitive market is determined by reference to the compensation practices of an industry peer group as set forth below.

Industry Peer Group

The companies chosen by the Committee for the peer group represent the Company’s direct competitors of similar size and scope in the exploration and production sector of the energy industry, and are companies that compete in the Company’s core areas of operation for both business opportunities and executive talent. Based on the December 29, 2006 closing market prices, the industry peer group’s market capitalization ranged from approximately $1 billion to $5.9 billion. The Company’s market capitalization on December 29, 2006 was approximately $2.9 billion, which positioned the Company near the median of the group. The peer group changes from time to time due to business combinations, asset sales and other types of transactions that cause peer companies to no longer exist or no longer be comparable. The Committee approves all revisions to the peer group. The 16 company peer group used during 2006 was as follows:

2006 Committee Activity

During 2006 the Committee held three meetings, one in each of February, May and October. At the February 2006 meeting, the Committee reviewed the competitive market study of the Company’s sixteen member peer group by Hewitt Associates, the Committee’s independent compensation consultant (see “Compensation Consultant” below at page 17). Based on the study and the CEO’s recommendations with respect to the other Company officers, the Committee determined 2006 salaries, bonus payouts for 2005 performance and the annual grant of long-term incentive awards for the officers of the Company. A detailed discussion of each item of compensation can be found below at page 12, “Elements of Compensation.” The Committee also set the bonus metrics for 2006. Each of the 2006 metrics were established to achieve positive operational and financial results taking into consideration certain external economic and industry factors, including commodity prices, cost of services and regulatory issues. A detailed discussion of the 2006 bonus program and these metrics follows on page 13 “Annual Incentive Bonus.”

At the May 2006 meeting, the Committee reviewed Hewitt Associates’ competitive analysis of director compensation and, on the basis of this review, recommended to the Board of Directors a restricted stock unit award of 2,460 units to each non-employee member of the board. The Committee based this recommendation on its desire to provide a long-term incentive award to each director valued at approximately $125,000, which results in a total compensation package that is slightly above the median level of the competitive market for non-employee directors. The Board of Directors subsequently approved this recommendation.

11

Also at the May meeting, the Committee recommended the adoption of a new Mineral, Royalty and Overriding Royalty Interest Plan (the “ORRI Plan”), which was subsequently approved by the Board of Directors. The ORRI Plan allows designated employees, including the NEOs, the opportunity to purchase a portion of certain mineral, royalty and overriding royalty interests acquired from time to time by the Company. The participants in the ORRI Plan are designated by the Committee and have the opportunity to purchase a portion of the Company’s interest (as determined by the Committee) for cash at a price determined using the same cost basis as the Company acquired the interest. Because of the risk component and because the employees pay for their interest, participation in the ORRI Plan is not viewed by the Committee as compensation. However, it is designed to be an incentive, recruiting and retention tool for the Company in hiring and retaining key employee talent. The Committee believes the ORRI Plan is an important program which sets the Company above other competitors seeking to hire the same talent. Under the ORRI Plan, approximately one-half of the mineral, royalty and overriding royalty interests acquired by the Company in the McCampbell Field, located in Aransas County, Texas were offered in July 2006 to 73 employees, including the NEOs. No other interests were offered under the ORRI Plan in 2006. See further information related to this program following on page 32, “Related Party Transactions.”

At the October 2006 meeting, the Committee reviewed an analysis prepared and presented by Hewitt Associates on current compensation issues and trends and an update of its report presented in February 2006 on the competitiveness of the Company’s executive compensation program. This analysis is the precursor for the Committee’s review of all components of compensation in the following February meeting.

Also at the October meeting, the Committee took action to amend, on a global basis effective January 1, 2006, certain terms of all outstanding employee equity awards to make them consistent with other employee equity awards and director awards. The amendment revises the treatment of outstanding equity awards upon an employee’s termination of employment caused by death, disability or retirement, as such terms are defined in the various equity award agreements. The Committee believes that this amendment will lessen the administrative burden on both the Company and the Committee by not requiring individual Committee consideration of the treatment of each award upon every employment termination and is a reasonable treatment of these awards upon a termination of employment. The amendment had no impact on the NEOs in 2006. For a detailed review of the amendment see the table presented on page 21, following the table “Outstanding Equity Awards at Fiscal Year End.”

Elements of Compensation

Elements of In-Service Compensation

There are three major elements of the executive in-service compensation program. The elements are (1) base salary, (2) annual incentive bonus and (3) long-term incentive equity awards. Company perquisites are a minor element of the executive compensation program. This compensation design was selected by the Committee to motivate the executives in the short-term to meet yearly operating targets using the annual incentive bonus and to motivate the executives over the longer term to build long-term shareholder value and to serve as a retention tool using various types of equity awards. This design generally mirrors the pay practices of the industry peer group. Each element is described below.

Base Salary

The Committee believes base salary is a critical element of executive compensation because it provides executives with a base level of monthly income. The base salary of each executive, including the NEOs, is reviewed annually by the Committee. The CEO’s salary is established by the Committee and the other executives’ salaries are established jointly by the CEO and the Committee. Base salary is targeted for all executive positions near the median level of the peer group. Individual salaries take into account the Company’s annual salary budget, the individual’s levels of responsibility, contribution and value to the Company, individual performance, prior relevant experience, breadth of knowledge and internal and external equity issues. Changes in base salary from 2005 to 2006 averaged 7.0% for the NEOs, ranging from 5.4% to 10%, and are as follows:

Mr. Dinges’ 2006 base salary of $500,000 approximated the median of the industry peer group for the 2006 competitive data. The base salaries of the other NEOs fell below the median of the peer group. This is primarily due to the timing and logistics of conducting previous annual competitive studies, along with individual tenure in certain executive positions, changes in responsibility, strong industry performance and pay changes in the peer group. Further, total compensation values were the primary concern in finalizing 2006 base salary decisions. In 2006, two competitive studies were conducted (February and October) to assist the Committee in its compensation evaluation. No additional action to revise base salary decisions made in February was taken by the Committee in the October meeting.

12

Annual Incentive Bonus

The annual incentive bonus opportunity is based upon the Company’s pay-for-performance philosophy. The opportunity provides the NEOs, as well as other executives and key employees, with an incentive in the form of an annual cash bonus to achieve overall business goals. The bonus opportunity is stated as a percentage of base salary and is set using the Committee’s philosophy to target bonus levels (as a percentage of base salary) consistent with the competitive market for executives in similar positions. Annual bonus opportunities allow the Company to communicate specific goals that are of primary importance to the Company during the coming year and motivate executives to achieve those goals. The 2006 measurement criteria were designed to drive value increases for the Company’s stockholders.

During 2006 the bonus opportunity at a 100% of target level payout for the NEOs was as follows:

The 2006 bonus criteria measure the overall Company performance for year-over-year reserve and production growth, along with absolute levels for finding costs and net income. These metrics are weighted 25%, 15%, 15% and 15%, respectively, for a total of 70% of the bonus amounts. The remaining 30% is within the CEO’s and the Committee’s discretion. With respect to this discretionary component, the Committee and the CEO, as applicable, evaluate among other things, individual performance, regional performance, per share metrics improvement, industry conditions, along with acquisition and divestiture activity, and make a subjective determination as to the achievement of goals with respect to this component.

For each of the four metrics, the payout ranges for 2006 are as follows:

For performance above the 200% level shown above, the payout increases linearly (using the same increment as between 100% and 200%) as performance achieved increases above the 200% level. Once the payout based on each of the four performance metrics is computed and the results are weighted as described above to compute the formula goal achievement, the discretionary portion of the bonus, as determined by the Committee, is added (this discretionary goal achievement can range from an achievement of 0% to 60% payout at the 200% performance level).

Once the formula goal achievement and the discretionary goal achievement are determined, the actual amount of the total bonus is determined using the following table:

Upon completion of each fiscal year, the CEO makes recommendations to the Committee for annual bonuses to be paid to each executive officer (other than the CEO) using the formula established for the program in that year.

13

Upon completion of each fiscal year, the Committee develops a recommendation to the Board for the CEO annual incentive bonus based on Company performance, the formula payout and the Board’s annual CEO performance evaluation. The independent directors of the Board evaluate the bonus recommendation and set the CEO annual incentive bonus payment. The CEO bonus payment for 2006 was 200% of target.

The metrics for 2006 were established by the Compensation Committee at the beginning of 2006 based on the budgeted expectations for the year. During 2006, the Company elected to divest certain properties in South Louisiana and offshore, which was not contemplated when the year began. After discussion between the Committee and management, the Committee determined that the Company’s performance against the metrics for the 2006 bonus should be calculated as if no sale had occurred in order to measure achievement versus original expectations.

The Company’s 2006 performance against the pre-established metrics is as follows:

The result is a reserve growth level that exceeded target, a production growth achievement above target, a finding cost performance below target and net income at target. The Committee applied its discretion to recognize significant per share metric improvement and significant positive stock price movement. Thereafter, the bonus table was applied resulting in a 200% payout for the year.

Long-Term Incentives

All long-term incentives awarded in 2006 were made under the 2004 Incentive Plan, approved by the Company’s stockholders at the 2004 Annual Meeting of Stockholders. In 2006 the Committee employed a combination of performance shares, restricted stock and stock appreciation rights (“SARs”) to provide long-term incentives to the Company’s executives. Performance shares were awarded to those individuals who were determined by the Committee to be key employees. Restricted stock was awarded as a retention incentive due to the highly competitive market for energy industry executives. SARs were awarded as an additional tie of compensation to the Company’s stock price performance. The SARs awarded in 2006 are payable in shares of Common Stock, thereby using fewer shares and minimizing dilution as compared to stock options. The Committee’s objective was to deliver approximately one-third of the long-term incentive value in the form of performance shares, approximately one-third in the form of restricted stock and approximately one-third in the form of SARs. The total size of the long-term incentive awards is based on competitive practice and is targeted to fall within the 2^nd highest quartile of the industry peer group. The Committee does not typically consider past long-term incentive awards, such as the amount of equity previously granted and outstanding, or the number of shares owned, when determining annual long-term incentive awards.

Performance Shares. The Committee commenced using performance shares in lieu of stock options in 2004 due to: (i) the less dilutive impact of performance shares, and (ii) the fact that in an up market, stock options can increase in value, but Company performance can still lag the peer groups’ performance. For these reasons, the Committee believes that the Company’s performance share awards are a better measure of performance versus the peer group and appropriately link stock performance and compensation. For additional information about the performance shares, see Grants of Plan-Based Awards below at page 20.

Restricted Stock. The Company’s restricted stock awards to executives in 2006 consisted of grants of Common Stock, the restrictions on which lapse one-third on each of the first, second and third anniversaries of the date of the grant. The Committee believes that these awards provide a retention tool to the Company and encourage equity ownership in the Company.

14

Stock Appreciation Rights (SARs). SARs were granted in 2006 with an exercise price equal to the fair market value on the date of grant. Consistent with the Company’s 2004 Incentive Plan, the SAR grant date is the date on which the Committee or the Board of Directors approves the award, and the fair market value is the average of the high and low trading prices of the Common Stock on the grant date. SAR awards, as well as all other executive equity awards, are generally made in February of each year at a pre-scheduled and in-person meeting of the Committee. Company management is given no discretion to choose the grant dates. The SARs vest one-third on each of the first, second and third anniversaries of the date of grant and have a seven-year term. Upon exercise, the executive receives Common Stock equal to the value of the equity in the award. This value is determined by subtracting the exercise price from the fair market value of each share on the exercise date and multiplying this result by the number of shares exercised. The resulting value (less any required tax withholding) is then divided by the fair market price on the date of exercise to determine the number of shares issued.

Personal Benefits and Perquisites

The Company provides the NEOs with perquisites and other personal benefits that the Company and the Committee believe are reasonable and consistent with the overall compensation program to better enable the Company to attract and retain superior employees for key positions. The Committee periodically reviews the level of perquisites and other personal benefits provided to the NEOs. The NEOs are provided with club membership dues, a tax gross up on the club membership dues, a Company-paid physical examination for the NEO and his/her spouse, a financial and tax planning stipend of up to $3,000 annually, premium life insurance, and spouse travel to certain business meetings. The aggregate cost to the Company of the perquisites and personal benefits described above for the NEOs for 2006 are included under “All Other Compensation” of the Summary Compensation Table following on page 18.

Other Compensation

The Company offers all of its employees, including the NEOs, standard benefits including medical and dental reimbursement, short-term and long-term disability plans, basic life and accident insurance and an employee assistance program. The Company offers retirement programs consisting of both qualified and nonqualified defined benefit pension and defined contribution savings plans. See “Elements of Post-Termination Compensation” below for further descriptions of these programs.

Impact of Regulatory Requirements

The Company’s performance shares, SARs and stock options (when used as a long-term incentive) are intended to constitute “qualified performance based compensation” as defined under Section 162(m) of the Internal Revenue Code, with the effect that the deduction disallowance of Section 162(m) should not be applicable to compensation paid to covered employees under the performance shares, SARs and stock option provisions. It is the Committee’s intent that the majority of long-term incentive awards will qualify under Section 162(m). In 2006, the Company was not able to deduct approximately $3.2 million as a result of the application of Section 162(m) to the 2006 vesting of restricted stock awards granted in 2003, 2004 and 2005. Restricted stock grants with vesting based solely on the passage of time do not qualify as performance based compensation.

In addition, in order to permit the Committee the flexibility to use subjective and discretionary components in setting annual cash incentive awards without the Company’s loss of deduction under Section 162(m), the Company uses a “negative discretion” plan for executive officers to whom Section 162(m) might be applicable. Under this plan, the Committee sets one or more financial or operating performance targets early in the year to create a bonus pool intended to meet the requirements of Section 162(m) for such executive officers and reserves the right to reduce or otherwise set the cash incentive amounts taking other factors into account. As a result, the Section 162(m) metrics are not the primary metrics used in determining the relevant cash incentive awards to these executive officers.

Elements of Post-Termination Compensation

Pension Plan. Company employees, including the NEOs, are provided with retirement income by the Company’s Pension Plan, a noncontributory defined benefit plan that provides benefits based generally upon the employee’s years of service and the employee’s compensation levels, using the highest five years of the last ten years of employment. Compensation for purposes of determining benefits under the Pension Plan generally consists of taxable income, before the employee’s participation in voluntary pre-tax benefit plans. The Committee believes that the Pension Plan is conservative in that compensation under the Pension Plan does not include income arising from the exercise of a stock option or SAR or from the receipt of a performance share award or a restricted stock award, nondeductible moving expenses, disability pay, severance pay, taxable group term life insurance benefits and other taxable fringe benefit payments. Further, no current participant has been given enhanced or extra years of service credit.

The Pension Plan provides for full vesting after five years of service. Benefits are payable for the life of the employee on a single-life annuity basis if the retiree is unmarried or on a 50% joint and survivor basis if the retiree is married. Benefits are not subject to any deductions for Social Security or other offset amounts. Lump sum conversions are based on the 1994 Group Annuity Reserves Table with rates blended 50% for males and females and an interest rate equal to the 30-year Treasury rate for the month of November in the year preceding the year of payment.

15

Savings Investment Plan. The Savings Investment Plan is a tax-qualified retirement savings plan in which all employees, including the NEOs, may participate. It allows participants to contribute the lesser of up to 50% of their annual salary, or the limit prescribed by the Internal Revenue Service, on a pre-tax basis. The Company matches 100% of the first six percent of a participant’s pre-tax contribution. Participants are 100% vested in the Company’s contributions after five years of service, vesting 20% per year.

Supplemental Employee Retirement Plan (“SERP”). The Company has entered into non-qualified and unfunded supplemental arrangements to supplement the benefits payable to certain officers, including the NEOs, to the extent benefits under the Pension Plan are limited by provisions of the Internal Revenue Code or the Employee Retirement Income Security Act of 1974, as amended. The amount of the SERP is calculated using the same formula as is used for the qualified Pension Plan and is the difference between total compensation as defined in the Pension Plan (as if certain defined benefit limits were not imposed) and the qualified benefit.

Deferred Compensation Plan. The Deferred Compensation Plan provides supplemental retirement income benefits for the officers of the Company, including the NEOs, through voluntary deferrals of salary, bonus and certain long-term incentives. It also allows for the Company to provide its full six percent match when Company contributions of the matching amount cannot be made to the Company 401(k) Plan up to Internal Revenue Code limitations, due to the executive’s deferral of compensation which reduce salary and bonus to less than $250,000. The plan allows the officers to defer the receipt and taxation on income until retirement from the Company. The Company makes no additional contributions to, nor does it pay in excess of market interest rates on, the Deferred Compensation Plan. Amounts deferred by an officer under the Deferred Compensation Plan are held and invested by the Company in various mutual funds and other investment options selected by the officer at the time of deferral. For additional information about the Deferred Compensation Plan, including the investment options and the manner of distributions, see “Non-Qualified Deferred Compensation” following on page 25.

Retiree Medical Coverage. The Company provides certain health benefits for retired employees, including the NEOs, including their spouses, eligible dependents and surviving spouses (retirees). The health care plans are contributory with participants’ contributions adjusted annually. Employees become eligible for this benefit if they meet certain age and service requirements at retirement.

Change-in-Control Agreements

The Company has entered into Change-in-Control Agreements with the NEOs, and with certain other senior officers of the Company. This program has been in place since 1995, at which time a majority of the then industry peer group had in place some form of change-in-control program. The Committee believes that these agreements encourage such employees to remain in the employ of and to carry out their duties with the Company in the event of a change-in-control of the Company and during circumstances suggesting a change-in-control might occur. The Committee believes this program is important to maintaining strong leadership and to encourage retention in these situations. For a more detailed discussion of the change-in-control program, see “Potential Payments Upon Termination or Change-in-Control” on page 25.

Stock Ownership Guidelines

In February 2006 the Corporate Governance and Nominations Committee of the Board of Directors adopted stock ownership guidelines for the officers and directors of the Company. These stock ownership guidelines were thereafter approved by the Board of Directors. The Board of Directors and the Chief Executive Officer, the Chief Financial Officer and the Chief Operating Officer are expected to hold 30% of the after-tax shares received upon the vesting or exercise of an equity award until such time as they have accumulated five times base salary for the officers and five times annual retainer for the directors. All other Vice Presidents are expected to hold 30% of the after-tax shares received upon the vesting or exercise of an equity award until such time as they have accumulated three times base salary. All of the NEOs are in compliance with the stock ownership guidelines.

Conclusion

The Committee and the Company believe these executive compensation policies and programs effectively serve the interests of the stockholders and the Company. The Committee has worked over the years to devise, manage and provide an executive compensation program that meets its intended objectives and contributes to the Company’s overall success.

16

Disclosure Regarding Compensation Committee Governance

Compensation Committee Members and the Compensation Committee Charter

Executive compensation recommendations and decisions at the Company are made by the Committee. The Committee is currently made up of four non-employee directors, each of whom is “independent” as that term is defined by the rules of the NYSE. The determination of the independence of the members of the Committee is made annually by the full Board of Directors, most recently in February 2007. The Committee’s responsibilities are set forth in the Committee’s charter, which can be found at www.cabotog.com, by clicking “Investor Relations,” and then clicking “Corporate Governance.” The Committee’s primary responsibilities are to:

Compensation Consultant

The Committee employs the services of an executive compensation consultant. During 2006, Hewitt Associates assisted the Committee with executive compensation matters and has also been retained by the Committee for 2007. Hewitt Associates has assisted the Committee on executive compensation matters since 1990. Hewitt Associates is responsible for preparing and presenting a comprehensive competitive market study of the compensation levels and practices for a group of industry peers. The Committee approved industry peer group is listed and described in more detail above on page 11, “Industry Peer Group.” Hewitt Associates is also responsible for preparing and presenting a director compensation study using the same industry peer group. The Committee relies on Hewitt Associates for input on pay philosophy, current market trends, legal and regulatory considerations and prevalence of benefit and perquisite programs. A representative of Hewitt Associates attends all regular meetings of the Committee and participates in most executive sessions.

The Committee believes Hewitt Associates is independent of management. Hewitt Associates works exclusively for the Committee and generally performs no services directly for management. Management does not retain the services of a compensation consultant.

Role of Executives in Establishing Compensation

The President and CEO, the Senior Vice President and COO, the Vice President and CFO, the Vice President, Human Resources and the Vice President, Managing Counsel and Corporate Secretary each play a role in the Company’s compensation process. With the benefit of Hewitt Associates’ competitive market study, the CEO makes compensation recommendations to the Committee for the other officers of the Company. The CEO considers internal pay equity issues, individual performance and Company performance in making his recommendations to the Committee. The Senior Vice President and COO and the Vice President and CFO make recommendations to the CEO for their respective direct reports. The Vice President, Human Resources provides the Committee survey data from a wider group of companies in the energy sector than the industry peer group described above, which the Committee uses for evaluation of non-executive compensation, and general administrative support implementing the Committee’s decisions. The executives listed above, together with the Vice President, Managing Counsel and Corporate Secretary, prepare materials and agenda for the Committee meetings and also prepare the long-term equity plans as directed by the Committee for its review and consideration. Certain of the noted officers attend the Committee meetings; however, the officers are generally excused from the meetings to enable the Committee to meet privately in executive session, both with and without the compensation consultant. The Committee has delegated to management authority to administer the long-term incentive plans in accordance with the terms and conditions of the plans, the specific award agreements and the specific individual awards approved by the Committee.

Compensation Committee Report

The Compensation Committee of the Company has reviewed and discussed with management the above Compensation Discussion and Analysis and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

The Compensation Committee

        William P. Vititoe, Chairman

        David M. Carmichael

        James G. Floyd

        Robert Kelley

17

Summary Compensation Table

The table below summarizes the total compensation paid to or earned by each of the CEO, the CFO and the next three most highly compensated executive officers (“NEOs”) for the fiscal year ended December 31, 2006.

Amounts paid under the Company’s 2004 Incentive Plan, which are listed in the column titled “Non-Equity Incentive Plan Compensation,” were determined by the Committee at its February 22, 2007 meeting for 2006 performance and, to the extent not deferred by the executive, were paid out shortly thereafter. For additional information about Non-Equity Incentive Plan Compensation, see page 13, “Annual Incentive Bonus.”

2006 SUMMARY COMPENSATION TABLE

In addition to the amounts shown in the table, there were performance shares granted on February 23, 2006 after the implementation of SFAS No. 123(R). These awards were valued using a Monte Carlo model and the grant date fair value per share used for financial reporting purposes was $32.86. Assumptions used in the Monte Carlo model for this grant, as well as additional information regarding accounting for restricted stock and performance share awards, are included in Note 10 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2007 (the “Form 10-K”).

18

19

Grants of Plan-Based Awards

The table below reports all grants of plan-based awards made during 2006. All grants of awards were made under the Company’s 2004 Incentive Plan.

2006 GRANTS OF PLAN-BASED AWARDS

20

Effective January 1, 2006, the Compensation Committee amended outstanding equity awards on a global basis to revise their treatment upon an employment termination caused by death, disability or retirement. The table below illustrates for stock options, restricted stock, performance shares and SARs, treatment of these awards upon a termination of employment caused by death, disability or retirement prior to January 1, 2006 and as amended January 1, 2006.

The performance shares awarded in 2006 have a three-year performance period, which commenced January 1, 2006 and ends December 31, 2008. Each performance share represents the right to receive, after the end of the performance period, from 0 to 200% of a share of Common Stock (with amounts over 100% paid in cash), based on the Company’s performance. The performance criteria that determines the payout per performance share is the relative total shareholder return on the Company’s Common Stock as compared to the total shareholder return on the common equity of each company in a comparator group. For this purpose, total shareholder return is expressed as a percentage equal to common stock price appreciation as averaged for the first and last month of the performance period, plus dividends (on a cumulative reinvested basis). The comparator group consists of the companies listed on page 11, “Industry Peer Group.” If any member of the comparator group ceases to have publicly traded common stock or if as a result of other business transactions becomes incomparable, it will be removed from the comparator group and a replacement company will be added by the Compensation Committee of the Board of Directors.

After the end of the performance period, the Company will issue shares of Common Stock and pay cash in respect of each performance share based on the relative ranking of the Company versus the comparator group for total shareholder return during the performance period using the following scale:

21

As noted above, in the event of a relative ranking of 1 through 6, corresponding to a percentage payout above 100%, a share of performance stock will entitle the participant to receive one full share of Common Stock with respect to the first 100% of the payout and the balance of the payout in cash, in an amount based on the fair market value of a share of Common Stock at the end of the performance period.

If a participant is not an employee on the last day of the performance period due to death, disability or retirement, Common Stock will be issued on the original performance period schedule and the level of payout will be determined as with all other participants. If a participant is not an employee on the last day of the performance period due to any other voluntary or involuntary termination, no shares of Common Stock will be issued in respect of the participant’s performance stock award unless otherwise determined by the Compensation Committee. Prior to the issuance of shares of Common Stock in respect of a performance stock award, the participant will have no right to vote or receive dividends on the shares. The performance share award may not be assigned or transferred except by will or the laws of descent and distribution. In the event of a Change-in-Control (as defined) all unvested performance shares shall vest and the shares will be valued at a price based on the change-in-control transaction. In the event the Company ceases to have publicly traded Common Stock as a result of a business combination or other extraordinary transaction, the performance period will be terminated effective upon the date of such cessation. The Committee certifies the results of the performance share awards prior to the issuance of Common Stock.

The restricted stock awarded in 2006 consists of grants of Common Stock, the restrictions on which lapse one-third on each of the first, second and third anniversaries of the date of grant. Unvested restricted stock will be forfeited if, during the three-year restrictive period, the executive voluntarily leaves the Company. In the event of an involuntary termination by the Company, the Compensation Committee will determine whether the unvested restricted stock will be forfeited. In the event of an employment termination due to death, disability or retirement, all restrictions will lapse. Prior to the lapse of such restrictions, the participant has no right to vote or receive dividends on such shares. The restricted stock award may not be assigned or transferred except by will or the laws of descent and distribution. In the event of a Change-in-Control (as defined), the restrictive period shall lapse and a stock certificate representing the shares of restricted stock shall be issued to the executive.

The SARs awarded in 2006 vest one-third on each of the first, second and third anniversaries of the date of grant and have a seven year term. Unvested SARs will be forfeited and vested SARs must be exercised within ninety days if the executive voluntarily leaves the Company. In the event of an involuntary termination by the Company, the Compensation Committee may extend the exercise period for vested SARs from ninety days to thirty-six months. In the event of an employment termination due to death, disability or retirement, all SARs will vest. The SAR award may not be assigned or transferred except by will or the laws of descent and distribution. In the event of a Change-in-Control (as defined) all unvested SARs shall vest and remain exercisable throughout the term of the SAR.

In the event of any merger, reorganization, recapitalization, separation, liquidation, stock dividend, share combination or other change in the corporate structure of the Company affecting the performance shares, the restricted stock or the SARs, the number of performance shares, restricted stock, and SARs shall be equitably adjusted by the Compensation Committee to prevent dilution or enlargement of rights.

For additional information about the treatment of certain of Mr. Dinges’ awards in the event of an employment termination, see “Potential Payments Upon Termination or Change-in-Control” following on page 25.

22

Outstanding Equity Awards at Fiscal Year-End

The table below reports for each NEO outstanding equity awards at December 31, 2006.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2006

23

Option Exercises and Stock Vested

The table below reports exercised stock options and vested restricted stock during 2006.

2006 OPTION EXERCISES AND STOCK VESTED

Pension Benefits Table

The table below reports the present values of accumulated benefits payable to each NEO, including the number of years of service credited to each NEO, under the Company’s qualified Pension Plan and the non-qualified Supplemental Executive Retirement Plan. Additional information regarding the Pension Plan and the Supplemental Executive Retirement Plan can be found on page 15, “Elements of Post-Termination Compensation.”

PENSION TABLE

24

Non-Qualified Deferred Compensation

The table below reports NEO contributions, earnings, and aggregate balances in the Company’s Deferred Compensation Plan for 2006.

2006 NONQUALIFIED DEFERRED COMPENSATION

Up to 100% of salary, annual incentive bonus and vested performance shares are permitted to be deferred into the Deferred Compensation Plan, subject to payment of Social Security, Medicare, incomes taxes (on compensation not deferred) and employee benefit plan withholding requirements. Earnings on the deferred balances are determined by the executive’s investment selections at the time of deferral. The Company holds deferred amounts and earnings thereon as corporate assets, which are invested as elected by the executive. For 2006, the investment options and their respective rates of return follow:

Distributions from the Deferred Compensation Plan are made no earlier than six months following retirement and are based on the executive’s election at the time of deferral. Event-based distribution elections may be modified provided that the modification is made at least one year prior to termination of employment. Time-based distribution elections may be modified provided that the modification is made at least one year prior to the original time elected and the new election is moved out at least two years past the original time-based distribution election. Distribution elections can only be delayed not accelerated.

Potential Payments Upon Termination or Change-in-Control

The tables below reflect the compensation payable to each NEO upon voluntary termination, retirement, involuntary not-for-cause termination, for cause termination, termination following a change-in-control and in the event of disability or death of the executive. The amounts shown assume that such termination was effective as of December 31, 2006, and thus includes amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.

25

Change-in-Control Benefits

The Company has entered into change-in-control agreements with each NEO and certain other senior officers of the Company. The Committee believes that these agreements encourage these executives to remain in the employ of the Company and carry out their duties in the event of a change-in-control of the Company or in circumstances suggesting that a change-in-control might occur. The Committee believes this program is important to maintaining strong leadership in those situations.

The agreements provide that, in the event of a change-in-control or in the event deemed to be in anticipation of a change-in-control, the executives will receive certain benefits in the event that their employment is terminated within two years of such event. The executive will receive these benefits unless termination is:

Benefits under the change-in-control agreements generally include:

In the event that excise taxes apply to payments by the Company, the Company will make an additional tax gross up payment to the executive in an amount to leave the executive “whole,” as if no excise tax had applied. No payments have been made under these agreements.

In the agreements, a “change-in-control” is generally defined to include:

26

CEO Employment Agreement

In addition to a change-in-control agreement, the Company has entered into an employment agreement with Mr. Dinges. The employment agreement provides that if Mr. Dinges terminates his employment for good reason (as defined) or if the Company terminates his employment other than for cause (as defined), Mr. Dinges will receive:

Under the terms of Mr. Dinges’ change-in-control agreement, in the event of a termination, Mr. Dinges will be required to elect between receiving the benefits and payments under either his change-in-control agreement or his employment agreement, but not both.

The following table shows the potential payments upon termination or a change-in-control of the Company for Dan O. Dinges, Chairman, President and Chief Executive Officer.