<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
[ ] Confidential, For Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
ENERGY SEARCH, INCORPORATED
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- ---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- ---------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
- ---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ---------------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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<PAGE>
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of its
filing.
- ---------------------------------------------------------------------------
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
[ENERGY SEARCH INCORPORATED LOGO]
280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922
NOTICE OF ANNUAL MEETING
TO OUR SHAREHOLDERS:
The annual meeting of shareholders of Energy Search, Incorporated will be
held at the GettysVue Golf Club, 9317 Links Vue Drive, Knoxville, Tennessee,
on Wednesday, June 17, 1998, at 10:00 a.m., local time, for the following
purposes:
(i) Election of five directors for terms expiring in 1999, 2000 and 2001.
(ii) Adoption of a proposal to increase the Company's authorized common stock.
(iii) Adoption of a class of preferred stock in the Company's charter.
(iv) Adoption of certain provisions in the Company's charter concerning the
Company's Board of Directors.
(v) Adoption of indemnification provision in the Company's charter.
(vi) Adoption of factors in the Company's charter to consider in business
combinations.
(vii) Adoption of the Stock Option and Restricted Stock Plan of 1998.
(viii) Adoption of a form of Indemnification Agreement for the Company's
officers and directors.
(ix) Transaction of such other business as may properly come before the
meeting.
Shareholders of record at the close of business on April 24, 1998, are
entitled to notice of and to vote at the meeting or any adjournment of the
meeting. A list of shareholders entitled to receive notice of and vote at
the annual meeting of shareholders will be available for examination by
Company shareholders at the office of Robert L. Remine, Secretary and Treasurer
of the Company, located at 280 Fort Sanders West Boulevard, Suite 200,
Knoxville, Tennessee, during ordinary business hours beginning on May 4, 1998.
A copy of the Annual Report to Shareholders for the year ended December
31, 1997, is enclosed with this Notice. The following Proxy Statement and
enclosed proxy are being furnished to shareholders on and after April 30, 1998.
By Order of the Board of Directors
Robert L. Remine, SECRETARY AND TREASURER
April 30, 1998
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.
<PAGE>
ENERGY SEARCH, INCORPORATED
280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922
ANNUAL MEETING OF SHAREHOLDERS
JUNE 17, 1998
PROXY STATEMENT
This Proxy Statement and the enclosed proxy are being furnished to
holders of common stock, no par value, of Energy Search, Incorporated (the
"Company") on and after April 30, 1998, in connection with the solicitation
by the Energy Search Board of Directors of proxies for use at the annual
meeting of shareholders to be held on June 17, 1998, and any adjournment of
that meeting. The annual meeting will be held at the GettysVue Golf Club,
9317 Links Vue Drive, Knoxville, Tennessee, at 10:00 a.m., local time.
The purpose of the annual meeting is to consider and vote upon: (i)
election of five directors for terms expiring in 1999, 2000 and 2001; (ii)
adoption of a proposal to increase the Company's authorized common stock;
(iii) adoption of a class of preferred stock in the Company's charter; (iv)
adoption of certain provisions in the Company's charter concerning the
Company's Board of Directors; (v) adoption of indemnification provision in
the Company's charter; (vi) adoption of factors in the Company's charter to
consider in business combinations; (vii) adoption of the Stock Option and
Restricted Stock Plan of 1998; and (viii) adoption of a form of
Indemnification Agreement for the Company's officers and directors. If a
proxy in the enclosed form is properly signed and returned to the Company,
the shares represented by the proxy will be voted at the annual meeting and
any adjournment of that meeting. If a shareholder specifies a choice, the
proxy will be voted as specified. If no choice is specified, the shares
represented by the proxy will be voted for election of all nominees named
in this Proxy Statement, for election of five directors for terms expiring
in 1999, 2000 and 2001, for adoption of a proposal to increase the
Company's authorized common stock, for adoption of a class of preferred
stock in the Company's charter, for adoption of certain provisions in the
Company's charter concerning the Company's Board of Directors, for adoption
of indemnification provision in the Company's charter, for adoption of
factors in the Company's charter to consider in business combinations, for
adoption of the Stock Option and Restricted Stock Plan of 1998, for
adoption of a form of Indemnification Agreement for the Company's officers
and directors and in accordance with the judgment of the persons named as
proxies with respect to any other matter that may come before the meeting
or any adjournment. For purposes of determining the presence or absence of
a quorum for the transaction of business at the meeting, all shares for
which a proxy or vote is received, including abstentions and shares
<PAGE>
represented by a broker vote on any matter, will be counted as present and
represented at the meeting.
A proxy may be revoked at any time before it is exercised by written
notice delivered to the Secretary of the Company or by attending and voting
at the annual meeting.
ELECTION OF DIRECTORS
(PROPOSAL NUMBER 1)
The Board of Directors has nominated the following five nominees for
election as directors for terms expiring either at the 1999, 2000 or 2001
annual meeting:
CLASS I DIRECTORS - TERMS EXPIRING IN 1999
Richard S. Cooper
Douglas A. Yoakley
CLASS II DIRECTORS - TERMS EXPIRING IN 2000
Robert L. Remine
Kim A. Walbe
CLASS III DIRECTOR - TERM EXPIRING IN 2001
Charles P. Torrey, Jr.
A plurality of the shares present in person or represented by proxy
and entitled to vote on the election of directors is required to elect
directors. For purposes of counting votes on the election of directors,
abstentions, broker non-votes and other shares not voted will not be
counted as shares voted, and the number of shares of which a plurality is
required will be reduced by the number of shares not voted.
All of the nominees are presently directors of the Company whose terms
will expire at the annual meeting. The proposed nominees are willing to be
elected and to serve. In the event that a nominee is unable to serve or is
otherwise unavailable for election, which is not contemplated, the
incumbent Board of Directors may or may not select a substitute nominee.
If a substitute nominee is selected, all proxies will be voted for
the substitute nominee designated by the Board of Directors. If a
substitute nominee is not selected, all proxies will be voted for the
remaining nominees. Proxies will not be voted for a greater number of
persons than the number of nominees named above.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ELECTION OF ALL NOMINEES AS DIRECTORS
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AMENDMENT AND RESTATEMENT
OF THE COMPANY'S CHARTER
The Board of Directors unanimously has approved, and recommends that
the Company's shareholders adopt, the following amendments (each an
"Amendment", and, collectively, the "Amendments") to the Company's Third
Amended and Restated Charter (the "Charter"): (i) increase the authorized
number of shares of the Company's common stock, no par value ("Common
Stock"), from 10,000,000 shares to 25,000,000 shares; (ii) authorize
a new class of preferred stock ("Preferred Stock"); (iii) adopt
certain provisions concerning the Board of Directors, including
provisions (a) regarding the number of directors, (b) dividing
directors into three classes, (c) concerning shareholder nominations of
candidates for directors, (d) concerning vacancies and newly created
directorships, (e) prohibiting the removal of directors without "cause" and
without the approval of 75% of the shares entitled to vote on the election
of directors, and (f) limiting the personal liability of directors to the
Company and its shareholders; (iv) amend the provision concerning
indemnification of officers and directors; and (v) add a provision
concerning factors that the Board of Directors may consider in business
combinations involving the Company.
The following discussion summarizes the material changes to the
Company's Charter that would be effected by adoption of the proposed
Amendments. This summary is qualified in its entirety by reference to the
text of the Company's proposed Fourth Amended and Restated Charter, a
complete copy of which is included as Appendix A to this Proxy Statement.
INCREASE IN AUTHORIZED COMMON STOCK
(PROPOSAL NUMBER 2)
The Board of Directors recommends that the shareholders adopt Proposal
Number 2, which would amend Article 5 of the Company's Charter to increase
the Company's authorized capital stock from 10,000,000 shares of Common
Stock to 25,000,000 shares of Common Stock. The purpose of the Amendment
is to provide additional shares of Common Stock for possible future
issuance.
As of April 24, 1998, there were 3,773,241 authorized shares of
Common Stock issued and outstanding. If all outstanding stock options and
warrants for the Company's Common Stock were exercised, plus all unvested
rights to options and restricted stock under certain employment agreements,
there would be approximately 5,603,887 shares of Common Stock issued and
outstanding as of April 24, 1998.
The Board of Directors believes that it is advisable to have
additional authorized shares of Common Stock available for possible future
stock splits and dividends, public or private offerings of Common Stock or
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<PAGE>
securities convertible into Common Stock, employee benefit plans, equity-based
acquisitions and other corporate purposes that might be proposed.
Authorized shares of Common Stock, or funds raised in a public or private
offering of shares, also may be used for acquisition opportunities. The
Company does not have any present plans to issue additional shares of
Common Stock.
All of the additional shares resulting from the increase in the
Company's authorized Common Stock would be of the same class, with the same
dividend, voting and liquidation rights, as the shares of Common Stock
presently outstanding. Shareholders have no preemptive rights to acquire
shares issued by the Company under its Charter and shareholders would not
acquire preemptive rights with respect to additional shares under the
proposed Amendment to the Company's Charter. Under some circumstances, the
issuance of additional shares of Common Stock could dilute the voting
rights, equity and earnings per share of existing shareholders.
If the proposed Amendment is adopted, the newly authorized shares
would be unreserved and available for issuance by the Company without
further shareholder authorization. Thus, such additional shares would
enable the Company, as the need may arise, to take timely advantage of
market conditions and the availability of favorable opportunities without
the delay and expense associated with holding a special meeting of
shareholders.
The proposed increase in authorized but unissued Common Stock could be
considered an anti-takeover measure because the additional authorized but
unissued shares of Common Stock could be used by the Board of Directors to
make a change in control of the Company more difficult. The Board's purpose
in recommending this proposal is not as an anti-takeover measure, but for
the reasons discussed above.
The first subparagraph of Paragraph 5, as amended, would read in its
entirety as follows:
GENERAL. The Corporation shall be authorized to issue
25,000,000 Common Shares. The Common Shares will have no par
value. The Common Shares will be equal in all respects. There
will be no preemptive rights, conversion rights, redemption
privileges or sinking funds with respect to the Common Shares.
Dividends on Common Shares may be paid if, as and when declared
by the Board of Directors out of funds legally available for
distributions and subject to the prior rights of holders of the
Preferred Shares, if any.
The proposed Charter also would eliminate the provisions contained in Article
5 with respect to the previously authorized Class A Preferred Stock and Class
B Preferred Stock. All of the issued and outstanding shares of Class A and
Class B Preferred Stock were converted into shares of Common Stock upon
consummation of the Company's initial public offering in January 1997.
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<PAGE>
Accordingly, there are no outstanding shares of Class A or Class B Preferred
Stock presently outstanding and the Company does not intend to issue
additional shares in the future. The deletion of the provision for the
Class A and Class B Preferred Stock is meant to conform the Charter to the
Company's current practices.
The affirmative vote of the holders of a majority of the shares
entitled to vote at the Annual Meeting of Shareholders is required to adopt
this proposed Amendment to the Company's Charter. For the purpose of
counting votes on this proposal, abstentions, broker non-votes and other
shares not voted have the same effect as a vote against the proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF THE INCREASE IN THE COMPANY'S
AUTHORIZED COMMON STOCK
AUTHORIZATION OF A CLASS OF PREFERRED STOCK
(PROPOSAL NUMBER 3)
The Board of Directors recommends that the shareholders adopt Proposal
Number 3, which would add to the Company's Charter a provision authorizing
the Board of Directors to issue up to 5,000,000 shares of preferred stock,
without additional shareholder authorization, with such relative rights and
preferences as may be established by resolution of the Board of Directors.
(See paragraph (c) of Article 5 of the proposed Charter included as Appendix
A.) The terms of the shares of Preferred Stock to be authorized, including
dividend or interest rates, conversion prices, voting rights, redemption
prices, maturity dates and similar matters would be determined by the Board
of Directors.
If Proposal Number 3 is adopted, the Company would be authorized to
issue, without further shareholder authorization, up to 5,000,000 shares of
Preferred Stock from time to time in one or more series. The Board of
Directors would be empowered to determine the designations and relative
voting, distribution, dividend, liquidation and other rights, preferences
and limitations of Preferred Stock, including, among other things: (i)
the designation of each class or series and number of shares in the class
or series; (ii) the dividend rights, if any, of the class or series; (iii)
the redemption provisions, if any, of the shares; (iv) the preference, if
any, to which any class or series would be entitled in the event of the
liquidation or distribution of the Company's assets; (v) the provisions of
a purchase, retirement or sinking fund, if any, provided for the redemption
of Preferred Stock; (vi) the rights, if any, to convert or exchange the
shares into or for other securities; (vii) the voting rights, if any (in
addition to any prescribed by law), of the holders of shares of the class
or series; (viii) the conditions or restrictions, if any, on specified
actions of the Company affecting the rights of the shares; and (ix) any
other preferences, privileges, powers, rights, qualifications, limitations
or restrictions of or on the class or series.
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<PAGE>
Shares of Preferred Stock, if and when issued, could have priority
over the Company's presently outstanding Common Stock as to dividends
and distribution of the Company's assets upon any liquidation, dissolution
or winding up of the Company.
It is impracticable to describe the transaction in which shares of
Preferred Stock would be issued because the Board of Directors has no
present plan or proposal to issue Preferred Stock.
The Board of Directors believes that the availability of Preferred
Stock would provide the Company with flexibility of action for possible
future financing transactions, acquisitions, employee benefit plans and
other corporate purposes. Such purposes might include meeting requirements
for working capital or capital expenditures through issuance of additional
shares. Authorization of Preferred Stock would permit the Board of Directors
to choose the exact terms of the class or series at the time of issuance to
respond promptly to investor preferences, developments in types of preferred
stock, market conditions and the nature of a specific transaction.
It may be advantageous in some cases to pay investors dividends on
equity rather than interest on debt. Preferred Stock would allow the
Company to offer equity that is potentially less dilutive of the relative
equity value of the holders of its Common Stock than would be the case if
additional shares of Common Stock were issued. Preferred Stock typically
does not enjoy dividend or capital appreciation growth corresponding to
growth in a corporation's earnings. In addition, Preferred Stock can be
subject to redemption, which could permit the Company to limit the dilutive
effect on the holders of Common Stock.
If Proposal Number 3 is adopted, no further authorization for the
issuance of Preferred Stock by shareholder vote would be required before
the issuance of shares of Preferred Stock by the Board of Directors. The
Board of Directors presently does not have any plan or proposal to issue
Preferred Stock. Opportunities may arise, however, that require prompt
action, such as properties or businesses becoming available for acquisition
or favorable market conditions existing for the sale of a particular type
of Preferred Stock. The delay and expense of seeking shareholder
authorization at the time of issuance could deprive the Company and its
shareholders of the ability to effectively benefit from such an opportunity.
Although the Board of Directors has no present plan or proposal to do
so, Preferred Stock could be used to discourage or impede an attempt to
obtain control of the Company by merger, tender offer, proxy contest or
other means, and could be used to inhibit the removal of incumbent
management. At this time, management of the Company is not aware of any
attempts to obtain control of the Company.
In connection with the proposed Amendment, a technical correction to
the Company's proposed Charter will be necessary. The correction is
summarized below.
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<PAGE>
PROVISIONS CONCERNING COMMON STOCK. The last sentence of paragraph
(a)(i) of Article 5 will be amended to provide:
Dividends on Common Shares may be paid if, as and when declared
by the Board of Directors out of funds legally available for
distributions and subject to the prior rights of holders of the
Preferred Shares, if any.
This sentence currently provides:
Dividends on Common Shares may be paid if, as and when declared
by the Board of Directors out of funds legally available for
distributions and subject to the prior rights of holders of the
Class A Preferred Shares, if any.
The Amendment is necessary to take into account the existence of the
proposed Preferred Stock.
The affirmative vote of the holders of a majority of the shares
entitled to vote at the Annual Meeting of Shareholders is required to adopt
this proposed Amendment to the Company's Charter. For the purpose of
counting votes on this proposal, abstentions, broker non-votes and other
shares not voted have the same effect as a vote against the proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF A CLASS OF PREFERRED STOCK
PROVISIONS CONCERNING BOARD OF DIRECTORS
(PROPOSAL NUMBER 4)
The Board of Directors recommends that the shareholders adopt Proposal
Number 4, which would add or amend several provisions concerning the Board
of Directors, all as described below.
NUMBER OF DIRECTORS. If Proposal Number 4 is adopted by the
shareholders, the following provision would be added as paragraph (a) of
Article 8 of the Company's proposed Charter:
(a) NUMBER OF DIRECTORS. The number of the Directors of
the Corporation shall be fixed from time to time by resolution
adopted by the affirmative vote of at least two-thirds (2/3) of
the entire Board of Directors but shall not be less than three.
The Tennessee Business Corporation Act (the "TBCA") provides that the
articles or bylaws of a Tennessee corporation may provide that the board of
directors has the power to fix or change the number of directors. Without
such a provision, only the shareholders may fix or change the number of
directors, unless the charter or bylaws of the corporation provide a range
for the number of directors (e.g., the board of directors may consist of
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<PAGE>
eight to 15 persons). In that situation, either the board or the
shareholders can fix the number within the range; however, only the
shareholders may change the range. At present, the Company's Charter does
not include such a provision. The Company's Bylaws provide that either the
shareholders or the Board of Directors may from time to time increase or
decrease the number of directors within the limits provided by law.
The Board of Directors believes that it is important that an insurgent
shareholder not be able, by simple majority vote, to increase the size of the
Board of Directors and "pack" the Board with its designees. To eliminate this
risk, many corporations have reserved to their boards of directors the power
to change the size of the board, often requiring the supermajority approval
of directors. Likewise, many corporations have reserved to their boards of
directors the power to fill vacancies (whether such vacancies arise as a
result of an increase in the size of the board or as a result of the
resignation, death, removal or incapacity of a director). For these reasons,
the Board of Directors has approved, and has recommended that the
shareholders of the Company adopt, new paragraph (a) of Article 8 of the
proposed Charter.
CLASSIFICATION OF DIRECTORS. The Company's Charter presently provides
that the Company's Board of Directors is divided into three classes.
Specifically, Article 8 of the Company's Charter currently provides:
Upon successful completion of an initial public offering of the
Corporation's Common Stock the directors of the Corporation
shall have staggered terms in accordance with Section 48-18-106
of the Tennessee Business Corporation Act. Commencing at the
first annual meeting of Shareholders after consummation of the
initial public offering of the Corporation's common stock, the
Board of Directors of the Company shall be divided into three
classes, each class to consist as nearly as possible of one-third
of the Directors. The term of office of one class of Directors
shall expire each year with the initial term of office of the
Class I Directors expiring at the 1998 annual meeting of
Shareholders; the initial term of office of the Class II
Directors expiring at the 1999 annual meeting of the
Shareholders; and the initial terms of office of the Class III
Directors expiring at the 2000 annual meeting of shareholders.
Commencing with the 1998 annual meeting of Shareholders, the
Directors of the class elected at each annual meeting of
Shareholders shall hold office for a term of three years.
The Board of Directors recommends for shareholder adoption that
Article 8 of the Company's Charter be amended to read as follows:
The Board of Directors shall be divided into three classes as
nearly equal in number as possible, with the term of office of
one class expiring each year. At each annual meeting of the
shareholders, the successors of the class of Directors whose term
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<PAGE>
expires at that meeting shall be elected to hold office for a
term expiring at the annual meeting of shareholders held in the
third year following the year of their election.
To help ensure continuity and stability of corporate management, a
substantial number of corporations have adopted a "classified" or
"staggered" board of directors. Typically, a classified board is divided
into three classes, each with a substantially equal number of directors.
Each class of directors serves a term of three years, with the term of one
class expiring each year. The TBCA expressly provides that a Tennessee
corporation may have a board of directors divided into two or three
classes, if the corporation's charter so provides.
Classified board provisions affect every election of directors and are
not triggered by the occurrence of a particular event. A classified board
can be an effective means of limiting an insurgent shareholder's ability to
affect a rapid change in management. With a classified board, at least two
annual meetings of shareholders generally are required to effect a change
in a majority of the board of directors. Such a delay may help ensure that
the board of directors, if confronted by a shareholder seeking "greenmail,"
a proxy contest or another extraordinary transaction, will have sufficient
time to review the proposal and explore alternatives. The Board of
Directors believes that the longer time required to elect a majority of a
classified board will help to assure the continuity and stability of the
Company's management and policies in the future, because a majority of the
directors at any given time will have prior experience as directors of the
Company. The Company has not experienced any significant problems to date
with the continuity and stability of the Company's management and policies.
The proposed Amendment does not constitute a significant change from
the Company's current Charter. Instead, it is intended as a clarification
of the Company's current practices.
SHAREHOLDER NOMINATIONS OF DIRECTORS. Proposal Number 4, if adopted
by the shareholders, would add to the Company's Charter new paragraph (c)
of Article 8. This provision would require all shareholder nominations of
directors to be delivered to the Company in writing at least 120 days before
the notice of an annual meeting of shareholders or, in the case of a special
meeting of shareholders at which a director or directors would be elected, at
least seven days after the notice of the special meeting. A nomination that
is not received before these deadlines would not be placed on the ballot.
The Board believes that advance notice of nominations by shareholders
would afford a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the
Board of Directors, would provide an opportunity to inform shareholders
about such qualifications. Although this nomination procedure would not
give the Board of Directors any power to approve or disapprove shareholder
nominations for the election of directors, the nomination procedure could
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have the effect of precluding a nomination for the election of directors at
a particular meeting if the proper procedures were not followed.
VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Proposal Number 4, if
adopted by the shareholders, also would add to the Company's Charter new
paragraph (d) of Article 8. This provision generally provides that,
subject to the rights of the holders of any series of preferred stock then
outstanding, any vacancy occurring in the Board of Directors caused by
resignation, removal, death, disqualification or other incapacity, and any
newly created directorships resulting from an increase in the number of
directors, shall be filled by a majority vote of directors then in office.
Furthermore, each director chosen to fill a vacancy or a newly created
directorship would hold office until the next election of directors by the
shareholders. However, when the number of directors is changed, any newly
created or eliminated directorships shall be so apportioned by the Board of
Directors among the classes as to make all classes as nearly equal in
number as possible. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
As with other Amendments contained in this Proposal Number 4, this
Amendment is intended to limit the ability of an insurgent shareholder to
effect a rapid change in the identities of the members of the Board of
Directors, thus helping to give the Company continuity and stability in
management.
REMOVAL OF DIRECTORS. Under the TBCA, directors can be removed with
or without cause, unless the corporation's charter provides that directors
may be removed only for cause. At present, the Company's Charter does not
limit the circumstances in which the shareholders of the Company may remove
directors. Accordingly, it presently is possible for shareholders to
remove all directors at the same time upon an affirmative vote, which would
in effect nullify the Company's provision for a classified board.
To secure the intended benefits of a classified board, the Board of
Directors believes that it is necessary to restrain the ability of an
insurgent shareholder to remove directors. Accordingly, Proposal Number 4
includes an Amendment to the Charter that would prohibit the removal of a
director without "cause," which is defined to mean: (i) the director whose
removal is proposed has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal;
(ii) the director has been adjudicated by a court of competent jurisdiction
to be liable for negligence or misconduct in the performance of the
director's duty to the Company in a matter of substantial importance to the
Company and that adjudication is no longer subject to a direct appeal; (iii)
the director has become mentally incompetent, whether or not so adjudicated,
which mental incompetency directly affects such person's ability as a director
of the Company; or (iv) the director's actions or failure to act are deemed by
the Board of Directors to be in derogation of the director's duties. (See
paragraph (e) of Article 5 of the proposed Charter included as Appendix A.)
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Proposed paragraph (e) of Article 8 also would include a provision
that the determination of whether "cause" is present shall be determined by
the affirmative vote of 75% of the outstanding shares entitled to vote in
the election of directors; provided, however, that if a class or series of
preferred stock is entitled to elect one or more directors, the
determination of whether cause for the removal of such directors is present
shall be determined by the affirmative vote of 75% of the outstanding
shares of such class or series of preferred stock. Furthermore, any action
to remove a director pursuant to (i) or (ii) above shall be taken within
one year of such conviction or adjudication.
LIMITATION OF PERSONAL LIABILITY. The TBCA provides that a Tennessee
corporation such as the Company may include in its charter a provision
eliminating, with certain exceptions, the personal liability of a director
to the corporation or its shareholders for monetary damages for breach of
the director's fiduciary duties as a director. However, monetary liability
may not be eliminated for (i) breaches of the director's duty of loyalty to
the corporation or its shareholders, (ii) acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law or
(iii) liability under Section 48-18-304 of the TBCA (which deals with
liability for unlawful dividends and other distributions). If Proposal
Number 4 is adopted by the Company's shareholders, a similar provision will
be added to the Company's Charter. (See Article 10 of the proposed Charter
included as Appendix A.)
The Board of Directors believes that this provision would help the
Company attract and retain qualified directors. Limiting the personal
liability of the Company's directors would help to minimize the pressures
on the Company's business leaders when the leaders are confronted with a
takeover bid. The fear of personal liability in such an instance could
cause the directors to not oppose a hostile bid for the Company when in
fact the directors' business judgment tells the directors that the bid
should not be approved. Accordingly, the Board of Directors believes that
limiting the personal liability of the Company's directors is in the best
interests of the Company and its shareholders.
The proposed Amendments contained in this Proposal Number 4 apply to
directors of the Company and, thus, directors of the Company may be deemed
to have an interest in adoption of Proposal Number 4.
The affirmative vote of the holders of a majority of the shares
entitled to vote at the Annual Meeting of Shareholders is required to adopt
this proposed Amendment to the Company's Charter. For the purpose of
counting votes on this proposal, abstentions, broker non-votes and other
shares not voted have the same effect as a vote against the proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF THE PROVISIONS CONCERNING BOARD OF DIRECTORS
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INDEMNIFICATION PROVISION IN CHARTER
(PROPOSAL NUMBER 5)
The Board of Directors recommends that the shareholders adopt Proposal
Number 5, which would revise the indemnification provision contained in the
Company's Charter. (See Article 9 of the proposed Charter included
as Appendix A.) The current provision in the Company's Charter provides
simply that nothing contained in the Charter shall be deemed to limit the
authority of the Company to indemnify or advance expenses to officers or
directors (and their estates, heirs and personal representatives) to the
fullest extent required or addressed by the laws of the state of Tennessee.
Proposal Number 5, if adopted by the shareholders, would add a
provision to the Company's Charter requiring the Company to indemnify
directors and executive officers of the Company to the full extent
permitted by law in connection with any actual or threatened action,
suit or proceeding, whether derivative or nonderivative. This provision
also would permit the Board of Directors to authorize the Company to
indemnify individuals who are not directors or executive officers of the
Company.
The indemnification provision in Proposal Number 5 applies to
directors and officers of the Company and, thus, directors and officers of
the Company may be deemed to have an interest in adoption of Proposal
Number 5. If the shareholders adopt the proposed Charter, shareholders may
be estopped from claiming that indemnification provided in accordance with
the Charter and the TBCA is incorrectly provided, although shareholders
would not be barred from challenging any particular indemnification as
being provided in violation of the Charter or the TBCA.
The Company intends to acquire directors' and officers' liability
insurance which may offset a portion of the costs involved in any
indemnification claim. To the extent obligations under indemnification
provisions exceed any proceeds of insurance (or if such coverage is
discontinued or not applicable), any such indemnification payments made by
the Company may have an adverse effect upon the Company's assets and
equity.
The Board of Directors believes that this provision serves the best
interests of the Company and its shareholders by strengthening the
Company's ability to attract and retain over time qualified directors and
officers. In recent years, there has been an increase in the number and
amount of claims brought against directors and officers of companies.
Although no director or officer of the Company has threatened to resign,
and, to the best of the Company's knowledge, no qualified person has
refused to serve on the Company's Board of Directors because of the threat
of personal liability, the Board believes that the proposed Amendment would
enhance the ability of the Company to attract and retain highly qualified
directors and officers in the future. In addition, threat of personal
liability may have an adverse effect on the decision-making process of
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directors and officers of the Company. The proposed indemnification
provision also may encourage such persons to make entrepreneurial decisions
that they believe to be in the best interests of the Company with less
threat of personal liability for monetary damages for breach of fiduciary
duty.
The affirmative vote of the holders of a majority of the shares
entitled to vote at the Annual Meeting of Shareholders is required to adopt
this proposed Amendment to the Company's Charter. For the purpose of
counting votes on this proposal, abstentions, broker non-votes and other
shares not voted have the same effect as a vote against the proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF INDEMNIFICATION PROVISION IN CHARTER
FACTORS CONSIDERED IN BUSINESS COMBINATIONS
(PROPOSAL NUMBER 6)
The Board of Directors recommends that the shareholders adopt Proposal
Number 6, which would add to the Company's Charter a provision that the Board
of Directors would not initiate, approve, adopt or recommend any offer of
any person or entity (other than the Company) to make a tender or exchange
offer for any equity security of the Company, or to engage in any "Business
Combination" (as defined below) unless and until the Board has evaluated the
offer and determined that it would be in compliance with all applicable laws
and that the offer is in the best interests of the Company and its
shareholders. (See Article 11 of the proposed Charter included as
Appendix A.)
In making its determination as to whether the transaction would be in
the best interests of the Company and its shareholders, the Board would be
required to consider all factors it deemed relevant, including but not
limited to: (i) the adequacy and fairness of the consideration to be
received by the Company and/or its shareholders, considering current and
historical trading prices of the Company's stock, the price that could be
achieved in a negotiated sale of the Company as a whole, past offers to
other corporations and the future prospects of the Company; (ii) the
possible social and economic impact of the proposed transaction on the
Company, its employees, customers and suppliers; (iii) the possible social
and economic impact of the proposed transaction on the communities in which
the Company and its subsidiaries operate or are located; (iv) the business
and financial conditions and earnings prospects of the offering party; (v)
the competence, experience and integrity of the offering party and its
management; and (vi) the intentions of the offering party regarding the use
of Company assets to finance the transaction.
A "Business Combination" generally is defined as any merger or
consolidation of the Company with or into another person or entity; the
sale, exchange, lease, mortgage, pledge, transfer or other disposition of
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all or substantially all of the Company's assets; the adoption of any plan
or proposal for the liquidation or dissolution of the Company; and certain
other events.
The TBCA provides that no corporation that has a class of securities
traded on a national securities exchange or The Nasdaq Stock Market (such
as the Company) or any of its officers or directors may be held liable for
failing to approve a business combination with an "interested shareholder,"
or the transaction in which the shareholder became an interested
shareholder, or seeking to enforce the provisions of the business
combination provisions of the TBCA or opposing any business combination
because of a good faith belief that the business combination adversely
would affect the corporation's employees, customers, suppliers, the
communities in which the corporation or its subsidiaries operate or are
located or any other relevant factor, if the corporation's charter allows
the directors to consider such factors in connection with a business
combination. Proposal Number 6 is intended to comply with this provision.
The Board of Directors believes that the proposed Amendment is in the
best interests of the Company and its shareholders because it would permit
the Board to consider various factors in addition to price which may be
important to the Company and its shareholders in evaluating various
transactions to which the Company would be a party. The Amendment could be
considered an anti-takeover measure because the Board could consider factors
other than price in evaluating an offer to merge, consolidate or purchase the
Company and determine that such other factors justify rejecting the offer.
The Board of Directors believes that the Company historically has had and will
continue to have a strong community presence and focus and that consideration
of the various factors listed in the Amendment would be appropriate.
The affirmative vote of the holders of a majority of the shares
entitled to vote at the Annual Meeting of Shareholders is required to adopt
this proposed Amendment to the Company's Charter. For the purpose of
counting votes on this proposal, abstentions, broker non-votes and other
shares not voted have the same effect as a vote against the proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF THE PROVISION REGARDING FACTORS TO
CONSIDER IN BUSINESS COMBINATIONS
ADOPTION OF STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998
(PROPOSAL NUMBER 7)
The Board of Directors recommends that the shareholders adopt Proposal
Number 7 concerning the following stock option and restricted stock plan.
INTRODUCTION AND PURPOSE OF THE PLAN
The Board of Directors firmly believes that the Company's long-term
interests are best advanced by aligning the interests of its key leaders
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and employees with the interests of its shareholders. Therefore, to
attract and retain directors, officers and other key employees of
exceptional abilities, and in recognition of the significant and
extraordinary contributions to the long-term performance and growth of the
Company made by these individuals, on April 13, 1998, the Board of
Directors adopted, subject to shareholder adoption, the Company's Stock
Option and Restricted Stock Plan of 1998 (the "Plan"). The Plan is
intended to supplement and continue forward the Company's other stock
incentive plans, including the Stock Option Plan (effective January 1,
1997) and the Outside Directors' Stock Option Plan (effective January 1,
1997) (collectively, the "Current Plans"). The Board of Directors believes
that the adoption and implementation of the Plan is in the best interests
of the Company and its shareholders and is advisable to make additional
shares available for stock option grants and restricted stock awards.
A maximum of 300,000 shares of Common Stock (subject to certain
antidilution adjustments) would be available for stock options under the
Plan. Shares to be issued under the Plan are expected to be authorized but
unissued shares. Because the specific participants and the market value of
Common Stock on the grant date presently cannot be determined, the benefits
or amounts that would be received by participants under the Plan in the
future are not determinable. Similarly, the benefits or amounts that would
have been received by participants had the Plan been in effect during the
last completed fiscal year are not determinable.
The Plan would not be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and would not be subject to
the Employee Retirement Income Security Act of 1974. The Company intends
to register shares covered by the Plan under the Securities Act of 1933, as
amended.
The following is a summary of the principal features of the Plan. The
summary is qualified in its entirety by reference to the terms of the Plan,
the complete text of which is attached as Appendix B to this Proxy
Statement.
PARTICIPANTS IN THE PLAN
Under the Plan (with certain limitations discussed below), corporate
directors (currently five individuals), executive officers, including those
listed in the summary compensation table presented in this Proxy Statement
(currently five individuals), and other full time employees (currently
approximately 16 individuals) of the Company would be eligible to receive
stock options. Other individuals eligible to participate in the Plan may
join the Company in the future. Directors, officers and key employees of
the Company may be deemed to have an interest in the Plan because they may
receive stock options under the Plan.
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ADMINISTRATION OF THE PLAN
The Plan would be administered by the Executive Management and
Compensation Committee of the Board of Directors (the "Compensation
Committee") or such other committee as the Board of Directors may
designate. The Compensation Committee is intended to consist of two or
more directors who are "non-employee directors," as that term is defined in
Rule 16b-3 under the Securities Exchange Act of 1934, as amended. In
addition, at least two of the directors on the Compensation Committee are
intended to be "outside directors," as that term is defined in the
regulations issued pursuant to Section 162(m) of the Code.
The Compensation Committee would make determinations, subject to the
terms of the Plan, as to the persons to receive stock options, the amount
of stock options to be granted to each person, the terms of each grant and
all other determinations necessary or advisable for administration of the
Plan. The Compensation Committee may amend the terms of stock options
granted under the Plan from time to time in a manner consistent with the
Plan; provided, that no amendment may be effective relating to a particular
stock option without the consent of the relevant participant, except to the
extent the amendment operates solely to the benefit of the participant.
The Compensation Committee would have full authority and discretion to
interpret the Plan.
The Board of Directors may terminate the Plan at any time and may from
time to time amend the Plan as it deems proper and in the best interests of
the Company, provided that no such amendment may impair any outstanding
stock option without the consent of the participant, except according to
the terms of the stock option. Subject to shareholder adoption, the Plan
takes effect as of April 13, 1998, and, unless earlier terminated by the
Board of Directors, the Plan would terminate on April 12, 2008. No award
may be made under the Plan after that date.
The Compensation Committee may provide that upon the occurrence of a
"change in control" of the Company (as defined in the Plan), any or all
stock options would become fully vested immediately, nonforfeitable or
otherwise no longer subject to any restriction.
STOCK OPTION AWARDS
INTRODUCTION. A stock option is the right to purchase a specified
number of shares of common stock for a stated price at specified times.
Certain stock options that may be granted to officers and employees under
the Plan may qualify as incentive stock options as defined in Section
422(b) of the Code ("Incentive Stock Options"). Other stock options would
not qualify as Incentive Stock Options within the meaning of Section 422(b)
of the Code ("Nonqualified Options"). The Company has granted Nonqualified
Options to its officers and key employees as the primary form of long-term,
equity-based incentive awards.
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STOCK OPTION GRANTS. The Compensation Committee would grant stock
options at any time before termination of the Plan according to its
terms. The Compensation Committee may grant options for any amount of
consideration, or no consideration, as may be determined by the
Compensation Committee. In general, the Compensation Committee expects
that the Company would receive no consideration upon the award of options
other than the services of the recipient. The Compensation Committee would
set forth the terms of individual grants of stock options in stock option
agreements. These stock option agreements would contain such terms,
conditions and restrictions consistent with the provisions of the Plan, as
the Compensation Committee determines to be appropriate. The restrictions
may include vesting requirements to encourage long-term contribution to the
Company.
In addition to the discretionary grants to executive officers and
other key employees, the Plan would provide for automatic grants of stock
options to non-employee directors. Except in limited circumstances, a
stock option to purchase 2,500 shares of stock would be granted
automatically on the date of the Company's 1998 Annual Meeting of
Shareholders and a stock option for an additional 2,500 shares of stock
would be granted automatically on the date of each successive annual
meeting to each director of the Company who is, at the close of each such
annual meeting, a non-employee director. In addition, each non-employee
director would, at the time of his or her initial election or appointment,
be granted a stock option to purchase 2,500 shares of stock. These stock
options would be granted at an option price equal to the fair market value
of the stock at the date of grant. Stock options granted to non-employee
directors would be treated as Nonqualified Options.
A stock option granted to a participant who, at the time of such
grant, owns, together with stock attributed to the participant under
Section 424(d) of the Code, more than 10% of the total combined voting
power of all classes of stock of the Company would not be designated as an
Incentive Stock Option unless the stock option agreement provides (i) an
exercise price equal to at least 110% of the market value of the stock, and
(ii) that the stock option may not be exercised after five years from the
date of grant.
The Company would not grant any participant in the Plan, with respect
to any calendar year, awards representing more than 50% of the total number
of shares of Common Stock available for awards under the Plan.
A participant may not transfer a stock option except by will or the
laws of descent and distribution, unless the Compensation Committee
otherwise consents or the terms of the option agreement otherwise provide.
EXERCISE PRICE AND PAYMENT. The per share price at which the
participant may exercise his or her option and purchase the underlying
shares would be determined by the Compensation Committee and, in the case
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of an Incentive Stock Option, would be a price at least equal to or greater
than the "Market Value" of the Company's stock on the date of grant.
"Market Value" is defined in the Plan to be the average of the highest and
lowest sales prices of the Company's Common Stock on the Nasdaq SmallCap
Market (or any successor exchange that is the primary stock exchange for
trading of common stock) on the date of grant, or if the Nasdaq SmallCap
Market (or any such successor) is closed on that date, the last preceding
date on which the Nasdaq SmallCap Market (or any such successor) was open
for trading and on which shares were traded. On April 24, 1998, the Market
Value of the Company's Common Stock was $__ per share. The Compensation
Committee presently does not anticipate granting any stock options at a price
less than Market Value.
When exercising all or a portion of a stock option, a participant may
pay the exercise price with cash or, with the consent of the Compensation
Committee, shares of the Company's Common Stock. If shares of stock are
used to pay the exercise price and the Compensation Committee consents, a
participant could use the value of shares received upon exercise for
further exercises in a single transaction. The Compensation Committee also
may authorize payment of all or a portion of the option price in the form
of a promissory note or installments on such terms as the Compensation
Committee may approve. The Board of Directors may restrict or suspend the
power of the Compensation Committee to permit such loans and require that
such loans be adequately secured.
TERM OF STOCK OPTIONS. The time period in which a participant is
permitted to exercise his or her stock option would be determined by the
Compensation Committee. However, the term of an Incentive Stock Option
would not exceed 10 years from the date of the grant and the term of a
Nonqualified Option would not exceed 15 years from the date of the grant.
In general, a stock option would no longer be exercisable at the end
of its stated term. However, if the participant ceases to be employed by
or a director of the Company for any reason other than death, disability,
termination for cause or other reason set forth in the stock option
agreement, then the stock option would expire after 90 days. The
Compensation Committee may permit a participant to exercise a stock option
for an extended period beyond the 90 days if (i) the participant retires
after age 62 or upon any other age determined by the Compensation Committee
("Normal Retirement"), (ii) the participant voluntarily terminates
employment with the written consent of the Compensation Committee after he
or she has attained 55 years of age and completed 10 years of service
("Early Retirement"), or (iii) the participant voluntarily terminates
employment and the Compensation Committee determines the termination to be
in the best interests of the Company ("Consensual Severance"). However, no
extension may extend beyond the earlier of either three years from the date
of termination or the date on which the option would expire by its terms.
A participant's ability to exercise a stock option would differ upon
the death, disability or termination for cause of the participant. If the
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participant dies, the stock option would expire in one year. If the
participant becomes disabled (as defined in the Plan), the stock option
would expire in one year from the date of disability. Finally, if the
participant is terminated for cause, the stock option would terminate and
the holder would forfeit all rights to exercise any outstanding options.
For federal income tax purposes, a participant would not recognize
income and the Company would not receive a deduction at the time an
Incentive Stock Option is granted. A participant exercising an Incentive
Stock Option would not recognize income at the time of the exercise. The
difference between the market value and the exercise price, however, would
be a tax preference item for purposes of calculating alternative minimum
tax. Upon sale of the stock, as long as the participant held the stock for
at least one year after the exercise of the stock option and at least two
years after the grant of the stock option, the participant's basis would
equal the exercise price and the participant would pay tax on the
difference between the sale proceeds and the exercise price as capital
gain. The Company would receive no deduction for federal income tax
purposes. If, before the expiration of either of the above holding
periods, the participant sold shares acquired under an Incentive Stock
Option, the tax deferral would be lost and the participant generally would
recognize compensation income equal to the difference between the exercise
price and the fair market value at the time of exercise. The Company would
then receive a corresponding deduction for federal income tax purposes.
Additional gains, if any, recognized by the participant would result in the
recognition of short- or long-term capital gain.
Federal income tax laws provide different rules for Nonqualified
Options. Under current federal income tax laws, a participant would not
recognize any income and the Company would not receive a deduction at the
time a Nonqualified Option is granted. If a Nonqualified Option is
exercised, the participant would recognize compensation income in the year
of exercise equal to the difference between the exercise price and the fair
market value on the date of exercise. The Company would receive a
corresponding deduction for federal income tax purposes. The participant's
tax basis in the shares acquired would be increased by the amount of
compensation income recognized. Sale of the stock after exercise would
result in recognition of short- or long-term capital gain or loss.
TAX BENEFIT RIGHTS
In addition to the authority to grant stock options under the Plan,
the Compensation Committee also could grant tax benefit rights, which would
be subject to such terms and conditions as the Committee determined
appropriate. The Company currently has no intention to grant such rights.
A tax benefit right is a cash payment received by a participant upon
exercise of a stock option. The amount of the payment would not exceed the
amount determined by multiplying the ordinary income realized by the
participant (and deductible by the Company) upon exercise of a Nonqualified
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Option, or upon a disqualifying disposition of an Incentive Stock Option,
by the maximum federal income tax rate (including any surtax or similar
charge or assessment) for corporations plus the applicable state and local
tax imposed on the exercise of the stock option or disqualifying
disposition. Unless the Compensation Committee provides otherwise, the net
amount of a tax benefit right, subject to withholding, could be used to pay
a portion of the exercise price. Tax benefit rights could be issued under
the Plan with respect to stock options granted not only under the Plan but
also with respect to existing or future stock options awarded under any
other plan of the Company that has been approved by the shareholders as of
the date of the Plan.
RESTRICTED STOCK AWARDS
Finally, the Plan would allow the Compensation Committee to award
restricted stock, subject to such terms and conditions that the
Compensation Committee from time to time determined. As with stock option
grants, the Compensation Committee would set forth the terms of individual
awards of restricted stock in restricted stock agreements. Restricted
stock granted by the Compensation Committee would vest in accordance with
restricted stock agreements. Unless the Compensation Committee provides
otherwise in a restricted stock agreement, if a participant's employment is
terminated during the restricted period set by the Compensation Committee
for any reason other than death, disability, retirement (as defined in the
Plan) or termination for cause, the participant's restricted stock would be
entirely forfeited. If the participant's employment terminates during the
restricted period by reason of death, disability or retirement, the
restrictions on the participant's shares would terminate automatically and
the restricted stock would vest as of the date of termination. If the
participant's employment is terminated for cause, the participant's
restricted stock automatically would be forfeited unless the Compensation
Committee and the Board determine otherwise.
Without Compensation Committee authorization, a recipient of
restricted stock would not be allowed to sell, exchange, transfer, pledge,
assign or otherwise dispose of the stock other than to the Company or by
will or the laws of descent and distribution. In addition, the
Compensation Committee could impose other restrictions on shares of
restricted stock. Holders of restricted stock would enjoy all other rights
of a shareholder with respect to restricted stock, including the right to
vote restricted shares at shareholders' meetings and the right to receive
all dividends paid with respect to shares of common stock. Any securities
received by a holder of restricted stock pursuant to a stock dividend,
stock split, recapitalization, merger, consolidation, combination or
exchange of shares would be subject to the same terms, conditions and
restrictions that are applicable to the restricted stock for which the
shares are received.
Generally, a participant would not recognize income upon the award of
restricted stock. However, a participant would be required to recognize
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compensation income on the value of restricted stock at the time the
restricted stock vests (when the restrictions lapse). At the time the
participant recognizes compensation income, the Company would be entitled
to a corresponding deduction for federal income tax purposes. If
restricted stock is forfeited by a participant, the participant would not
recognize income and the Company would not receive a deduction. Before the
lapse of restrictions, dividends paid on restricted stock would be reported
as compensation income to the participant and the Company would receive a
corresponding deduction.
A participant could, within 30 days after the date of an award of
restricted stock, elect to report compensation income for the tax year in
which the award of restricted stock occurs. If the participant makes such
an election, the amount of compensation income would be the value of the
restricted stock at the time of the award. Any later appreciation in the
value of the restricted stock would be treated as capital gain and realized
only upon the sale of the restricted stock. Dividends received after such
an election would be taxable as dividends and not treated as additional
compensation income. If, however, restricted stock is forfeited after the
participant makes such an election, the participant would not be allowed
any deduction for the amount earlier taken into income. Upon the sale of
restricted stock, a participant would realize capital gain (or loss) in the
amount of the difference between the sale price and the value of the stock
previously reported by the participant as compensation income.
Section 162(m) of the Code, which was adopted in 1993 and implemented
in phases through 1997, limits to $1 million the annual income tax
deduction that may be claimed by a publicly held corporation for
compensation paid to its chief executive officer and to the four most
highly compensated officers other than the chief executive officer.
Qualified "performance-based" compensation is exempt from the $1 million
limit and may be deducted even if other compensation exceeds $1 million.
The Plan is intended to provide performance-based compensation under
Section 162(m) to permit compensation associated with stock options and
restricted stock awarded under the Plan to be tax deductible while allowing,
as nearly as practicable, the continuation of the Company's preexisting
practices with respect to the award and taxation of stock options and
restricted stock.
Whenever stock options are issued or exercised under the Plan or upon
a disqualifying disposition of an Incentive Stock Option, the Company may,
if appropriate, withhold from any cash otherwise payable to the participant
or require the participant to remit to the Company an amount sufficient to
satisfy all applicable federal, state and local withholding taxes.
Withholding may be satisfied by withholding Common Stock to be received
upon exercise of a stock option or by delivery to the Company of shares of
previously owned Common Stock.
The affirmative vote of the holders of a majority of the shares of
common stock present in person or represented by proxy and entitled to vote
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on this proposal is required to adopt the Plan. For purposes of counting
votes on this proposal, abstentions, broker non-votes and other shares not
voted will have the same effect as votes against approval of the Plan.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ADOPTION OF THE STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998
APPROVAL OF A FORM OF INDEMNIFICATION AGREEMENT
FOR THE COMPANY'S OFFICERS AND DIRECTORS
(PROPOSAL NUMBER 8)
The Board of Directors recommends that the shareholders adopt Proposal
Number 8 concerning an indemnification agreement for the Company's officers
and directors. As an additional measure to strengthen the protection afforded
to the Company's officers and directors, the Board of Directors believes that
it is in the best interests of the Company to enter into an indemnification
agreement (the "Indemnification Agreement") with each of its officers and
directors (the "Executives"). The Company proposes to enter into
Indemnification Agreements in substantially the form attached to this Proxy
Statement as Appendix C to provide for the maximum indemnification allowed
under the laws of Tennessee and the Company's Charter.
Shareholder adoption of the Indemnification Agreement is not required
under the TBCA. Nevertheless, because the members of the Board of
Directors of the Company will be parties to the Indemnification Agreement,
and are therefore beneficiaries of the rights contained therein, it is
appropriate to submit the Indemnification Agreement to the shareholders for
adoption. If the form of Indemnification Agreement is adopted by the
Company's shareholders, it is anticipated that Indemnification Agreements
will be entered into with the Company's Executives promptly after the
Annual Meeting of Shareholders and that similar Indemnification Agreements
will be entered into with future Executives as are designated from time to
time by the Board of Directors.
The Board of Directors believes that the Indemnification Agreement
serves the best interests of the Company and its shareholders by
strengthening the Company's ability to attract and retain over time the
services of knowledgeable and experienced persons to serve as Executives
who, through their efforts and expertise, can make a significant
contribution to the success of the Company.
The Indemnification Agreements are intended to supplement the laws of
Tennessee, as well as other indemnification provisions contained in the
Company's Charter and bylaws.
Set forth below is a summary of certain key provisions of the
Indemnification Agreement. The summary is qualified in its entirety by
reference to the full text of the Indemnification Agreement set forth in
Appendix C to this Proxy Statement.
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First, the Indemnification Agreement provides that expenses incurred
by an Executive and subject to indemnification must be paid directly by the
Company or reimbursed to the Executive within five days after the receipt
of a written request of the Executive setting forth in reasonable detail
the amount requested and accompanied by copies of relevant invoices or
other documentation. An Executive's request for indemnification must be
accompanied by a signed certificate that the Executive in good faith
believes that he or she is entitled to indemnification in accordance with
the requirements of the Indemnification Agreement. If the Executive
certifies that the Executive in good faith believes that he or she is
entitled to indemnification under the Indemnification Agreement, the
Executive will be deemed to have met the necessary standard of conduct
unless and until it is determined by a final judgment or other final
adjudication that the Executive is not entitled to indemnification.
Second, the Indemnification Agreement provides for partial
indemnification of costs and expenses in the event that an Executive is not
entitled to full indemnification under the terms of the Indemnification
Agreement. Under the Indemnification Agreement, an Executive automatically
is entitled to indemnification for expenses incurred in successfully
defending against any claim, whether on the merits or otherwise.
Although the Indemnification Agreement is intended to indemnify an
Executive to the fullest extent allowed by law, the Indemnification
Agreement does not cover the following: (i) expenses or costs associated
with remuneration paid to the Executive in violation of law; (ii) any
judgment in which it is determined that the Executive's conduct was
knowingly fraudulent, deliberately dishonest or willful misconduct; (iii)
any judgment in which it is found that the Executive acted in bad faith, or
in conduct that the Executive did not reasonably believe to be in (in the
case of the Executive's conduct in an official capacity) or not opposed to
(in the case of the Executive's conduct in other than an official capacity)
the best interests of the Company or its shareholders, or that produced an
unlawful personal benefit; (iv) with respect to a criminal proceeding if
the Executive had no reasonable cause to believe that the Executive's
conduct was unlawful; (v) if a final decision by a court having
jurisdiction in the matter determines that such indemnification is not
lawful; or (vi) any Proceeding (as defined in the Indemnification
Agreement) initiated by the Executive against the Company or any director,
officer, employee, agent or fiduciary of the Company (in such capacity)
unless the Company has joined in or consented to the initiation of the
Proceeding or such Proceeding relates to the enforcement by the Executive
of the Executive's rights under the Indemnification Agreement.
An Executive's rights under the Indemnification Agreement are not
exclusive of any other rights that the Executive may have under the laws of
Tennessee, the Company's Charter or bylaws, any other agreement or any vote
of shareholders or the Board of Directors. The Indemnification Agreement
does prevent, however, double payment and specifically provides that if the
-23-
<PAGE>
Company pays an Executive pursuant to the Indemnification Agreement, the
Company will be subrogated to the Executive's rights to recover from third
parties.
The Indemnification Agreement is designed to provide the maximum
protection allowed by law. Although the enforceability of the provisions
of the Indemnification Agreement has not been tested in court and remains
subject to public policy considerations, the Board of Directors believes
that such provisions are permitted under the laws of Tennessee.
The Indemnification Agreement is intended to supplement the protection
from liability presently provided to Executives, in light of: (i) the
increasing hazard of litigation, and its related expense, directed against
officers and directors of publicly held companies; (ii) the decrease in
dollar amounts of insurance and the broadening of exclusions and increase
in deductibles under the officers' and directors' liability insurance
policies of many companies; and (iii) the potential inability to continue
to attract and retain qualified officers and directors in light of such
developments.
In the event that the Company is required under the Indemnification
Agreement to reimburse an Executive for a large damage award entered
against such individual, adoption of the Indemnification Agreement could
adversely affect the shareholders' holdings in the Company by reducing the
Company's equity. In addition, to the extent that the Company is required
to indemnify an Executive under the Indemnification Agreement for liability
in situations not covered by the Company's liability insurance, the
Company's obligation to pay such amounts of liability could adversely
affect the equity of the Company and therefore could be detrimental to its
shareholders.
The Company's Board of Directors believes that it is essential that
the Company provide the maximum possible protection to its Executives to be
able to continue to attract and retain qualified individuals to serve as
its business leaders. In light of these considerations, the Board of
Directors has determined that the Indemnification Agreement is reasonable,
fair and prudent to the Executives and the shareholders of the Company and
is necessary to promote and ensure the best interests of the Company and
its shareholders.
At present, there is no pending litigation or proceeding involving an
Executive of the Company where indemnification would be required or
permitted under the Indemnification Agreement, nor is the Board of
Directors of the Company aware of any threatened litigation or proceeding
which could result in a claim for indemnification. The Board of Directors
did not approve the Indemnification Agreement in response to any specific
resignation, threat of resignation or refusal to serve by any current or
potential Executive. If the Indemnification Agreement is adopted,
shareholders of the Company may be precluded in the future from challenging
the validity of the Indemnification Agreements.
-24-
<PAGE>
The affirmative vote of the holders of a majority of the shares of
common stock present in person or represented by proxy and entitled to vote
on this proposal is required to adopt the Indemnification Agreement. For
purposes of counting votes on this proposal, abstentions, broker non-votes
and other shares not voted will have the same effect as votes against
adoption of the Indemnification Agreement.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ADOPTION OF A FORM OF INDEMNIFICATION AGREEMENT FOR THE
COMPANY'S OFFICERS AND DIRECTORS
VOTING SECURITIES
Holders of record of Common Stock, at the close of business on April
24, 1998, will be entitled to notice of and to vote at the annual meeting
and any adjournment of the meeting. As of April 24, 1998, there were
3,773,241 shares of Common Stock outstanding, each having one vote on
each matter presented for shareholder action. Shares cannot be voted unless
the shareholder is present at the meeting or represented by proxy.
OWNERSHIP OF COMMON STOCK
The following table sets forth information as to each individual known
to the Company to have been the beneficial owner of more than 5% of the
Company's outstanding shares of Common Stock as of April 24, 1998:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
OF COMMON STOCK<F1><F2>
-----------------------------------
SOLE VOTING TOTAL
NAME AND ADDRESS AND DISPOSITIVE BENEFICIAL PERCENT
OF BENEFICIAL OWNER POWER OWNERSHIP<F2> OF CLASS
------------------- ---------------- ------------- --------
<S> <C> <C> <C>
Charles P. Torrey, Jr. 391,888 391,888 10.4%
280 Fort Sanders West Boulevard, Suite 200
Knoxville, Tennessee 37922
Richard S. Cooper 376,188 376,188 10.0%
280 Fort Sanders West Boulevard, Suite 200
Knoxville, Tennessee 37922
Robert L. Remine 382,590 382,590 10.1%
280 Fort Sanders West Boulevard, Suite 200
Knoxville, Tennessee 37922
-25-
<PAGE>
____________________________
<FN>
<F1> Based on information provided by each listed individual.
<F2> Includes warrants to purchase shares which currently are exercisable.
</FN>
</TABLE>
SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned as of April 24, 1998 by each of the Company's directors
and nominees for director, each of the named executive officers and all of
the Company's directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP OF COMMON STOCK<F1>
------------------------------
SOLE VOTING TOTAL
NAME OF AND DISPOSITIVE BENEFICIAL PERCENT
BENEFICIAL OWNER POWER<F2> OWNERSHIP<F2> OF CLASS
---------------- --------------- ---------- --------
<S> <C> <C> <C>
Charles P. Torrey, Jr. 391,888 391,888 10.4%
Richard S. Cooper 376,188 376,188 10.0%
Robert L. Remine 382,590 382,590 10.1%
John M. Johnston 60,000 60,000 1.6%
Michael W. Mooney 10,000 10,000 <F*>
Douglas A. Yoakley 4,770 4,770 <F*>
Kim A. Walbe 2,500 2,500 <F*>
All directors and executive
officers as a group 1,227,936 1,227,936 32.5%
- ----------------------
<FN>
<F*>Less than 1%.
<F1> The numbers of shares stated are based on information provided by each person listed and include shares personally owned
of record by the person and shares which, under applicable regulations, are considered to be otherwise beneficially owned
by the person.
<F2> These numbers include shares that may be acquired through the exercise of stock options granted under the Stock Option
Plan (effective January 1, 1997), the Outside Directors' Stock Option Plan (effective January 1, 1997) and the Company's
Common Stock purchase warrants programs within 60 days after April 24, 1998. The number of shares subject to stock options
exercisable within 60 days after April 24, 1998, for each listed person is shown below:
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<PAGE>
Mr. Torrey 72,738
Mr. Cooper 62,738
Mr. Remine 62,738
Mr. Johnston --
Mr. Mooney --
Mr. Yoakley 2,500
Mr. Walbe 2,500
All directors and executive
officers as a group 203,214
</FN>
</TABLE>
BOARD OF DIRECTORS
The Company's Board of Directors currently consists of five directors,
all of whom are standing for reelection. The Company's Third Amended and
Restated Charter and Sixth Amended and Restated Bylaws provide that the
Board of Directors shall be divided into three classes, with each class to
be as nearly equal in number as possible. The Company's Third Amended and
Restated Charter provides that at the Company's first annual meeting of
shareholders, the directors shall be placed into classes. Accordingly,
Class I directors will serve for a one-year term and may be nominated for
reelection at the annual meeting of shareholders in 1999; Class II
directors will serve for a two-year term and may be nominated for
reelection at the annual meeting of shareholders in 2000; and Class III
directors will serve for a three-year term and may be nominated for
reelection at the annual meeting of shareholders in 2001.
Biographical information as of March 31, 1998, is presented below for
each person who is nominated for election as a director at the annual
meeting of shareholders. Except as indicated, all have had the same
principal positions and employment for over five years.
NOMINEES FOR ELECTION TO TERMS EXPIRING IN 1999
RICHARD S. COOPER (age 48) has been a director of the Company since
its inception in 1990. Mr. Cooper, a founder of the Company, has served as
the Company's President since 1990. Mr. Cooper actively has participated
in the syndication, capital formation, investment and management of over
$50 million in oil and gas related programs for the Company. Mr. Cooper is
licensed to practice law in the State of Tennessee and, before 1991, practiced
business and real estate law in Knoxville, Tennessee.
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<PAGE>
DOUGLAS A. YOAKLEY (age 43), a certified public accountant, has been a
director of the Company since March 1997. Mr. Yoakley founded Pershing &
Yoakley & Associates, a multi-specialty public accounting firm with over
100 employees in three offices, including Knoxville and Chattanooga,
Tennessee and Clearwater, Florida. Mr. Yoakley is a member of the American
Institute of Certified Public Accountants and the Tennessee Society of
Certified Public Accountants. Mr. Yoakley serves as a director for The
Philadelphians, Inc., Healthcare Horizons, Inc., Camel Manufacturing, Inc.
and Clinical Laboratories, Inc.
NOMINEES FOR ELECTION TO TERMS EXPIRING IN 2000
ROBERT L. REMINE (age 49), a certified public accountant, has been a
director of the Company since its inception in 1990. Mr. Remine, a founder
of the Company, has served as the Company's Secretary and Treasurer since
1990. Mr. Remine actively has participated in the syndication, capital
formation, investment and management of over $50 million in oil and gas
related programs for the Company. Mr. Remine is responsible for overview
of all financial, tax and accounting matters of the Company. Mr. Remine is
a registered securities representative, principal, director and secretary
and treasurer of Equity Financial Corporation ("EFC"), a wholly owned
subsidiary of the Company. EFC is a member of the National Association of
Securities-Dealers and a registered broker-dealer with the Securities and
Exchange Commission and in the states of Tennessee, Alabama, Georgia,
Florida and Kentucky.
KIM A. WALBE (age 52) has been a director of the Company since March
1997. Mr. Walbe is an independent consultant supervising drilling and
completion of wells in West Virginia, Virginia and Kentucky. Mr. Walbe
prepares oil and gas reserve reports for wells in New York, Pennsylvania,
West Virginia, Ohio, Kentucky and Virginia. Mr. Walbe also is involved in
supervising acquisition quality control and interpretation of all forms of
electric log data, including deviated well data. Mr. Walbe functions as
well-site geologist in Kentucky, West Virginia and Virginia; evaluates
leases in Ohio, Virginia, Pennsylvania, West Virginia, New York and
Kentucky; interprets aerial photography and prepares geological structure
maps from interpretations; prepares lineation/fracture/borehole television
maps for Devonian Shale well site selection and prepares and delivers
testimony in oil and gas litigation as an expert witness. Mr. Walbe is an
Adjunct Professor of Geology at the University of Charleston. Mr. Walbe
also has been a contract consultant since 1985 to the Gas Research
Institute's Devonian Shale Program. Mr. Walbe is a member of the
Appalachian Geological Society, American Institute of Professional
Geologists, Society of Petroleum Engineers of A.I.M.E., Society of
Professional Well Log Analysts and American Society for Photogrammetry and
Remote Sensing.
-28-
<PAGE>
NOMINEES FOR ELECTION TO TERMS EXPIRING IN 2001
CHARLES P. TORREY, JR. (age 51) has been a director of the Company
since its inception in 1990. Mr. Torrey, a founder of the Company, has
served as the Company's Chief Executive Officer since 1990. Mr. Torrey
actively has participated in the syndication, capital formation, investment
and management of over $50 million in oil and gas related programs for the
Company. Mr. Torrey's current responsibilities for the Company include
interfacing with capital markets, development of corporate growth
strategies, capital formation and financial operations. Mr. Torrey is a
registered securities representative, principal, director and president of
EFC. In 1986, Mr. Torrey received his certification as a Certified
Financial Planner from the College of Financial Planning, Denver, Colorado.
SIGNIFICANT EMPLOYEES
JOHN M. JOHNSTON (age 38) joined the Company as a petroleum geologist
in December 1993 and became Vice President-Exploration and Development in
January of 1996. Mr. Johnston specializes in subsurface geological
analysis, reservoir engineering, wellsite geology, well completion design
and supervision and production maintenance. Mr. Johnston also manages the
use of advanced geologic (GeoGraphix) and reservoir engineering (GEMS)
computer programs. Before joining the Company, from 1987 through December
of 1993, Mr. Johnston served as manager of geology and reservoir
engineering for Halwell Company, Inc. of Marietta, Ohio and senior
geologist and project manager for Energy Omega, Inc. of Marietta, Ohio, an
affiliate of Halwell Company, Inc. From 1981 through 1986, Mr. Johnston
worked as a staff exploration geologist for Chevron U.S.A. and Gulf Oil
Corp. Mr. Johnston presently is working on his thesis in connection with a
Masters of Science Degree in Geology at the University of Cincinnati. Mr.
Johnston was awarded a Chevron Fellowship, was a Marathon Oil Scholar and
an Edmund J. James Scholar. Mr. Johnston is currently president of the
Ohio Geological Society and a member of the board of directors of the
Southeastern Ohio Oil and Gas Association. Mr. Johnston is a member of the
American Association of Petroleum Geologists, the Society of Professional
Well Log Analysts, the Ohio Geological Society and the Ohio Oil and Gas
Association.
MICHAEL W. MOONEY (age 41) joined the Company in November 1997 and is
responsible for coordinating all drilling and completion functions as well
as coordinating all production activities with respect to the Company's
operated wells. Mr. Mooney also is responsible for the general supervision
of the Company's personnel involved in the drilling, completion and
production functions of the Company. Mr. Mooney has 20 years of oil and
gas industry experience. Before joining the Company, Mr. Mooney served as
the head drilling and completion engineer for Penn Virginia Oil and Gas
Corp., where he was responsible for managing all phases of the drilling
programs, drilling an average of 75 wells per year.
-29-
<PAGE>
OBSERVER DESIGNATED BY REPRESENTATIVES
In January 1997 the Company completed an underwritten public offering
for shares of its Common Stock. Until January 1999, the Company is required
to allow an observer designated by the underwriters of the offering, which
must be acceptable to the Company, to attend all meetings of the Board of
Directors. The observer has no voting rights, is reimbursed for all out-
of-pocket expenses incurred in attending meetings and receives compensation
equal to that received by outside directors. The observer will be
indemnified by the Company against all claims, liabilities, damages, costs
and expenses arising out of his or her participation at Board of Directors
meetings. The underwriters have appointed Anthony B. Petrelli, senior vice
president of Neidiger/Tucker/Bruner, Inc. as the observer of meetings of the
Board of Directors. The Company has agreed, until the period ends in
January 1999, to hold meetings of its Board of Directors at intervals of
not less than 90 days.
BOARD COMMITTEES AND MEETINGS
The Company's Board of Directors has two standing committees: the
Audit Committee and the Compensation Committee.
AUDIT COMMITTEE. The Audit Committee recommends to the Board of
Directors the selection of independent accountants; approves the nature and
scope of services to be performed by the independent accountants and
reviews the range of fees for such services; confers with the independent
accountants and reviews the results of the annual audit; reviews with the
independent accountants the Company's internal auditing, accounting and
financial controls; and reviews policies and practices regarding compliance
with laws and conflicts of interest. Messrs. Yoakley and Walbe currently
serve on the Audit Committee and Mr. Remine serves on the Audit Committee
as a non-voting member. Mr. Yoakley is Chairman of the Audit Committee.
During 1997, the Audit Committee did not hold formal meetings, although it
conferred on a number of the matters listed above.
EXECUTIVE MANAGEMENT AND COMPENSATION COMMITTEE. The Compensation
Committee, formed on March 31, 1998, is responsible for recommending
individuals to serve as officers, reviewing and recommending to the Board
of Directors the timing and amount of compensation for the Chief Executive
Officer and other key employees, including salaries, bonuses and other
benefits. The Compensation Committee also is responsible for administering
the Company's stock option and other equity-based incentive plans,
recommending retainer and attendance fees for directors who are not
employees of the Company or any of its subsidiaries, reviewing for their
adequacy and competitiveness compensation plans and awards as they relate
to the Chief Executive Officer and other key employees and reviewing
management's recommended annual budget and the Company's strategic plans.
Messrs. Walbe and Yoakley currently serve on the Compensation Committee and
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<PAGE>
Mr. Torrey serves on the Compensation Committee as a non-voting member.
Mr. Walbe is Chairman of the Compensation Committee.
During the Company's last fiscal year, the Board of Directors held
three regular meetings. Each of the directors attended 75% or more of the
aggregate of (i) the total number of meetings of the Board of Directors and
(ii) the total number of meetings held by all committees of the Board of
Directors on which each served (during the periods that each served).
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a $2,500 annual
retainer fee. Directors who also are employees of the Company or its
subsidiary receive no annual retainer and are not compensated for
attendance at Board or committee meetings. The Company also reimburses
directors for expenses associated with attending Board and committee
meetings.
The Company has approved an Outside Directors' Stock Option Plan (the
"1997 Directors' Plan") pursuant to which directors who are not employees
of the Company may be granted stock options. Each outside director was
granted an option to purchase 2,500 shares of Common Stock (as adjusted for
stock splits) on the date of his initial appointment or election as a
director and an option to purchase 2,500 shares (as adjusted for stock
splits) annually on the date of each annual meeting after his appointment
or election. The per share exercise price of options granted to outside
directors is 100% of the market value of Common Stock on the date each
option is granted. The term of each option may not exceed 10 years. Options
were granted to all outside directors on March 3, 1997. Options to
purchase a maximum of 50,000 shares of Common Stock may be granted under
the 1997 Directors' Plan.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following Summary Compensation Table shows certain information
concerning the compensation earned during the fiscal year ended December
31, 1997, by the Chief Executive Officer of the Company and each executive
officer who earned in excess of $100,000 and who served in positions other
than Chief Executive Officer at the end of the last completed fiscal year:
-31-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- --------------
AWARDS
--------------
NUMBER
OF SHARES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS<F1> OPTIONS COMPENSATION<F2>
------------------ ---- -------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Charles P. Torrey, Jr. 1997 $180,000 $52,500 42,738 $6,052
Chairman, Chief
Executive Officer and
Director
Richard S. Cooper 1997 $180,000 $52,500 32,738 $5,166
President and
Director
Robert L. Remine 1997 $180,000 $52,500 32,738 $7,875
Secretary, Treasurer
and Director
__________
<FN>
<F1> Includes payments or accruals under the annual bonus program contained in each individual's employment agreement.
<F2> The compensation listed in this column for 1997 consisted of: (i) Company contributions to the accounts of the named
executive officers under the Company's simplified employee pension plan (SEP) as follows: $4,050 for Mr. Torrey,
$4,050 for Mr. Cooper and $4,050 for Mr. Remine; and (ii) payments made by the Company for the premiums on certain
life insurance policies as follows: $2,002 for Mr. Torrey, $1,116 for Mr. Cooper and $3,825 for Mr. Remine.
</FN>
</TABLE>
STOCK OPTIONS
The Company's stock option plans are administered by the Compensation
Committee of the Board of Directors which has authority to determine the
individuals to whom and the terms upon which options will be granted, the
number of shares to be subject to each option and the form of consideration
that may be paid upon the exercise of an option. The Board of Directors of
the Company makes recommendations of stock incentive grants which the
Compensation Committee will then consider.
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<PAGE>
The following tables set forth information regarding stock options
granted to and exercised by the named executive officers during the fiscal
year ended December 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES PRICE
OPTIONS IN FISCAL PER EXPIRATION
NAME GRANTED<F1><F2> YEAR SHARE DATE
- -------- ------------------- --------- -------- ------------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 42,738 27.1% $6.50-$8.00 1/24/02
Richard S. Cooper 32,738 20.2% $6.50-$8.00 1/24/02
Robert L. Remine 32,738 20.2% $6.50-$8.00 1/24/02
<FN>
<F1> Options granted during 1997 under the Company's general private Common Stock purchase warrant programs were granted for
a term of five years.
<F2> Options granted during 1997 under the Company's executive officer Common Stock purchase warrants program are exercisable
with respect to 25% of the shares beginning on the first anniversary of the date of grant and become exercisable in
cumulative 25% installments on each anniversary date thereafter with full vesting occurring on the fourth anniversary date
of the grant. All options were granted for a term of five years.
</FN>
</TABLE>
-33-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES<F1>
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 42,738 9,000 93,899 1,350
Richard S. Cooper 32,738 3,300 61,399 495
Robert L. Remine 32,738 11,000 93,899 1,650
__________________
<FN>
<F1> No named executive officer exercised any stock options in 1997.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
CHARLES P. TORREY, JR., RICHARD S. COOPER AND ROBERT L. REMINE. The
Company has entered into employment agreements with Charles P. Torrey, Jr.,
the Company's Chairman and Chief Executive Officer, Richard S. Cooper, the
Company's President, and Robert L. Remine, the Company's Secretary and
Treasurer. Each of these employment agreements became effective January 1,
1997, continues for an initial term of five years and is subject to
automatic annual renewal terms of one year each thereafter. Base salary
for each of the employment agreements is $180,000 per year, subject to an
annual increase of at least 6% per year plus any additional amount that the
Board of Directors may award. In addition, in each year in which the gross
working interest revenue of the Company increases by at least 20% over its
level in the preceding year, each of the employment agreements provides for
a yearly performance bonus equal to 25% of the executive officer's base
salary.
Under the employment agreements, Messrs. Torrey, Cooper and Remine
also are entitled to receive the following: a nonaccountable automobile
allowance of $1,000 per month and reimbursement of itemized fuel, cleaning
and related expenses; a life insurance policy in the face amount of
$500,000 (with the employee to name the beneficiary) provided the employee
is insurable at standard rates (and if extra premiums are incurred to
insure the life of the employee, the employee will be responsible for
-34-
<PAGE>
payment of such additional premiums or may accept such reduced death
benefit as may be purchased for the cost of standard premiums); medical,
health and hospitalization insurance as provided to other executive
officers; participation in any bonus or profit-sharing plan, qualified
salary deferral plan or pension plan now or in the future adopted by the
Company; three weeks paid vacation; and participation with the Company in
the drilling of Company oil and gas wells by giving the employee the option
to purchase a 1% carried working interest in any well drilled by the
Company (other than in connection with syndicated existing or future
drilling programs with affiliated entities for a price equal to 1% of the
completion costs for the well (thereby being carried by the Company through
the drilling and casing point).
In the event of Messrs. Torrey's, Cooper's or Remine's termination of
employment by the Company with or without cause, each is entitled to be
paid a severance allowance equal to 24 months' salary (less amounts
required to be withheld and deducted) plus any performance bonus, ratably
apportioned. In the event any of Messrs. Torrey, Cooper or Remine are
terminated without cause, such termination shall be preceded by 120 days
advance written notice. No advance written notice is required to be given
by the Company for a termination with cause.
Messrs. Torrey's, Remine's and Cooper's employment agreements each
contain confidentiality provisions (generally requiring that all the
Company's confidential and proprietary data be kept confidential) and
noncompetition provisions (generally providing that the employee will not
directly or indirectly compete with the Company during the term of
employment or for two years thereafter) for the benefit of the Company.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors was formed on
March 31, 1998. The full Board of Directors considered and voted upon
issues related to executive compensation during 1997. The philosophy and
policies described below were the philosophy and policies that the Board
considered during 1997 and are the bases from which the philosophy and
policies of the Compensation Committee will be developed in 1998. The
Compensation Committee will develop and recommend to the Board of Directors
the compensation policies of the Company. The Compensation Committee also
will administer the Company's compensation plans and recommend for approval
by the Board of Directors the compensation to be paid to the Chief Executive
Officer and, with the advice of the Board of Directors, the other executive
officers of the Company. The Compensation Committee consists of three
directors, two of whom are not current or former employees of the Company or
its subsidiary and one of whom is a non-voting member and the Company's Chief
Executive Officer.
-35-
<PAGE>
The basic compensation philosophy of the Board of Directors has been to
provide competitive salaries as well as competitive incentives to achieve
superior financial performance. The Company's executive compensation policies
are designed to achieve three primary objectives:
- Attract and retain well-qualified executives who will lead the
Company and achieve and inspire superior performance;
- Provide incentives for achievement of specific short-term
individual and corporate goals; and
- Align the interests of management with those of the shareholders
to encourage achievement of continuing increases in shareholder
value.
Executive compensation at the Company consists primarily of the
following components: base salary and benefits; amounts paid (if any) under
the annual bonus programs available to certain executive officers (see
below); and participation in the Company's stock option and equity-based
incentive plans. Each component of compensation is designed to accomplish
one or more of the three compensation objectives described above.
BASE SALARY
To attract and retain well-qualified executives, it has been the policy
of the Board of Directors to establish base salaries at levels and provide
benefit packages that the Company believes to be competitive. Base salaries
of executives may be determined in part by comparing each executive's
position with similar positions in companies of similar type, size and
financial performance. In general, the Board of Directors has targeted
salaries to be commensurate with base salaries paid for comparable positions
in comparable size companies. Other factors that have been considered by the
Board of Directors, and in the future may be considered by the Compensation
Committee, are the executive's performance, the executive's current
compensation and the Company's performance (determined by reference to growth
revenues from Company oil and gas reserves). The 1997 average base salary of
executives increased over the previous year's level as a result of a
combination of factors, including improved individual performance, improved
performance by the Company and increased responsibilities.
ANNUAL BONUS PROGRAM
To provide incentives and rewards for achievement of short-term goals,
the Company has entered into employment agreements with Messrs. Torrey,
Cooper, Remine and John M. Johnston, the Company's Vice President-Exploration
and Development, (the "Executives"). The employment agreements, in addition
to providing for employment and base salary, were designed to provide the
Executives with the opportunity for bonuses based on the performance of the
Company (the "Annual Bonus Program"). The Annual Bonus Program contained in
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<PAGE>
each employment agreement provides that in each year in which the Company's
gross working interest revenue increases by at least 20% compared to the level
in the preceding year, the Executives will receive a yearly performance bonus
equal to 25% of the executive's base salary. Payment of a bonus to the
Executives for a fiscal year under the Annual Bonus Program is entirely
contingent upon achievement of the performance levels established by the
Compensation Committee. Because the measure of corporate performance under the
Annual Bonus Program exceeded the targeted level for 1997, the Executives
received bonuses in the amount of 25% of their respective base salaries.
The Company also has entered into an employment agreement with Michael
W. Mooney, the Company's Chief Operating Officer. Under the terms of Mr.
Mooney's employment agreement, Mr. Mooney is entitled to receive a bonus of
5,000 shares of the Company's Common Stock if the Common Stock maintains a
trading price of $12 per share for 20 days and will receive an additional
5,000 shares of Common Stock if the Common Stock maintains a trading price
of $16 per share for 20 days.
DISCRETIONARY BONUS PLANS
In addition to bonuses paid based on corporate performance pursuant to
the Annual Bonus Program, the Company also may pay annual incentive bonuses
to employees based on individual performance goals. Bonuses based on
individual performance will be paid on a discretionary basis, but, generally,
only after the review and approval of the Compensation Committee.
STOCK OPTION PLANS
Awards under the Company's stock option plans are designed to
encourage long-term investment in the Company by participating executives,
more closely align executive and shareholder interests and reward
executives and other key employees for building shareholder value. The
Board of Directors believes stock ownership by management is beneficial
to all shareholders. It is anticipated that in 1998 the Compensation
Committee will administer all aspects of these plans and will review, modify
(to the extent appropriate) and take final action on any such awards.
Under the Company's plan that provides for awards of restricted stock,
which previously has been approved by the shareholders, the Compensation
Committee may grant to executives and other key employees shares of
restricted stock or rights to purchase stock at a price equal to the value
of the stock on the date of grant. These shares are subject to certain
restrictions that generally lapse over time.
Under the Company's Stock Option Plan (effective January 1, 1997),
which previously has been approved by the shareholders, the Compensation
Committee may grant to executives and other key employees options to
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purchase shares of stock. The Compensation Committee will review, modify
(to the extent appropriate) and take final action on the amount, timing,
price and other terms of all options granted to employees of the Company.
The Compensation Committee is entitled to grant Incentive Stock Options and
Nonqualified Options with an exercise price equal to the market price of
Common Stock on the date of the grant. Under the terms and conditions of
the plans, the Compensation Committee may, however, grant options with an
exercise price above or below the market price on the date of grant.
Under the Company's general private Common Stock purchase warrants
programs (the "General Warrants"), the Company has granted warrants to
officers and employees of the Company. The exercise price of the General
Warrants is $6.50 per warrant. The General Warrants may be exercised at
any time before January 24, 2002.
Under the Company's executive officer Common Stock purchase warrants
program (the "Executive Warrants"), the Company has granted warrants to
Messrs. Torrey, Cooper and Remine. The exercise price of the Executive
Warrants is $8.00 per warrant. The Executive Warrants may be exercised at
any time before January 24, 2002.
In determining the number of shares of restricted stock and/or the
number of options to be awarded to an executive, it is anticipated that the
Compensation Committee generally may consider the levels of responsibility
and compensation practices of similar companies. The Compensation Committee
also may consider the recommendations of management (except for awards to
the Chief Executive Officer), the individual performance of the executive and
the number of shares previously awarded to and exercised by the executive. As
a general practice, both the number of shares granted and their proportion
relative to the total number of shares granted increase in some proportion
to increases in each executive's responsibilities.
ISSUANCE OF NEW COMMON STOCK PURCHASE WARRANTS IN EXCHANGE FOR OUTSTANDING
COMMON STOCK PURCHASE WARRANTS
Effective April 7, 1997, the Board of Directors authorized the issuance
of General Warrants to certain officers and key personnel of the Company (the
"Holders"). These individuals were previously the owners of certain
unregistered common stock purchase warrants issued before the Company's
initial public offering (the "Unregistered Warrants"). According to their
terms, the Unregistered Warrants entitled the Holders to one share of Common
Stock per Unregistered Warrant. The exercise price was $5.00 per share, and
the Unregistered Warrants were exercisable until April 24, 1997.
The listed "ask" price on the SmallCap Stock Market of the Company's
Units (comprised of one share of Common Stock and one Series A common stock
purchase warrant) as of the close of the market on April 7, 1997 was $6.125.
The Holders agreed not to exercise their Unregistered Warrants at $5.00 per
share as of April 24, 1997, if the Company issued the General Warrants in
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exchange for the Unregistered Warrants. The General Warrants entitle the
Holders to purchase the same number of shares of Common Stock as under the
Unregistered Warrants, at an exercise price of $6.50 per share. The General
Warrants are exercisable until January 30, 2002. The Holders agreed to
exchange their Unregistered Warrants for the General Warrants as evidence of
their belief in the ability of management to enhance the stock value of the
Company. The Board of Directors determined that it was in the best interest
of the Company and the shareholders to issue the General Warrants to the
Holders in exchange for the Unregistered Warrants.
Pursuant to the April 7, 1997 Board of Directors authorizing resolution,
as of June 1, 1997, the Board of Directors issued the following General
Warrants to the Holders in exchange for surrender by the Holders of their
Unregistered Warrants. All of the following transactions were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME OF WARRANT HOLDER UNREGISTERED WARRANTS NEW WARRANTS
- ---------------------- --------------------- ------------
<S> <C> <C>
Charles P. Torrey, Jr. 2,978 2,978
Robert L. Remine 2,978 2,978
Richard S. Cooper 2,978 2,978
Derry M. Thompson 6,276 6,276
James T. McKay 2,440 2,440
</TABLE>
CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation is based upon the policies
and objectives discussed above.
Effective January 1, 1997, the Company executed an employment
agreement (the "Employment Agreement") with Mr. Torrey which provides for
his continued service to the Company through December 31, 2002 (with
evergreen provisions), as Chief Executive Officer. The Employment Agreement
also is described on page 28 of this Proxy Statement under the heading
"Employment Agreements and Termination of Employment and Change in Control
Arrangements."
Under the Employment Agreement, Mr. Torrey will receive a base
salary in 1998 of $190,800. This amount is subject to an annual increase of
at least 6% per year plus any additional amount that the Board of Directors
may award. Mr. Torrey is entitled to participate in the Annual Bonus Program
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and to receive fringe benefits similar to those provided to senior executives
of the Company through the term of the Employment Agreement and any renewal
period.
Mr. Torrey's annual incentive bonus under the Annual Bonus Program is
based upon the Company increasing its gross working interest revenues by
20% over the level reported for the prior fiscal year. Since the Company
achieved the target provided in the Employment Agreement, the Compensation
Committee approved a 1997 annual bonus for Mr. Torrey which represented 25%
of his earned salary.
In 1997, Mr. Torrey was awarded options to purchase an additional
42,738 shares of Common Stock.
During 1997, Mr. Torrey's base salary was commensurate with base
salaries paid by similar companies to chief executive officers. Due to the
Company's 1997 results, the Company believes that Mr. Torrey's salary and
bonus and his total compensation were commensurate with amounts paid to
chief executive officers by similar companies.
All actions of the Board of Directors attributable to 1997
compensation were unanimous.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, the Company received drilling advances from two
affiliated oil and gas partnerships for approximately $1.2 million. As of
December 31, 1997 approximately $40,000 was due from such affiliated
partnerships.
In its role as operator of the oil and gas wells owned by various
related partnerships, the Company charges a monthly wellhead and
administrative fee of between $100 and $300 for each producing well. These
fees totaled approximately $20,000 in 1997. In its role as general
partner of a partnership which owns the gas pipeline and gathering system,
the Company charges the partnership a management fee of $5,000 per month.
The Company believes that such fees are representative of the fair value of
the services provided.
On May 1, 1997, the Company acquired EFC, a Tennessee corporation
previously owned by Mr. Torrey, the Company's President, and Mr. Remine,
the Company's Secretary and Treasurer. EFC is an NASD-member broker-dealer.
The sale price for the acquisition was approximately $20,000 in cash plus 7%
of the gross commission generated by EFC (not to exceed 50% of the net income
of EFC). The acquisition was not a significant acquisition for the Company.
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The Company believes that the purchase price was representative of the fair
market value of the assets acquired.
EFC acts as placement agent for Company affiliated drilling partnerships.
The Company paid EFC approximately $10,000 in 1997 for costs associated with
program placement. The balance owed EFC was $77,800 as of December 31, 1997.
The Company believes that the cost for program placement is representative of
the fair market value of the services provided.
The Company, in its discretion and given the business environment existing
at the time, chose not to collect certain amounts due from partnerships
affiliated with the Company and also paid certain expenses due to third
parties on behalf of such partnerships. In 1997, the Company paid
approximately $80,000 on behalf of the partnerships. The Company is under no
legal or contractual obligation to continue this activity, and there is no
expectation that it will continue in future years.
The Company has adopted a policy concerning material loans and advances
(for amounts in excess of $1,000 outside the ordinary course of business) to
Company employees, officers and directors which provides that all such loans
or advances must be evidenced by a written loan agreement or promissory note,
must be on terms that are fair and advantageous to the Company and must be
approved by the Board of Directors. Furthermore, all transactions between the
Company and any affiliate of the Company must be on terms no less favorable
than could be obtained from an unaffiliated third party and must be approved
by a majority of the directors, including a majority of disinterested
directors.
Douglas A. Yoakley, a director of the Company, is a founder of
Pershing & Yoakley & Associates. Pershing & Yoakley & Associates, a public
accounting firm, provided consulting services to the Company during 1997.
The Company paid $75,175 to Pershing & Yoakley & Associates in 1997.
Kim A. Walbe, a director of the Company, is an independent consultant
in the oil and gas industry. Walbe & Associates provided consulting services
to the Company during 1997. The Company paid $44,750 to Walbe & Associates in
1997.
In the Company's primary fields of operations in southeastern Ohio
substantially all the Company's completed wells are connected to the
Company's gas gathering system (the "Ohio Gas Gathering System") which
collects gas from wells in the field, sends it through compressor stations
to enhance transportability and delivers it to pipelines. Much of the Ohio
Gas Gathering System is owned by ESI Pipeline Operating L.P., an affiliate of
the Company (the "Pipeline Operating Partnership"). The Company, for its own
account and on behalf of the affiliated drilling partnerships it manages, has
entered into a gas servicing agreement (the "Gas Servicing Agreement") with
the Pipeline Operating Partnership pursuant to which all natural gas produced
from wells connected to the Ohio Gas Gathering System is purchased by the
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Pipeline Operating Partnership and subsequently resold. The price received by
the Company for its natural gas is a function of what the Pipeline Operating
Partnership sells it for on the market (the "Adjusted Gas Price Spread"). The
Gas Servicing Agreement provides for natural gas purchased from the Company
and Affiliated Drilling Partnerships on a "net back" basis. As of December
31, 1997, the Adjusted Gas Price Spread with respect to the Gas Servicing
Agreement ranged from approximately $0.45 per Mcf to $0.48 per Mcf where no
compression is used.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who beneficially own more than 10% of the outstanding
shares of Common Stock, to file reports of ownership and changes in
ownership of shares of Common Stock with the Securities and Exchange
Commission. Directors, officers and greater than 10% beneficial owners are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) reports they file. Based on its
review of the copies of such reports received by it, or written
representations from certain reporting persons that no reports on Form 5
were required for those persons for the 1997 fiscal year, the Company
believes that its officers and directors complied with all applicable
filing requirements during the Company's last fiscal year, except that Mr.
Torrey filed late one report involving two transactions; Mr. Remine filed
late three reports involving six transactions; Mr. Cooper filed late one
report involving one transaction; Mr. Yoakley filed late one report
involving one transaction; and Mr. Mooney filed late one report covering
one transaction.
SELECTION OF AUDITORS
The Board of Directors has reappointed the firm of Plante & Moran, LLP
as independent auditors of the Company for the current fiscal year.
Plante & Moran, certified public accountants, has audited the
financial statements of the Company and its subsidiaries for the fiscal
year ended December 31, 1997. Representatives of Plante & Moran, LLP are
expected to be present at the annual meeting, will have an opportunity to
make a statement if they desire to do so and are expected to be available
to respond to appropriate questions from shareholders.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1999 annual
meeting of shareholders must be received by the Company not later than
December 31, 1998, to be considered for inclusion in the proxy statement
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<PAGE>
and form of proxy relating to that meeting. Shareholder proposals should be
made in accordance with Securities and Exchange Commission Rule 14a-8 and
should be addressed to the attention of the Secretary of the Company, 280
Fort Sanders West Boulevard, Suite 200, Knoxville, Tennessee 37922.
SOLICITATION OF PROXIES
Solicitation of proxies will be made initially by mail. In addition,
directors, officers and employees of the Company and its subsidiaries may
solicit proxies by telephone or facsimile or personally without additional
compensation. Proxies may be solicited by nominees and other fiduciaries
who may mail materials to or otherwise communicate with the beneficial
owners of shares held by them. The Company will bear all costs of
solicitation of proxies, including the charges and expenses of brokerage
firms, banks, trustees or other nominees for forwarding proxy materials to
beneficial owners. The Company has engaged Corporate Investor
Communications, Inc. at an estimated cost of $9,000, plus expenses and
disbursements, to assist in solicitation of proxies.
INCORPORATION BY REFERENCE
This Proxy Statement incorporates by reference the information
included in Item 8 ("Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure") of the Company's Annual Report on
Form 10-KSB which was filed with the Securities and Exchange Commission on
March 31, 1998.
By Order of the Board of Directors
Robert L. Remine, SECRETARY AND TREASURER
April 30, 1998
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[ENERGY SEARCH INCORPORATED LOGO]
280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922
<PAGE>
APPENDIX A
FOURTH AMENDED AND RESTATED CHARTER
OF
ENERGY SEARCH, INCORPORATED
Pursuant to the provisions of Section 48-20-107 of the Tennessee
Business Corporation Act, the undersigned Corporation hereby submits this
Fourth Amended and Restated Charter and states as follows:
1. NAME. The name of the Corporation is Energy Search,
Incorporated.
2. ADDRESS. The complete address of the principal office of the
Corporation is: 280 Fort Sanders West Boulevard, Suite 200, Knoxville, Knox
County, Tennessee 37922.
3. REGISTERED AGENT. The complete name and address of the
registered agent of the Corporation is: Robert L. Remine, 280 Fort Sanders
West Boulevard, Suite 200, Knoxville, Knox County, Tennessee 37922.
4. AMENDMENTS. This Fourth Amended and Restated Charter contains
the following amendments to the Original Charter, as amended: (1)
paragraphs (a) and (b) of Article 5 have been amended in certain technical
respects, (2) paragraph (c) of Article 5 has been added, (3) paragraph (a)
of Article 8 has been added, (4) paragraph (b) of Article 8 has been added,
(5) paragraph (c) of Article 8 has been added, (6) paragraph (d) of Article
8 has been added, (7) paragraph (e) of Article 8 has been added, (8)
Article 9 has been amended, (9) Article 10 has been added and (10) Article
11 has been added. The foregoing amendments required shareholder approval
and were duly adopted by the shareholders of the Corporation on June 17,
1998.
5. CAPITAL STOCK. Following is the description of the authorized
capital stock of the Corporation:
(a) COMMON STOCK
(i) GENERAL. The Corporation shall be authorized to issue
25,000,000 Common Shares. The Common Shares will have no par
value. The Common Shares will be equal in all respects. There
will be no preemptive rights, conversion rights, redemption
privileges or sinking funds with respect to the Common Shares.
Dividends on Common Shares may be paid if, as and when declared
by the Board of Directors out of funds legally available for
distributions and subject to the prior rights of holders of the
Preferred Shares, if any.
<PAGE>
(ii) VOTING RIGHTS. Holders of Common Shares will be
entitled to one vote for each issued and outstanding share held
of record at each meeting of Common Shareholders. There will be
no cumulative voting for the election of Directors.
(iii) LIQUIDATION. In any liquidation or distribution
of assets of the Corporation, whether voluntary or involuntary,
holders of the Common Shares will be entitled to receive pro rata
the assets remaining after creditors have been paid in full and
holders of the Corporation's Preferred Shares, if any, have
received their full liquidation preferences.
(b) PREFERRED STOCK. The Board of Directors is expressly
authorized at any time, and from time to time, to provide for the
issuance of up to 5,000,000 shares of preferred stock in one or more
series, each with such voting powers, full or limited, or without
voting powers, and with such designations, preferences and relative,
participating, conversion, optional or other rights, and such
qualifications, limitations or restrictions thereof, as shall be
stated in the resolution or resolutions providing for the issue
thereof adopted by the Board of Directors, and as are not stated
in these Articles, or any amendments thereto, including (but without
limiting the generality of the foregoing) the following:
(i) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the Board of Directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by action of the Board of
Directors.
(ii) The dividend rate or rates on the shares of such series
and the relation which such dividends shall bear to the dividends
payable on any other class of capital stock or on any other
series of preferred stock, the terms and conditions upon which
and the periods in respect of which dividends shall be payable,
whether and upon what conditions such dividends shall be
cumulative and, if cumulative, the date or dates from which
dividends shall accumulate.
(iii) Whether the shares of such series shall be
redeemable, and, if redeemable, whether redeemable for cash,
property or rights, including securities of any other
corporation, and whether redeemable at the option of the holder
or the Corporation or upon the happening of a specified event,
the limitations and restrictions with respect to such redemption,
the time or times when, the price or prices or rate or rates at
which, the adjustments with which and the manner in which such
shares shall be redeemable, including the manner of selecting
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<PAGE>
shares of such series for redemption if less than all shares are
to be redeemed.
(iv) The rights to which the holders of shares of such
series shall be entitled, and the preferences, if any, over any
other series (or of any other series over such series), upon the
voluntary or involuntary liquidation, dissolution, which rights
may vary depending on whether such liquidation, dissolution,
distribution or winding up is voluntary or involuntary, and, if
voluntary, may vary at different dates.
(v) Whether the shares of such series shall be subject to
the operation of a purchase, retirement or sinking fund and, if
so, whether and upon what conditions such fund shall be
cumulative or noncumulative, the extent to which and the manner
in which such fund shall be applied to the purchase or redemption
of the shares of such series for retirement or to other
corporation purposes and the terms and provisions relative to the
operation thereof.
(vi) Whether the shares of such series shall be convertible
into or exchangeable for shares of any other class or of any
other series of any class of capital stock of the Corporation,
and, if so convertible or exchangeable, the price or prices or
the rate or rates of conversion or exchange and the method, if
any, of adjusting the same, and any other terms and conditions of
such conversion or exchange.
(vii) The voting powers, full and/or limited, if any, of
the shares of such series, and whether and under what conditions
the shares of such series (alone or together with the shares of
one or more other series having similar provisions) shall be
entitled to vote separately as a single class, for the election
of one or more additional Directors of the Corporation in case of
dividend arrearages or other specified events, or upon other
matters.
(viii) Whether the issuance of any additional shares of
such series, or of any shares of any other series, shall be
subject to restrictions as to issuance, or as to the powers,
preferences or rights of any such other series.
(ix) Any other preferences, privileges and powers and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as
the Board of Directors may deem advisable and as shall not be
inconsistent with the provisions of these Articles.
6. FOR PROFIT CORPORATION. The Corporation is for profit.
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7. PURPOSES. The purpose of the Corporation is to explore,
prospect, drill for, produce, market, sell, and deal in and with petroleum,
mineral animal, vegetable, and other oils, asphaltum, natural gas,
gasoline, naphthalene, hydrocarbons, oil shales, sulfur, salt, clay, coal,
minerals, mineral substances, metals, ores of every kind or other mineral
or non-mineral, liquid, solid, or volatile substances and products,
by-products, combinations and derivatives thereof, and to buy, lease, hire,
contract for, invest in, and otherwise acquire, and to own, hold, maintain,
equip, operate, manage, mortgage, create security interests in, deal in and
with, and to sell, lease, exchange, and otherwise dispose of oil gas,
mineral, and mining lands, wells, mines, quarries, rights, royalties,
overriding royalties, oil payments, and other oil, gas, and mineral
interests, claims, locations, patents, concessions, easements,
rights-of-way, franchises, real and personal property, and all interests
therein, tanks, reservoirs warehouses storage facilities, elevators,
terminals, markets, docks, piers, wharves, dry-docks, bulkheads,
pipelines pumping stations, tank cars, trains, automobiles, trucks, cars
tankers, ships, tugs, barges, boats, vessels, aircraft, and other vehicles,
crafts, or machinery for use on land, water, or air, for prospecting,
exploring, and drilling for, producing, gathering, manufacturing, refining,
purchasing, leasing, exchanging, or otherwise acquiring, selling,
exchanging, trading for, or otherwise disposing of such mineral and
non-mineral substances; and to do engineering and contracting and to
design, construct, drill, bore, sink, develop, improve, extend, maintain,
operate, and repair wells, mines, plants, works, machinery, appliances,
rigging, casing, tools, storage, and transportation lines and systems for
this Corporation and other persons, associations, or corporations. To
establish and maintain a drilling business with authority to own and
operate drilling rigs, machinery, tools, or apparatus necessary in the
boring or otherwise sinking of wells for the production of oil, gas, or
water; to construct or acquire by lease or otherwise and to maintain and
operate pipelines for the conveyance of oil and natural gas, oil storage
tanks and reservoirs, and tank cars of all kinds tank steamers, and other
vessels, wharves, docks, warehouses, storage houses, loading racks, and all
other convenient instrumentalities for the shipping and transportation of
crude or refined petroleum or natural gas and all other volatile, solid, or
liquid mineral substances in any and all forms; to manufacture, buy, sell,
lease, let, and hire machines and machinery, equipment tools, implements,
and appliances, and all other property, real and personal, useful or
available in prospecting for an in producing, transporting, storing,
refining, or preparing for market, petroleum and natural gas and all other
volatile and mineral substances and their products and by-products and of
all articles and materials in any way resulting from or connected
therewith; to purchase, lease construct, or otherwise acquire, exchange,
sell, let, or otherwise dispose of, own, maintain, develop, and improve any
and property, real or personal, plants, refineries, factories, warehouses,
stores, and buildings of all kinds useful in connection with the business
of the Corporation including the drilling for oil and gas wells or mining
in any manner or by any method permitted by law on such real property; and
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to conduct any other business enterprises not contrary to the laws of the
state of Tennessee.
8. DIRECTORS. Members of the Board of Directors of the Corporation
shall be selected, replaced, and removed as follows:
(a) NUMBER OF DIRECTORS. The number of the Directors of the
Corporation shall be fixed from time to time by resolution adopted by
the affirmative vote of at least two-thirds (2/3) of the entire Board
of Directors but shall not be less than three.
(b) CLASSIFICATION. The Board of Directors shall be divided
into three classes as nearly equal in number as possible, with the
term of office of one class expiring each year. At each annual
meeting of the shareholders, the successors of the class of Directors
whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of shareholders held in the
third year following the year of their election.
(c) NOMINATIONS OF DIRECTOR CANDIDATES.
(i) Nominations of candidates for election for Directors of
the Corporation at any meeting of shareholders called for
election of Directors (an "Election Meeting") may be made by the
Board of Directors or by any shareholder entitled to vote at such
Election Meeting.
(ii) Nominations made by the Board of Directors shall be
made at a meeting of the Board of Directors, or by written
consent of the Directors in lieu of a meeting, not less than 20
days prior to the date of the Election Meeting, and such
nominations shall be reflected in the minute books of the
Corporation as of the date made.
(iii) Any shareholder who intends to make a nomination
at the Election Meeting shall deliver, not less than 120 days
prior to the date of the Election Meeting in the case of an
annual meeting, and not more than 7 days following the date of
notice of the meeting in the case of a special meeting, a notice
to the Secretary of the Corporation setting forth (A) the name,
age, business address and residence address of each nominee
proposed in such notice; (B) the principal occupation or
employment of each such nominee; (C) the number of shares of
capital stock of the Corporation which are beneficially owned by
each such nominee; (D) a statement that each such nominee is
willing to be nominated; and (E) such other information
concerning each such nominee as would be required under the rules
of the Securities and Exchange Commission in a proxy statement
soliciting proxies for the election of such nominees.
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(iv) If the chairman of the Election Meeting determines that
a nomination was not made in accordance with the foregoing
procedures, such nomination shall be void and, upon the
chairman's instruction, all votes cast in favor of a person so
nominated shall be disregarded.
(d) VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any series of preferred stock then
outstanding, any vacancy occurring in the Board of Directors caused by
resignation, removal, death, disqualification, or other incapacity,
and any newly created directorships resulting from an increase in the
number of Directors, shall be filled by a majority vote of Directors
then in office, whether or not a quorum. Each Director chosen to fill
a vacancy or a newly created directorship shall hold office until the
next election of Directors by the shareholders. When the number of
Directors is changed, any newly created or eliminated directorships
shall be so apportioned by the Board of Directors among the classes as
to make all classes as nearly equal in number as possible. No
decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
(e) REMOVAL. Any Director may be removed from office at any
time, but only for cause, and only if removal is approved as set forth
below.
Except as may be provided otherwise by law, cause for removal
shall be construed to exist only if: (i) the Director whose removal is
proposed has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct
appeal; (ii) such Director has been adjudicated by a court of
competent jurisdiction to be liable for negligence or misconduct in
the performance of his duty to the Corporation in a matter of
substantial importance to the Corporation and such adjudication is no
longer subject to direct appeal; (iii) such Director has become
mentally incompetent, whether or not so adjudicated, which mental
incompetency directly affects his ability as a Director of the
Corporation; or (iv) such Director's actions or failure to act are
deemed by the Board of Directors to be in derogation of the Director's
duties.
9. INDEMNIFICATION. Directors of the Corporation shall be
indemnified as of right to the fullest extent now or hereafter permitted by
law in connection with any actual or threatened civil, criminal,
administrative or investigative action, suit or proceeding (whether brought
by or in the name of the Corporation, a subsidiary, or otherwise) arising
out of their service as a Director or in any other capacity to the
Corporation or a subsidiary, or to another organization at the request of
the Corporation or a subsidiary. Persons who are not Directors of the
Corporation may be similarly indemnified in respect of such service to the
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extent authorized at any time by the Board of Directors of the Corporation.
The Corporation may purchase and maintain insurance to protect itself and
any such Director or other person against any liability asserted against
him and incurred by him in respect of such service whether or not the
Corporation would have the power to indemnify him against such liability by
law or under the provisions of this paragraph. The provisions of this
Article 9 shall be applicable to actions, suits or proceedings, whether
arising from acts or omissions occurring before or after the adoption
hereof, and to Directors and other persons who have ceased to render such
service, and shall inure to the benefit of the heirs and personal
representatives of the Directors, and other persons referred to in this
paragraph.
10. LIMITATION OF DIRECTOR LIABILITY. No Director of the Corporation
shall be personally liable to the Corporation or its shareholders for
monetary damages for breach of the Director's fiduciary duty. However,
this Article 10 shall not eliminate or limit the liability of a Director
for any breach of duty, act or omission for which the elimination or
limitation of liability is not permitted by the Tennessee Business
Corporation Act, as amended from time to time. No amendment, alteration,
modification or repeal of this Article 10 shall have any effect on the
liability of any Director of the Corporation with respect to any act or
omission of such Director occurring prior to such amendment, alteration,
modification or repeal.
11. BUSINESS COMBINATIONS. The Board of Directors shall not
initiate, approve, adopt, or recommend any offer of any party other than
the Corporation to make a tender or exchange offer for any equity security
of the Corporation, or to engage in any Business Combination, as defined in
paragraph (b) below, unless and until it shall have first evaluated the
proposed offer and determined in its judgment that the proposed offer would
be in compliance with all applicable laws. In evaluating a proposed offer
to determine whether it would be in compliance with law, the Board of
Directors shall consider all aspects of the proposed offer, including the
manner in which the offer is proposed to be made, the documents proposed
for the communication of the offer, and the effects and consequences of the
offer if consummated, in light of the laws of the United States of America
and affected states and foreign countries. In connection with this
evaluation, the Board may seek and rely upon the opinion of independent
legal counsel, and may test the legality of the proposed offer in any
state, federal or foreign court or before any state, federal or foreign
administrative agency which may have jurisdiction. If the Board of
Directors determines in its judgment that a proposed offer would be in
compliance with all applicable laws, the Board of Directors shall then
evaluate the proposed offer and determine whether the proposed offer is in
the best interests of the Corporation and its shareholders, and the Board
of Directors shall not initiate, approve, adopt or recommend any such offer
which in its judgment would not be in the best interests of the Corporation
and its shareholders.
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(a) FACTORS. In evaluating a proposed offer to determine
whether it would be in the best interests of the Corporation and its
shareholders, the Board of Directors shall consider all factors which
it deems relevant including:
(i) The adequacy and fairness of the consideration to be
received by the Corporation and its shareholders under the
proposed offer, taking into account the trading price of the
Corporation's stock immediately prior to the announcement of the
proposed offer, the historical trading prices of the
Corporation's stock, the price that might be achieved in a
negotiated sale of the Corporation as a whole, premiums over the
trading price of their securities which have been proposed or
offered to other companies in the past in connection with similar
offers, and the future prospects of the Corporation;
(ii) The possible social and economic impact of the proposed
offer and its consummation on the Corporation and its employees,
customers and suppliers;
(iii) The possible social and economic impact of the
proposed offer and its consummation on the communities in which
the Corporation and its subsidiaries operate or are located;
(iv) The business and financial conditions and earning
prospects of the offering party, including, but not limited to,
debt service and other existing or likely financial obligations
of the offering party;
(v) The competence, experience and integrity of the
offering party and its management; and
(vi) The intentions of the offering party regarding the use
of the assets of the Corporation to finance the transaction.
(b) DEFINITION OF BUSINESS COMBINATION. For purposes of this
Article, the term "Business Combination" shall mean:
(i) Any merger or consolidation of the Corporation with or
into another person or entity;
(ii) The sale, exchange, lease, mortgage, pledge, transfer
or other disposition (in a single transaction or a series of
related transactions) of all or substantially all of the assets
of the Corporation;
(iii) The adoption of any plan or proposal for the
liquidation or dissolution of the Corporation;
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(iv) Any transactions or series of related transactions
having, directly or indirectly, the same effect as any of the
foregoing;
(v) Any agreement, contract or other arrangement providing
for any of the transactions described in this definition of
Business Combination.
12. This Fourth Amended and Restated Charter supersedes the original
Charter of the Corporation and all prior amendments and restatements
thereto.
DATED this ______ day of _____________, 1998.
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APPENDIX B
ENERGY SEARCH, INCORPORATED
STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998
SECTION 1
ESTABLISHMENT OF PLAN; PURPOSE OF PLAN
1.1 ESTABLISHMENT OF PLAN. The Company hereby establishes the Stock
Option and Restricted Stock Plan of 1998 (the "PLAN") for its directors,
corporate and Subsidiary officers and other key employees. The Plan
permits the grant or award of Options, Restricted Stock and Tax Benefit
Rights.
1.2 PURPOSE OF PLAN. The purpose of the Plan is to provide
directors, officers and key employees of the Company and its Subsidiaries
with an increased incentive to make significant contributions to the
long-term performance and growth of the Company and its Subsidiaries, to
join the interests of directors, officers and key employees with the
interests of the Company's shareholders through the opportunity for
increased stock ownership and to attract and retain directors, officers and
key employees. The Plan is further intended to provide flexibility to the
Company in structuring long-term incentive compensation to best promote the
foregoing objectives. Within that context, the Plan is intended to provide
performance-based compensation under Section 162(m) of the Code and shall
be interpreted, administered and amended if necessary to achieve that
purpose.
SECTION 2
DEFINITIONS
The following words have the following meanings unless a different
meaning is plainly required by the context:
2.1 "Act" means the Securities Exchange Act of 1934, as amended.
2.2 "Board" means the Board of Directors of the Company.
2.3 Unless otherwise defined in the grant or agreement applicable to
an Incentive Award, "Change in Control" means (a) the failure of the
Continuing Directors at any time to constitute at least a majority of the
members of the Board; (b) the acquisition by any Person other than an
Excluded Holder of beneficial ownership (within the meaning of Rule 13d-3
issued under the Act) of 20% or more of the outstanding Common Stock or the
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combined voting power of the Company's outstanding securities entitled to
vote generally in the election of directors; (c) the approval by the
shareholders of the Company of a reorganization, merger or consolidation,
unless with or into a Permitted Successor; or (d) the approval by the
shareholders of the Company of a complete liquidation or dissolution of the
Company or the sale or disposition of all or substantially all of the
assets of the Company other than to a Permitted Successor.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means the Executive Management and Compensation
Committee of the Board or such other committee as the Board shall designate
to administer the Plan. The Committee shall consist of at least two
members of the Board who shall be "Non-Employee Directors" as defined below
and "outside directors" as defined in the regulations issued under Section
162(m) of the Code.
2.6 "Common Stock" means the Common Stock of the Company, no par
value.
2.7 "Company" means Energy Search, Incorporated, a Tennessee
corporation, and its successors and assigns.
2.8 "Competition" means participation, directly or indirectly, in the
ownership, management, financing or control of any business that is the
same as or similar to the present or future businesses of the Company or
any Subsidiary. Such participation may be by way of employment, consulting
services, directorship or officership. Ownership of less than 3% of the
shares of any corporation whose shares are traded publicly on any national
or regional stock exchange or over the counter shall not be deemed
Competition.
2.9 "Consensual Severance" means the voluntary termination of all
employment by the Participant with the Company or any of its Subsidiaries
that the Committee determines to be in the best interests of the Company.
2.10 "Continuing Directors" mean the individuals constituting the
Board as of the date this Plan was adopted and any subsequent directors
whose election or nomination for election by the Company's shareholders was
approved by a vote of 3/4 of the individuals who are then Continuing
Directors, but specifically excluding any individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as the term is used in Rule 14a-11 of Regulation 14A
issued under the Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board.
2.11 "Early Retirement" means the voluntary termination of all
employment by a Participant with the written consent of the Committee after
the Participant has attained 55 years of age and completed 10 years of
service with the Company or any of its Subsidiaries.
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2.12 "Employee Benefit Plan" means any plan or program established by
the Company or a Subsidiary for the compensation or benefit of employees of
the Company or any of its Subsidiaries.
2.13 "Excluded Holder" means (a) any Person who at the time this Plan
was adopted was the beneficial owner of 20% or more of the outstanding
Common Stock; or (b) the Company, a Subsidiary or any Employee Benefit Plan
of the Company or a Subsidiary or any trust holding Common Stock or other
securities pursuant to the terms of an Employee Benefit Plan.
2.14 "Incentive Award" means the award or grant of a Option,
Restricted Stock or Tax Benefit Right to a Participant pursuant to the
Plan.
2.15 "Market Value" shall equal the mean of the highest and lowest
sales prices of shares of Common Stock on the Nasdaq SmallCap Market (or
any successor exchange that is the primary stock exchange for trading of
Common Stock) on the date of grant, or if the Nasdaq SmallCap Market (or
any such successor) is closed on that date, the last preceding date on
which the Nasdaq SmallCap Market (or any such successor) was open for
trading and on which shares of Common Stock were traded.
2.16 "Non-Employee Director" shall have the meaning set forth in Rule
16b-3 under the Act as in effect from time to time.
2.17 "Normal Retirement" means the voluntary termination of all
employment by a Participant after the Participant has attained 62 years of
age, or such other age as shall be determined by the Committee in its sole
discretion or as otherwise may be set forth in the Incentive Award
agreement or other grant document with respect to a Participant and a
particular Incentive Award.
2.18 "Option" means the right to purchase Common Stock at a stated
price for a specified period of time. For purposes of the Plan, an Option
may be either an incentive stock option within the meaning of Section
422(b) of the Code or a nonqualified stock option.
2.19 "Participant" means a director, corporate officer or any key
employee of the Company or its Subsidiaries who is granted an Incentive
Award under the Plan.
2.20 "Permitted Successor" means a company which, immediately
following the consummation of a transaction specified in clauses (c) and
(d) of the definition of "Change in Control" above, satisfies each of the
following criteria: (a) 50% or more of the outstanding common stock of the
company and the combined voting power of the outstanding securities of the
company entitled to vote generally in the election of directors (in each
case determined immediately following the consummation of the applicable
transaction) is beneficially owned, directly or indirectly, by all or
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substantially all of the Persons who were the beneficial owners of the
Company's outstanding Common Stock and outstanding securities entitled to
vote generally in the election of directors (respectively) immediately
before the applicable transaction; (b) no Person other than an Excluded
Holder beneficially owns, directly or indirectly, 20% or more of the
outstanding common stock of the company or the combined voting power of the
outstanding securities of the company entitled to vote generally in the
election of directors (for these purposes the term Excluded Holder shall
include the company, any subsidiary of the company and any employee benefit
plan of the company or any such subsidiary or any trust holding common
stock or other securities of the company pursuant to the terms of any such
employee benefit plan); and (c) at least a majority of the board of
directors is comprised of Continuing Directors.
2.21 "Person" has the same meaning as set forth in Sections 13(d) and
14(d)(2) of the Act.
2.22 "Restricted Period" means the period of time during which
Restricted Stock awarded under the Plan is subject to restrictions. The
Restricted Period may differ among Participants and may have different
expiration dates with respect to shares of Common Stock covered by the same
Incentive Award.
2.23 "Restricted Stock" means Common Stock awarded to a Participant
pursuant to Section 6 of the Plan.
2.24 "Subsidiary" means any company or other entity of which 50% or
more of the outstanding voting stock or voting ownership interest is
directly or indirectly owned or controlled by the Company or by one or more
Subsidiaries of the Company.
2.25 "Tax Benefit Right" means any right granted to a Participant
pursuant to Section 7 of the Plan.
2.26 "Total Disability" means that the Participant, for physical or
mental reasons, is unable to perform the essential functions of his or her
duties for the Company for 120 consecutive days, or 180 days during any 12-month
period.
SECTION 3
ADMINISTRATION
3.1 POWER AND AUTHORITY. The Committee shall administer the Plan.
Except as limited in this Plan, the Committee shall have full power and
authority to interpret the provisions of the Plan and Incentive Awards
granted under the Plan, to supervise the administration of the Plan and the
Incentive Awards granted under the Plan and to make all other
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determinations considered necessary or advisable under the Plan. All
determinations, interpretations and selections made by the Committee
regarding the Plan shall be final and conclusive. The Committee shall hold
its meetings at such times and places as it deems advisable. Action may be
taken by a written instrument signed by all of the members of the
Committee, and any action so taken shall be fully as effective as if it had
been taken at a meeting duly called and held. The Committee may delegate
recordkeeping, calculation, payment and other ministerial administrative
functions to individuals designated by the Committee, who may be employees
of the Company or its Subsidiaries.
3.2 GRANTS OR AWARDS TO PARTICIPANTS. In accordance with and subject
to the provisions of the Plan, the Committee shall have the authority to
determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as are consistent with the terms of the Plan,
including, without limitation, the authority to: (a) determine whether and
when Incentive Awards will be granted, the persons to be granted Incentive
Awards, the amount of Incentive Awards to be granted to each person and the
terms of the Incentive Awards to be granted; (b) determine and amend
vesting schedules, if any; (c) permit delivery or withholding of stock in
payment of the exercise price or to satisfy tax withholding obligations;
and (d) waive any restrictions or conditions applicable to any Incentive
Award. Incentive Awards shall be granted or awarded by the Committee, and
Incentive Awards may be amended by the Committee consistent with the Plan,
provided that no such amendment may become effective without the consent of
the Participant, except to the extent that the amendment operates solely to
the benefit of the Participant.
3.3 INDEMNIFICATION OF COMMITTEE MEMBERS. Neither any member or
former member of the Committee nor any individual to whom authority is or
has been delegated shall be personally responsible or liable for any act or
omission in connection with the performance of powers or duties or the
exercise of discretion or judgment in the administration and implementation
of the Plan. Each person who is or shall have been a member of the
Committee shall be indemnified and held harmless by the Company from and
against any cost, liability or expense imposed or incurred in connection
with such person's or the Committee's taking or failing to take any action
under the Plan. Each such person shall be justified in relying on
information furnished in connection with the Plan's administration by any
appropriate person or persons.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section
4.3 of the Plan, a maximum of 300,000 shares of Common Stock shall be
available for Incentive Awards under the Plan. Such shares may be
authorized but unissued shares.
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4.2 LIMITATION UPON INCENTIVE AWARDS. No Participant shall be
granted, during any calendar year, Incentive Awards with respect to more
than 50% of the total number of shares of Common Stock available for
Incentive Awards under the Plan set forth in Section 4.1 of the Plan,
subject to adjustment as provided in Section 4.3 of the Plan.
4.3 ADJUSTMENTS. If the number of shares of Common Stock outstanding
changes by reason of a stock dividend, stock split, recapitalization,
merger, consolidation, combination, exchange of shares or any other change
in the corporate structure or shares of the Company, the aggregate number
and class of shares available for grants or awards under the Plan, together
with Option prices, award limits and other appropriate terms of this Plan,
shall be appropriately adjusted. No fractional shares shall be issued
pursuant to the Plan, and any fractional shares resulting from adjustments
shall be eliminated from the respective Incentive Award, with an
appropriate cash adjustment for the value of any Incentive Awards
eliminated. If an Incentive Award is canceled, surrendered, modified,
expires or is terminated during the term of the Plan but before the
exercise or vesting of the Incentive Award in full, the shares subject to
but not purchased or retained by the Participant under such Incentive Award
shall be available for other Incentive Awards. If shares subject to and
otherwise deliverable upon the exercise of an Incentive Award are
surrendered to the Company in connection with the exercise or vesting of an
Incentive Award, the surrendered shares subject to the Incentive Award
shall be available for other Incentive Awards.
SECTION 5
OPTIONS
5.1 GRANT.
(a) OFFICERS AND EMPLOYEES. Except as set forth below for
Non-Employee Directors, a Participant may be granted one or more Options
under the Plan. Options shall be subject to such terms and
conditions, consistent with the other provisions of the Plan, as shall
be determined by the Committee in its sole discretion. The Committee
may vary, among Participants and among Options granted to the same
Participant, any and all of the terms and conditions of Options
granted under the Plan. Subject to the limitation imposed by
Section 4.2 of the Plan, the Committee shall have complete discretion
in determining the number of Options granted to each Participant. The
Committee may designate whether or not an Option is to be considered
an incentive stock option as defined in Section 422(b) of the Code.
(b) NON-EMPLOYEE DIRECTORS. Subject to the limitation imposed
by Section 4.2 and the adjustments imposed by Section 4.3, an Option
to purchase 2,500 shares of Common Stock shall be granted
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automatically on the date of the Company's 1998 Annual Meeting of
Shareholders and an Option to purchase an additional 2,500 shares of
common Stock shall be granted automatically on the date of each
successive annual meeting thereafter to each director of the Company
who is, at the close of each such annual meeting, a Non-Employee
Director. In addition, each Non-Employee Director shall at the time
of his or her initial election or appointment be granted an Option to
purchase 2,500 shares of Common Stock. Options shall be granted at an
option price equal to the fair market value of the Common Stock at the
date of grant of the Option. Options granted to Non-Employee
Directors shall not be treated as incentive stock options under
Section 422(b) of the Code.
5.2 OPTION AGREEMENTS. Each Option shall be evidenced by an Option
agreement containing such terms and conditions, consistent with the
provisions of the Plan, as the Committee from time to time determines. To
the extent not covered by the Option agreement, the terms and conditions of
this Section 5 shall govern.
5.3 OPTION PRICE. The per share Option price shall be determined by
the Committee. The per share Option price of any Option intended to qualify
as an incentive stock option under Section 422(b) of the Code shall be
equal to or greater than 100% of the Market Value on the date of grant.
The date of grant of an Option shall be the date the Option is authorized
by the Committee or a future date specified by the Committee as the date
for issuing the Option.
5.4 MEDIUM AND TIME OF PAYMENT. The exercise price for each share
purchased pursuant to an Option granted under the Plan shall be payable in
cash or, if the Committee consents, in shares of Common Stock (including
Common Stock to be received upon a simultaneous exercise). The time and
terms of payment may be amended before or after exercise of an Option (a)
by the Committee in its sole discretion, if the terms of such amendment are
more favorable to the Participant, or (b) in all other cases, by the
Committee with the consent of the Participant. The Committee may from time
to time authorize payment of all or a portion of the Option price in the
form of a promissory note or installments according to such terms as the
Committee may approve. The Board may restrict or suspend the power of the
Committee to permit such loans and may require that adequate security be
provided.
5.5 OPTIONS GRANTED TO TEN PERCENT SHAREHOLDERS. No Option granted
to any Participant who at the time of such grant owns, together with stock
attributed to such Participant under Section 424(d) of the Code, more than
10% of the total combined voting power of all classes of stock of the
Company or any of its Subsidiaries may be designated as an incentive stock
option, unless (a) such Option provides an exercise price equal to at least
110% of the Market Value of the Common Stock, and (b) the exercise of the
Option after the expiration of five years from the date of grant of the
Option is prohibited by its terms.
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5.6 LIMITS ON EXERCISABILITY. Options shall be exercisable for such
periods and upon such conditions as may be fixed by the Committee. Options
intended to qualify as incentive stock options shall have terms not to
exceed 10 years from the grant date. Other options shall have terms not to
exceed 15 years from the grant date. The Committee may in its discretion
require a Participant to continue service with the Company and its
Subsidiaries for a certain length of time prior to an Option becoming
exercisable and may eliminate such delayed vesting provisions. The
Committee also may vary, among Participants and among Options granted to
the same Participant, any and all of the terms and conditions of Options
granted under the Plan.
5.7 TRANSFERABILITY.
(a) GENERAL. Unless the Committee otherwise consents or unless
the terms of the Option agreement provide otherwise, no Option granted
under the Plan may be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than by will or by the laws
of descent and distribution.
(b) OTHER RESTRICTIONS. The Committee may impose such
restrictions on any shares of Common Stock acquired pursuant to the
exercise of an Option under the Plan as it deems advisable, including,
without limitation, restrictions intended to assure compliance with
applicable federal or state securities laws.
5.8 TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) GENERAL. If a Participant ceases to be employed by or a
director of the Company or one of its Subsidiaries for any reason
other than the Participant's death, Total Disability, termination for
cause or any additional provision as determined by the Committee, the
Participant may exercise an Option for a period of 90 days after such
termination of employment or directorship, but only to the extent the
Participant was entitled to exercise the Option on the date of
termination and would be entitled to exercise the Option if employed
(or serving as a director) at the date of exercise, unless the
Committee otherwise consents or the terms of the Option agreement
provide otherwise. For purposes of the Plan, the following shall not
be deemed a termination of employment: (i) a transfer of employment
among the Company and its Subsidiaries; (ii) a leave of absence, duly
authorized in writing by the Company, for military service or for any
other purpose approved by the Company if the period of such leave does
not exceed 90 days; (iii) a leave of absence in excess of 90 days,
duly authorized in writing by the Company, provided the employee's
right to reemployment is guaranteed either by statute or contract; or
(iv) a termination of employment with continued service as an officer
or director. For purposes of the Plan, termination of employment
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shall be considered to occur on the date on which the employee is no
longer obligated to perform services for the Company or any of its
Subsidiaries and the employee's right to reemployment is not
guaranteed either by statute or contract, regardless of whether the
employee continues to receive compensation from the Company or any of
its Subsidiaries after such date.
(b) DEATH. If a Participant dies either while an employee or
director of the Company or one of its Subsidiaries, or dies after
termination of employment or directorship other than for cause and
other than as a result of voluntary termination but during the time
when the Participant could have exercised an Option under the Plan,
the Option issued to such Participant shall be exercisable by the
personal representative of such Participant or other successor to the
interest of the Participant for a period of one year after the
Participant's death, but only to the extent that the Participant was
entitled to exercise the Option on the date of death or termination of
employment or directorship, whichever first occurred, and would be
entitled to exercise the Option if employed at the date of exercise,
unless the Committee otherwise consents or the terms of the Option
agreement provide otherwise.
(c) TOTAL DISABILITY. If a Participant ceases to be an employee
or a director of the Company or one of its Subsidiaries due to the
Participant's Total Disability, the Participant may exercise an Option
for a period of one year following such termination of employment, but
only to the extent the Participant was entitled to exercise the Option
on the date of such event, unless the Committee otherwise consents or
the terms of the Option agreement provide otherwise.
(d) ADDITIONAL PROVISIONS IN OPTION AGREEMENTS. The Committee
may, in its sole discretion, provide by resolution or by including
provisions in any Option agreement entered into with a Participant
that the Participant may exercise any outstanding options upon
termination due to Early Retirement, Normal Retirement or Consensual
Severance for a period of time after such termination as may be
determined by the Committee, PROVIDED that (i) such period may not
extend beyond the earlier of three years after the date of termination
or the date on which the Options expire by their terms, (ii) the
Participant may exercise the Option only to the extent the Participant
was entitled to exercise the Option on the date of termination, and
(iii) the Participant shall have no further right to exercise any
Options after termination due to Early Retirement, Normal Retirement
or Consensual Severance if the Committee determines the Participant
has entered into Competition with the Company.
(e) VOLUNTARY TERMINATION. Except as provided in Section
5.8(d), if a Participant voluntarily terminates employment with the
Company or one of its Subsidiaries, the Participant shall have no
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further right to exercise any Option previously granted, unless the
terms of the Option Agreement provide otherwise.
(f) TERMINATION FOR CAUSE. If a Participant is terminated for
cause, the Participant shall have no further right to exercise any
outstanding unexercised Option issued under the Plan.
(g) SUSPENSION OF EXERCISABILITY. If the Participant receives
notice from the Company that the Participant may be terminated for
cause, the Participant shall have no right to exercise any Options
previously granted for a period of 60 days from the receipt of such
notice. If the Participant is terminated for cause within such 60-day
period, the Participant shall have no further right to exercise any
Option previously granted. If the Participant is not terminated for
cause within the 60-day period, the provisions of the Option agreement
and the Plan shall continue to apply to the exercisability of the
Participant's Options.
SECTION 6
RESTRICTED STOCK
6.1 GRANT. A Participant may be granted Restricted Stock under the
Plan. Restricted Stock shall be subject to such terms and conditions,
consistent with the other provisions of the Plan, as shall be determined by
the Committee in its sole discretion. Restricted Stock shall be awarded on
the condition that the Participant remain in the employ of the Company or
one of its Subsidiaries during the Restricted Period. Such condition shall
have no effect on the right of the Company or any Subsidiary to terminate
the Participant's employment at any time. No payment is required from a
Participant for an award of Restricted Stock.
6.2 RESTRICTED STOCK AGREEMENTS. Each award of Restricted Stock
shall be evidenced by a Restricted Stock agreement containing such terms
and conditions, consistent with the provisions of the Plan, as the
Committee from time to time determines.
6.3 TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) GENERAL. If a Participant ceases to be employed by or a
director of the Company or one of its Subsidiaries for any reason
other than the Participant's death, Total Disability or any other
additional provisions as determined by the Committee pursuant to
Section 6.3(c), then any shares of Restricted Stock still subject to
restrictions on the date of such termination automatically shall be
forfeited and returned to the Company. For purposes of the Plan, the
following shall not be deemed a termination of employment: (i) a
transfer of employment among the Company and its Subsidiaries; (ii) a
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leave of absence, duly authorized in writing by the Company, for
military service or for any other purpose approved by the Company if
the period of such leave does not exceed 90 days; (iii) a leave of
absence in excess of 90 days, duly authorized in writing by the
Company, provided the employee's right to reemployment is guaranteed
either by statute or contract; or (iv) a termination of employment
with continued service as an officer or director. For purposes of the
Plan, termination of employment shall be considered to occur on the
date on which the employee is no longer obligated to perform services
for the Company or any of its Subsidiaries and the employee's right to
reemployment is not guaranteed either by statute or contract,
regardless of whether the employee continues to receive compensation
from the Company or any of its Subsidiaries after such date.
(b) DEATH OR TOTAL DISABILITY. Unless the terms of the
Restricted Stock agreement or grant provide otherwise, in the event a
Participant terminates employment or directorship with the Company or
one of its Subsidiaries because of death or Total Disability during
the Restricted Period, the restrictions applicable to the shares of
Restricted Stock automatically shall terminate and the Restricted
Stock shall vest as of the date of termination.
(c) ADDITIONAL PROVISIONS AS DETERMINED BY COMMITTEE. The
Committee may, in its sole discretion, provide provisions in any
Restricted Stock agreement permitting, or by resolution approve,
vesting of all or part of any Restricted Stock awarded to a
Participant upon termination due to Early Retirement, Normal
Retirement, Consensual Severance or a Change in Control.
6.4 RESTRICTIONS ON TRANSFERABILITY.
(a) GENERAL. Unless the Committee otherwise consents or unless
the terms of the Restricted Stock agreement provide otherwise, shares
of Restricted Stock shall not be sold, exchanged, transferred, pledged
or otherwise disposed of by a Participant during the Restricted Period
other than to the Company pursuant to subsection 6.3 or 6.4(b) or by
will or the laws of descent and distribution.
(b) SURRENDER TO THE COMPANY. If any sale, exchange, transfer,
pledge or other disposition, voluntary or involuntary, of Restricted
Stock that has not vested shall be made or attempted during the
Restricted Period, except as provided above in subsections 6.3 and
6.4(a), the Participant's right to the Restricted Stock immediately
shall cease and terminate, and the Participant promptly shall forfeit
and surrender to the Company all such Restricted Stock.
(c) OTHER RESTRICTIONS. The Committee may impose other
restrictions on any Restricted Stock as the Committee deems advisable.
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<PAGE>
6.5 RIGHTS AS A SHAREHOLDER. During the Restricted Period, a
Participant shall have all rights of a shareholder with respect to his
Restricted Stock, including (a) the right to vote any shares at
shareholders' meetings; (b) the right to receive, without restriction, all
cash dividends paid with respect to such Restricted Stock; and (c) the
right to participate with respect to such Restricted Stock in any stock
dividend, stock split, recapitalization or other adjustment in the Common
Stock of the Company or any merger, consolidation or other reorganization
involving an increase or decrease or adjustment in the Common Stock of the
Company. Any new, additional or different shares or other security
received by the Participant pursuant to any such stock dividend, stock
split, recapitalization or reorganization shall be subject to the same
terms, conditions and restrictions as those relating to the Restricted
Stock for which such shares were received.
6.6 DEPOSIT OF CERTIFICATES; LEGENDING OF RESTRICTED STOCK.
(a) DEPOSIT OF CERTIFICATES. Any certificates evidencing shares
of Restricted Stock awarded pursuant to the Plan shall be registered
in the name of the relevant Participant and deposited, together with a
stock power endorsed in blank, with the Company. In the discretion of
the Committee, any such certificates may be deposited in a bank
designated by the Committee or delivered to the Participant.
Certificates for shares of Restricted Stock that have vested shall be
delivered to the Participant upon request within a reasonable period
of time. The Participant shall sign all documents necessary or
appropriate to facilitate such delivery.
(b) LEGEND. Any certificates evidencing shares of Restricted
Stock awarded pursuant to the Plan shall bear the following legend:
This certificate is held subject to the terms and conditions
contained in a restricted stock agreement that includes a
prohibition against the sale or transfer of the stock
represented by this certificate except in compliance with
that agreement, and that provides for forfeiture upon
certain events. A copy of that agreement is on file in the
office of the Corporation.
6.7 RESALE. The Participant shall agree not to resell or
redistribute such Restricted Stock after the Restricted Period except upon
such conditions as the Company reasonably may specify to ensure compliance
with federal and state securities laws.
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<PAGE>
SECTION 7
TAX BENEFIT RIGHTS
7.1 GRANT. A Participant may be granted Tax Benefit Rights under the
Plan to encourage a Participant to exercise Options and provide certain tax
benefits to the Company. A Tax Benefit Right entitles a Participant to
receive from the Company or a Subsidiary a cash payment not to exceed the
amount calculated by multiplying the ordinary income, if any, realized by
the Participant for federal tax purposes as a result of the exercise of a
non-qualified stock option, or the disqualifying disposition of shares
acquired under an incentive stock option, by the maximum federal income tax
rate (including any surtax or similar charge or assessment) for
corporations, plus any other applicable state and local tax against which
the Company is entitled to a deduction or credit by reason of exercise of
the Option or the disqualifying disposition.
7.2 RESTRICTIONS. A Tax Benefit Right may be granted only with
respect to an Option issued and outstanding or to be issued under the Plan
or any other Plan of the Company or its Subsidiaries that has been approved
by the shareholders as of the effective date of the Plan and may be granted
concurrently with or after the grant of the Option. Such rights with
respect to outstanding Options shall be issued only with the consent of the
Participant if the effect would be to disqualify an incentive stock option,
change the date of grant or the exercise price or otherwise impair the
Participant's existing Options.
7.3 TERMS AND CONDITIONS. The Committee shall determine the terms
and conditions of any Tax Benefit Rights granted and the Participants to
whom such rights will be granted with respect to Options under the Plan or
any other plan of the Company and those terms and conditions shall be set
forth in written agreements. The Committee may amend, cancel, limit the
term of, or limit the amount payable under a Tax Benefit Right at any time
before the exercise of the related stock option, unless otherwise provided
under the terms of the Tax Benefit Right. The net amount of a Tax Benefit
Right, subject to withholding, may be used to pay a portion of the Option
price, unless otherwise provided by the Committee.
SECTION 8
CHANGE IN CONTROL
Without in any way limiting the Committee's discretion, the Committee
may include in any Incentive Award provisions for acceleration of any
vesting or other similar requirements or for the elimination of any
restrictions upon Incentive Awards upon a Change in Control of the Company.
The Committee may also include provisions for Participants to receive cash
in lieu of outstanding Options upon a Change in Control of the Company.
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<PAGE>
SECTION 9
GENERAL PROVISIONS
9.1 NO RIGHTS TO AWARDS. No Participant or other person shall have
any claim to be granted any Incentive Award, and there is no obligation of
uniformity of treatment of employees, Participants or holders or
beneficiaries of Incentive Awards. The terms and conditions of the
Incentive Awards of the same type and the determination of the Committee to
grant a waiver or modification of any Incentive Award and the terms and
conditions thereof need not be the same with respect to each Participant.
9.2 WITHHOLDING. The Company or a Subsidiary shall be entitled to
(a) withhold and deduct from future wages of a Participant (or from other
amounts that may be due and owing to a Participant from the Company or a
Subsidiary), or make other arrangements for the collection of, all amounts
deemed necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements attributable to an
Incentive Award, including, without limitation, the grant, exercise or
vesting of, or payment of dividends with respect to, an Incentive Award or
a disqualifying disposition of Common Stock received upon exercise of an
incentive stock option; or (b) require a Participant promptly to remit the
amount of such withholding to the Company before taking any action with
respect to an Incentive Award. Unless the Committee determines otherwise,
withholding may be satisfied by withholding Common Stock to be received
upon exercise or by delivery to the Company of previously owned Common
Stock.
9.3 COMPLIANCE WITH LAWS; LISTING AND REGISTRATION OF SHARES. All
Incentive Awards granted under the Plan (and all issuances of Common Stock
or other securities under the Plan) shall be subject to applicable laws,
rules and regulations, and to the requirement that if at any time the
Committee determines, in its sole discretion, that the listing,
registration or qualification of the shares covered thereby upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as
a condition of, or in connection with, the granting of such Incentive Award
or the issue or purchase of shares thereunder, such Incentive Award may not
be exercised in whole or in part, or the restrictions on such Incentive
Award shall not lapse, unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
9.4 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Subsidiary from adopting or
continuing in effect other or additional compensation arrangements,
including the grant of options and other stock-based awards, and such
arrangements may be either generally applicable or applicable only in
specific cases.
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<PAGE>
9.5 NO RIGHT TO EMPLOYMENT. The grant of an Incentive Award shall
not be construed as giving a Participant the right to be retained in the
employ or directorship of the Company or any Subsidiary. The Company or
any Subsidiary may at any time dismiss a Participant from employment, free
from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any written agreement with a Participant.
9.6 GOVERNING LAW. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Tennessee and applicable federal
law.
9.7 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
SECTION 10
EFFECTIVE DATE AND DURATION OF THE PLAN
This Plan shall take effect April 13, 1998, which is the day of
approval by the Board of Directors, provided, that any Incentive Awards
granted prior to shareholder approval shall be subject to approval of the
Plan by the Company's shareholders at a regular or special meeting. Unless
earlier terminated by the Board of Directors, no Incentive Award shall be
granted under this Plan after April 12, 2008.
SECTION 11
TERMINATION AND AMENDMENT
The Board may terminate the Plan at any time, or may from time to time
amend the Plan, provided that no such amendment may impair any outstanding
Incentive Award without the consent of the Participant, except according to
the terms of the Incentive Award. No termination, amendment or
modification of the Plan shall become effective with respect to any
Incentive Award previously granted under the Plan without the prior written
consent of the Participant holding such Incentive Award unless such
amendment or modification operates solely to the benefit of the
Participant.
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APPENDIX C
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made as of
___________ 1998, by and between ENERGY SEARCH, INCORPORATED, a Tennessee
corporation (the "CORPORATION"), and _________________________
("INDEMNITEE").
It is essential to the Corporation to attract and retain as
directors and executive officers the most capable persons available. The
substantial increase in corporate litigation subjects directors and
executive officers to expensive litigation risks at the same time that the
availability and coverage of directors and officers liability insurance has
been limited. It is the express policy of the Corporation to indemnify its
directors and executive officers so as to provide them with the maximum
possible protection permitted by law, and in furtherance of that policy and
in consideration of Indemnitee's agreement to serve as a director or
executive officer of the Corporation, the parties are entering into this
Agreement.
ACCORDINGLY, the parties agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement:
(a) "Expenses" means all costs, expenses and obligations paid or
incurred in connection with investigating, litigating, being a witness
in, defending or participating in, or preparing to litigate, defend,
be a witness in or participate in any matter that is the subject of a
Proceeding (as defined below), including attorneys' and accountants'
fees and court costs.
(b) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether
brought by or in the right of the Corporation or otherwise and whether
of a civil, criminal, administrative or investigative nature, and
whether formal or informal, in which Indemnitee may be or may have
been involved as a party or otherwise by reason of the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Corporation, or by reason of any action taken by Indemnitee or
any inaction on Indemnitee's part while acting as a director, officer,
employee, agent or fiduciary of the Corporation, or by reason of the
fact that Indemnitee is or was serving at the request of the
Corporation as a director, officer, employee, agent or fiduciary of
<PAGE>
another corporation, partnership, joint venture, trust or other
enterprise.
(c) "Resolution Costs" includes any amount paid in connection
with a Proceeding in satisfaction of a judgment, fine, penalty or any
amount paid in settlement.
SECTION 2. AGREEMENT TO SERVE. Indemnitee agrees to serve as a
director or officer of the Corporation for so long as Indemnitee is duly
elected or appointed or until the tender of Indemnitee's written
resignation.
SECTION 3. INDEMNIFICATION. The Corporation shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by
Indemnitee in connection with any Proceeding. Additionally, the
Corporation shall indemnify Indemnitee against all Resolution Costs
actually and reasonably incurred by Indemnitee in connection with any
Proceeding. It is the intent of the parties to provide Indemnitee, to the
fullest extent allowed by law as now or later enacted or interpreted, with
indemnification against any Expenses and Resolution Costs incurred by
Indemnitee in connection with any Proceeding. To the extent a change in
the laws Tennessee (whether by statute or judicial decision) permits
greater indemnification, either by agreement or otherwise, than presently
provided by law or this Agreement, it is the intent of the parties that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by
the change. Notwithstanding the foregoing, no indemnification shall be
made under this Agreement:
(a) with respect to remuneration paid to Indemnitee if the
remuneration was in violation of law;
(b) on account of Indemnitee's conduct that was knowingly
fraudulent, deliberately dishonest or willful misconduct;
(c) on account of Indemnitee's conduct that was in bad faith,
that Indemnitee did not reasonably believe to be in (in the case of
Indemnitee's conduct in an official capacity) or not opposed to (in
the case of Indemnitee's conduct in other than an official capacity)
the best interests of the Corporation or its shareholders, or that
produced an unlawful personal benefit;
(d) with respect to a criminal proceeding if Indemnitee had no
reasonable cause to believe that Indemnitee's conduct was unlawful;
(e) if a final decision by a court having jurisdiction in the
matter determines that indemnification under this Agreement is not
lawful; or
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<PAGE>
(f) in connection with any Proceeding initiated by Indemnitee
against the Corporation or any director, officer, employee, agent or
fiduciary of the Corporation (in such capacity) unless the Corporation
has joined in or consented to the initiation of the Proceeding or such
Proceeding relates to the enforcement by Indemnitee of Indemnitee's
rights under this Agreement.
SECTION 4. PAYMENT OF INDEMNIFICATION.
(a) Expenses incurred by Indemnitee and subject to
indemnification under Section 3 above shall be paid directly by the
Corporation or reimbursed to Indemnitee within five (5) days after the
receipt of a written request of Indemnitee setting forth in reasonable
detail the amount requested and accompanied by copies of relevant
invoices or other documentation. Resolution Costs incurred by
Indemnitee and subject to indemnification under Section 3 above shall
be paid directly by the Corporation or reimbursed to Indemnitee within
thirty (30) days after the receipt of a written request of Indemnitee
setting forth in reasonable detail the amount requested and
accompanied by relevant invoices or other documentation. Indemnitee's
request for indemnification must be accompanied by a signed
certificate that Indemnitee in good faith believes that he or she is
entitled to indemnification in accordance with the requirements of
this Agreement. If Indemnitee certifies that Indemnitee in good faith
believes that he or she is entitled to indemnification under this
Agreement, Indemnitee will be deemed to have met the necessary
standard of conduct unless and until it is determined by a final
judgment or other final adjudication that Indemnitee is not entitled
to indemnification.
(b) Indemnitee agrees to promptly repay any amounts paid or
advanced under this Agreement to the extent that it is ultimately
determined in accordance with Section 4(a) above that Indemnitee is
not entitled to indemnification of such amounts under this Agreement
and amounts advanced to cover Expenses which Indemnitee does not in
fact incur.
(c) The Corporation shall take all actions necessary to enable
it to indemnify Indemnitee under this Agreement. The right to
indemnification payments as provided by this Agreement shall be
enforceable by Indemnitee in any court of competent jurisdiction. The
burden of proving that indemnification is not permitted by this
Agreement shall be on the Corporation or on the person challenging the
indemnification. Neither the failure of the Corporation, including
its Board of Directors, to have made a determination before the
commencement of any Proceeding that indemnification is proper, nor an
actual determination by the Corporation, including its Board of
Directors or legal counsel, that indemnification is not proper, shall
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<PAGE>
bar an action by Indemnitee to enforce this Agreement or create a
presumption that Indemnitee is not entitled to indemnification under
this Agreement. Expenses incurred by Indemnitee in connection with
successfully establishing Indemnitee's right to indemnification, in
whole or in part, also shall be fully reimbursed by the Corporation.
SECTION 5. DEFENSE OF CLAIM.
(a) The Corporation, jointly with any other indemnifying party,
shall be entitled to assume the defense of any Proceeding as to which
Indemnitee requests indemnification. After notice from the
Corporation to Indemnitee of its election to assume the defense of a
Proceeding, the Corporation shall not be liable to Indemnitee under
this Agreement for any legal or other Expenses subsequently incurred
by Indemnitee in connection with the defense of such matter other than
reasonable costs of investigation or as otherwise provided in Section
5(c) below.
(b) Except as provided in Section 5(c) below, the Corporation
need not, in any action or actions, employ or approve the employment
of more than one counsel to represent Indemnitee and any other
director, officer or other party entitled to indemnification pursuant
to an agreement similar to this Agreement or otherwise.
(c) Indemnitee may employ his or her own counsel in a Proceeding
and be indemnified therefor if (i) the Corporation approves, in
writing, the employment of such counsel, or (ii) either (A) Indemnitee
reasonably has concluded that there are conflicts of interest between
the Corporation and Indemnitee or between Indemnitee and other parties
represented by counsel employed by the Corporation to represent
Indemnitee in the Proceeding, or (B) the Corporation has not employed
counsel to assume the defense of the Proceeding.
SECTION 6. PARTIAL INDEMNIFICATION; SUCCESSFUL DEFENSE. If
Indemnitee is entitled under any provision of this Agreement to
indemnification by the Corporation for some or a portion of the Expenses or
Resolution Costs actually and reasonably incurred by Indemnitee but not,
however, for the total amount, the Corporation nevertheless shall indemnify
Indemnitee for the portion of the Expenses or Resolution Costs to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all claims relating in whole or in
part to a Proceeding or in defense of any issue or matter in a Proceeding,
including dismissal with or without prejudice, Indemnitee shall be
indemnified against all Expenses incurred in connection with that
Proceeding.
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<PAGE>
SECTION 7. CONSENT. Neither party may settle any Proceeding
without the other's written consent, and the Corporation shall not be
liable to indemnify Indemnitee under this Agreement for amounts paid in
settlement of a Proceeding made without the Corporation's written consent.
Neither the Corporation nor Indemnitee will unreasonably withhold consent
to any proposed settlement.
SECTION 8. SEVERABILITY. If this Agreement or any portion of this
Agreement (including any provision within a single section, subsection or
sentence) shall be held to be invalid, void or otherwise unenforceable on
any ground by any court of competent jurisdiction, the Corporation
nevertheless shall indemnify Indemnitee as to any Expenses or Resolution
Costs with respect to any Proceeding to the full extent permitted by law or
any applicable portion of this Agreement that shall not have been
invalidated, declared void or otherwise held to be unenforceable.
SECTION 9. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification provided by this Agreement shall be in addition to any
other rights that Indemnitee may be entitled under the Corporation's
charter or bylaws, any agreement, any vote of shareholders or the Board of
Directors, the corporate statutes of Tennessee or otherwise.
SECTION 10. NO PRESUMPTION. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon
a plea of nolo contendere, or its equivalent, shall not create a
presumption that Indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
SECTION 11. SUBROGATION. In the event of payment under this
Agreement, the Corporation shall be subrogated to the extent of the payment
to all of the rights of recovery of Indemnitee, who shall execute all
documents required and shall do everything that may be necessary to secure
those rights, including the execution of all documents necessary to enable
the Corporation to effectively bring suit to enforce those rights.
SECTION 12. NO DUPLICATION OF PAYMENT. The Corporation shall not
be liable under this Agreement to make any payment to the extent Indemnitee
has otherwise actually received payment (under any insurance policy, bylaw
or otherwise) of the amounts otherwise indemnifiable under this Agreement.
SECTION 13. NOTICE. Indemnitee shall, as a condition precedent to
his or her right to be indemnified under this Agreement, give to the
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<PAGE>
Corporation notice in writing as soon as practicable of any claim for which
indemnity will or could be sought under this Agreement. Notice to the
Corporation shall be directed to Energy Search, Incorporated, 280 Fort
Sanders West Boulevard, Suite 200, Knoxville, Tennessee 37922, Attention:
Richard S. Cooper (or to any other individual or address that the
Corporation designates in writing to Indemnitee). Notice shall be deemed
received three (3) days after the date postmarked if sent by prepaid mail
properly addressed. In addition, Indemnitee shall give the Corporation any
information and cooperation that it may reasonably require and is within
Indemnitee's power to give.
SECTION 14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original, and all
of which taken together shall constitute a single document.
SECTION 15. CONTINUATION OF INDEMNIFICATION. The indemnification
rights provided to Indemnitee under this Agreement shall continue after
Indemnitee has ceased to be a director, officer, employee, agent or
fiduciary of the Corporation or any other corporation, partnership, joint
venture, trust or other enterprise that Indemnitee served in any of those
capacities at the request of the Corporation.
SECTION 16. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the Corporation and Indemnitee and
their respective successors and assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Corporation, spouses,
heirs, and personal and legal representatives.
SECTION 17. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Tennessee
applicable to contracts made and to be performed in that state without
giving effects to the principles of conflicts of laws.
SECTION 18. LIABILITY INSURANCE. To the extent the Corporation
maintains an insurance policy or policies providing directors' and
officers' liability insurance, Indemnitee shall be covered by the policy or
policies, in accordance with its or their terms, to the maximum extent of
the coverage available for any director, officer, employee, agent or
fiduciary of the Corporation.
SECTION 19. AMENDMENTS; WAIVER. No supplement, modification,
amendment or waiver of this Agreement or any of its terms shall be binding
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<PAGE>
unless executed in writing by all of the parties to this Agreement or, in
the case of waiver, by the party against whom the waiver is asserted. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions of this Agreement (whether or
not similar) nor shall any waiver constitute a continuing waiver.
The parties have executed this Agreement as of the date stated in the
first paragraph of this Agreement.
ENERGY SEARCH, INCORPORATED
By
Its
INDEMNITEE
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<PAGE>
APPENDIX D
[FRONT]
PROXY PROXY
ENERGY SEARCH, INCORPORATED
280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby appoints Charles P. Torrey, Richard
S. Cooper and Robert L. Remine, and each of them, each with full power of
substitution, proxies to represent the shareholder listed on the reverse
side of this Proxy and to vote all shares of Common Stock of Energy Search,
Incorporated that the shareholder would be entitled to vote on all matters
which come before the Annual Meeting of Shareholders to be held at the
GettysVue Golf Club, 9317 Links Vue Drive, Knoxville, Tennessee, on
Wednesday, June 17, 1998, at 10:00 a.m., local time, and any adjournment of
that meeting.
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
NAMED ON THIS PROXY AS DIRECTORS AND FOR APPROVAL OF EACH PROPOSAL
IDENTIFIED ON THIS PROXY. THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS THAT MAY COME
BEFORE THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
[BACK]
ENERGY SEARCH, INCORPORATED
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. ELECTION OF DIRECTORS- For All
Nominees: Charles P. Torrey, Jr. Richard For Withheld Except
S. Cooper, Robert L. Remine, [ ] [ ] [ ]
Kim A. Walbe, and Douglas A. Yoakley
(INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
THROUGH THAT NOMINEE'S NAME IN THE LIST
ABOVE.)
Your Board of Directors Recommends that
You Vote
FOR ALL NOMINEES
2. Proposal to increase authorized common For Against Abstain
stock [ ] [ ] [ ]
Your Board of Directors Recommends that
You Vote FOR this Proposal
3. Proposal to authorize a class of For Against Abstain
preferred stock [ ] [ ] [ ]
Your Board of Directors Recommends that
You Vote FOR this Proposal
4. Proposal to add provisions in the For Against Abstain
Company's charter concerning Board of [ ] [ ] [ ]
Directors
Your Board of Directors Recommends that
You Vote FOR this Proposal
5. Proposal to adopt indemnification For Against Abstain
provision in the Company's charter [ ] [ ] [ ]
Your Board of Directors Recommends that
You Vote FOR this Proposal
6. Proposal to consider certain factors For Against Abstain
when confronted with business [ ] [ ] [ ]
combinations
Your Board of Directors Recommends that
You Vote FOR this Proposal
<PAGE>
7. Proposal to adopt Stock Option and For Against Abstain
Restricted Stock Plan of 1998 [ ] [ ] [ ]
Your Board of Directors Recommends that
You Vote FOR this Proposal
8. Proposal to adopt form of For Against Abstain
Indemnification Agreement [ ] [ ] [ ]
Your Board of Directors Recommends that
You Vote FOR this Proposal
<PAGE>
Dated: , 1998
Signature of Shareholder(s)
IMPORTANT -- Please sign
exactly as your name(s)
appears on this Proxy. When
signing on behalf of a
corporation, partnership,
estate or trust, indicate
title or capacity of person
signing. IF SHARES ARE HELD
JOINTLY, EACH HOLDER SHOULD
SIGN.
