ENERGY SEARCH INC, DEF 14A, 1999-04-30

ENERGY SEARCH INC
DEF 14A, 1999-04-30
DRILLING OIL & GAS WELLS

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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:

[ ] Preliminary Proxy Statement

[X] 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:
- ---------------------------------------------------------------------------

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(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:
- ---------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.

[ ] 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:
- ---------------------------------------------------------------------------
(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 Country Club, 9317 Linksvue Drive, Knoxville,
Tennessee, on Thursday, June 17, 1999, at 10:00 a.m., local time, for the
following purposes:

(i) Election of two directors for terms expiring in 2002.
(ii) Adoption of a proposal to amend the Company's Stock Option and
Restricted Stock Plan of 1998.
(iii) Transaction of such other business as may properly come before the
meeting.

Shareholders of record at the close of business on April 30, 1999, 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
10, 1999.

A copy of the Annual Report to Shareholders for the year ended
December 31, 1998, is enclosed with this Notice. The following Proxy
Statement and enclosed proxy are being furnished to shareholders on and
after May 7, 1999.

By Order of the Board of Directors

Robert L. Remine, SECRETARY AND TREASURER

May 7, 1999

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YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.
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<PAGE>
ENERGY SEARCH, INCORPORATED
280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922

ANNUAL MEETING OF SHAREHOLDERS

JUNE 17, 1999

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 May 7, 1999, in connection with the solicitation by
the Company's Board of Directors of proxies for use at the annual meeting
of shareholders to be held on June 17, 1999, and any adjournment of that
meeting. The annual meeting will be held at the Gettysvue Country Club,
9317 Linksvue 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 two directors for terms expiring in 2002; and (ii) adoption of
a proposal to amend the Company's Stock Option and Restricted Stock Plan of
1998. 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 adoption of an amendment
to the Company's Stock Option and Restricted Stock Plan of 1998 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 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

The Board of Directors has nominated the following two nominees for
election as directors for terms expiring at the 2002 annual meeting:

Richard S. Cooper
Douglas A. Yoakley

<PAGE>
Both 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.

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.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ELECTION OF BOTH NOMINEES AS DIRECTORS

ADOPTION OF AMENDMENT TO STOCK OPTION
AND RESTRICTED STOCK PLAN OF 1998

On April 13, 1998, the Board of Directors adopted, and the
shareholders subsequently adopted, the Company's Stock Option and
Restricted Stock Plan of 1998 (the "Plan"). As adopted in 1998, the Plan
permits the issuance of 300,000 shares (subject to certain antidilution
adjustments) of the Company's Common Stock.

On April 23, 1999, the Board of Directors adopted an amendment to the
Plan, subject to shareholder adoption, to increase the aggregate number of
shares of Common Stock authorized for issuance under the Plan by 700,000
shares to a total of 1,000,000 shares. Before the proposed amendment, as
of April 23, 1999, an aggregate of 214,150 shares of the Company's Common
Stock have been granted or committed under the Plan, and 85,850 shares
(plus any shares that might in the future be returned to the Plan as a
result of cancellations or expirations of options) remain available for
future grants under the Plan.

The Board of Directors adopted the proposed amendment for several
reasons. Before adoption of the Plan, the Board of Directors granted
officers, directors, employees and agents 79,650 common stock purchase
warrants (the "General Private Warrants") exercisable at $6.50 per share
any time before January 24, 2002. Effective January 1, 1999, 19,000 of
these warrants were reissued with a reduced exercise price of $4.50 per

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share. The reissued securities were granted under the Plan. For
administrative and consistency purposes, the Board of Directors deems it
advisable to reissue the remaining General Private Warrants under the Plan,
and plans to do so if the amendment is adopted by the shareholders.

Before the Company became a public company in January 1997, the Board
of Directors authorized the issuance of 450,000 executive officer common
stock purchase warrants to Charles P. Torrey, Jr., the Company's Chief
Executive Officer, Richard S. Cooper, the Company's President, and Robert
L. Remine, the Company's Secretary and Treasurer. Each executive officer
was granted 150,000 warrants which vest over a five-year period at a rate
of 30,000 warrants per year commencing in January of 1997.

As of January of 1999, 270,000 of these executive officer warrants
have vested in favor of the three executive officers. The remaining
warrants are scheduled to vest at 90,000 per year in January of 2000 and
January of 2001. The vested warrants may be exercised at any time within
five years from the vesting date and had an original exercise price of
$8.00 per share. Effective January 1, 1999, the Company reduced the
exercise price of the warrants to $4.50 per share. The Board of Directors
believes it is appropriate and advisable to bring these executive officer
common stock purchase warrants under the terms of the Plan.

The Board also deems it appropriate and advisable to increase the
total amount of options that may be awarded under the Plan to any
participants in the Plan. In all other respects, the Plan's terms and
conditions would be the terms and conditions of the Plan previously adopted
by the Company's shareholders.

INTRODUCTION AND PURPOSE OF THE PLAN

The Board of Directors continues to believe that the Company's long-
term interests are best advanced by aligning the interests of its key
leaders and employees with the interests of its shareholders. 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, the Board of Directors and the shareholders adopted
the Plan. The Board of Directors believes that it is advisable to make
additional shares available for stock option grants and restricted stock
awards under the Plan.

The Plan is not qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and is not 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.

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<PAGE>
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,
as amended, the complete text of which is attached as Appendix A 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 four individuals), and other full time employees (currently 16
individuals) of the Company are eligible to receive stock options and/or
restricted stock. 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 and/or restricted stock under the Plan.

ADMINISTRATION OF THE PLAN

The Plan is administered by the Executive Management and Compensation
Committee of the Board of Directors (the "Compensation Committee"). 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 makes determinations, subject to the terms
of the Plan, as to the persons to receive stock options and restricted
stock, the amount of stock options and restricted stock 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 and restricted stock granted under the
Plan from time to time in a manner consistent with the Plan. The
Compensation Committee has 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 or grant of restricted stock without the consent of the
participant, except according to the terms of the stock option or
restricted stock. Unless earlier terminated by the Board of Directors, the
Plan terminates on April 12, 2008.

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

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stock options would become fully vested immediately, nonforfeitable or
otherwise no longer subject to any restriction.

STOCK OPTION AWARDS

INTRODUCTION. Certain stock options that have been and in the future
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 do not qualify as
Incentive Stock Options within the meaning of Section 422(b) of the Code
("Nonqualified Options").

STOCK OPTION GRANTS. The Compensation Committee may grant stock
options at any time before termination of the Plan according to its terms.
The Compensation Committee, in its discretion, may grant options for any
amount of consideration, or no consideration. 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 sets forth the terms of individual grants of stock
options in stock option agreements. These stock option agreements 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 provides for automatic grants of stock
options to non-employee directors. Except in limited circumstances, a
stock option to purchase 2,500 shares of Common Stock is granted
automatically on the date of the Company's annual meeting of shareholders
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
is at the time of his or her initial election or appointment granted a
stock option to purchase 2,500 shares of Common Stock. These stock options
are 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 are
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 may 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.

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The Company may 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 is determined by the Compensation Committee and, in the case of an
Incentive Stock Option, is 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 23, 1999, the Market Value of the
Company's Common Stock was $4.25 per share.

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 can 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.

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.

TERM OF STOCK OPTIONS. The time period in which a participant is
permitted to exercise his or her stock option is determined by the
Compensation Committee. However, the term of an Incentive Stock Option may
not exceed 10 years from the date of the grant and the term of a
Nonqualified Option may not exceed 15 years from the date of the grant.

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<PAGE>
In general, a stock option is no longer 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 expires 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 differs upon the
death, disability or termination for cause of the participant. Generally,
if the participant dies, the stock option expires in one year. If the
participant becomes disabled (as defined in the Plan), the stock option
expires one year from the date of disability. Finally, if the participant
is terminated for cause, the stock option terminates and the holder would
forfeit all rights to exercise any outstanding options.

For federal income tax purposes, a participant does not recognize
income and the Company does not receive a deduction at the time an
Incentive Stock Option is granted. A participant exercising an Incentive
Stock Option does not recognize income at the time of the exercise. The
difference between the market value and the exercise price, however, is a
tax preference item for purposes of calculating alternative minimum tax.
Upon sale of the stock, as long as the participant holds 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 is equal
to 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 does not receive a deduction for federal income tax purposes. If,
before the expiration of either of the above holding periods, the
participant sells shares acquired under an Incentive Stock Option, the tax
deferral is lost and the participant generally recognizes compensation
income equal to the difference between the exercise price and the fair
market value at the time of exercise. The Company then receives a
corresponding deduction for federal income tax purposes. Additional gains,
if any, recognized by the participant 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 does not

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recognize any income and the Company does not receive a deduction at the
time a Nonqualified Option is granted. If a Nonqualified Option is
exercised, the participant recognizes 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 receives a corresponding
deduction for federal income tax purposes. The participant's tax basis in
the shares acquired is increased by the amount of compensation income
recognized. Sale of the stock after exercise results 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 can grant tax benefit rights, which, if
granted, would be subject to such terms and conditions as the Compensation
Committee determined appropriate. The Company has not and 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 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.

RESTRICTED STOCK AWARDS

The Plan also allows the Compensation Committee to award restricted
stock, subject to such terms and conditions that the Compensation Committee
from time to time determines. As with stock option grants, the
Compensation Committee sets forth the terms of individual awards of
restricted stock in restricted stock agreements. Restricted stock granted
by the Compensation Committee vests in accordance with restricted stock
agreements. Generally, 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 is
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 terminate automatically and the
restricted stock vests as of the date of termination. If the participant's
employment is terminated for cause, the participant's restricted stock

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automatically is forfeited unless the Compensation Committee and the Board
determine otherwise.

Without Compensation Committee authorization, a recipient of
restricted stock is not 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 can impose other restrictions on shares of restricted stock.
Holders of restricted stock 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
are subject to the same terms, conditions and restrictions that are
applicable to the restricted stock for which the shares are received.

Generally, a participant does not recognize income upon the award of
restricted stock. However, a participant is required to recognize
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 is entitled to a
corresponding deduction for federal income tax purposes. If restricted
stock is forfeited by a participant, the participant does not recognize
income and the Company does not receive a deduction. Before the lapse of
restrictions, dividends paid on restricted stock are reported as
compensation income to the participant and the Company receives a
corresponding deduction.

A participant can, 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 is the value of the
restricted stock at the time of the award. Any later appreciation in the
value of the restricted stock is treated as capital gain and realized only
upon the sale of the restricted stock. Dividends received after such an
election are 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 is not allowed any
deduction for the amount earlier taken into income. Upon the sale of
restricted stock, a participant realizes 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 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

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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.

Because the number of participants and the market value of the
Company's Common Stock on the grant date cannot presently be determined,
the benefits or amounts that will be received by participants under the
Plan are not determinable. However, the chart set forth below shows the
number of options and restricted stock that have been granted to the
following persons or groups of persons under the Plan as of April 23, 1999:

<TABLE>
NEW PLAN BENEFITS
STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998
<CAPTION>
STOCK OPTIONS RESTRICTED STOCK
-------------------------- ----------------------------
NUMBER OF
SECURITIES
DOLLAR UNDERLYING DOLLAR NUMBER
GROUPS VALUE<F1> OPTIONS<F2> VALUE<F3> OF SHARES
- -------------------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr., -- 30,000 -- --
Chief Executive Officer
and Director

Richard S. Cooper, -- 30,000 -- --
President and Director

Robert L. Remine, -- 30,000 -- --
Secretary, Treasurer and
Director

Executives as a Group -- 90,000 -- --
(three persons)

Non-Executive Director -- 10,000 $10,000 2,000
Group (two persons)

Non-Executive Officer -- 9,000 -- --
Employee Group
(two persons)
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<FN>
<F1> The dollar value of a stock option is determined by calculating the
spread between the exercise price of the option and the current value
of the Company's Common Stock as of April 23, 1999, regardless of
whether the option is exercisable on that date.

<F2> These options represent securities granted pursuant to the Plan which
also were previously granted and have vested in 1998 under the
Company's executive officer common stock purchase warrant program.
Executive officer common stock purchase warrants granted and vested
before 1999, totaling 180,000 in the aggregate, have not yet been
reissued under the Plan. However, it is the Company's intention to do
so if the proposed amendment to the Plan is adopted by the
shareholders.

<F3> The dollar value of restricted stock is determined based on the
closing market price of the Company's Common Stock as of the date of
grant.
</FN>
</TABLE>

Excluded from the above table are 60,650 General Private Warrants
currently outstanding in favor of officers, directors, employees and agents
of the Company which were issued before adoption of the Plan. It is
expected that these warrants will be reissued as options under the Plan.
The warrants have no dollar value was defined above.

Also excluded from the above table are 180,000 executive officer
common stock purchase warrants that have been granted and have vested, and
180,000 executive officer warrants that have been granted but have not yet
vested. These warrants were granted before the Company's public offering
in January of 1997 pursuant to the Company's executive officer common stock
purchase warrant program. It is the Company's intention that all of these
warrants will be reissued or otherwise brought under the terms of the Plan
if the proposed amendment to the Plan is adopted by the shareholders. The
warrants have no dollar value as defined above.

Also excluded from the above table are 30,000 shares of restricted
stock committed to be issued to John M. Johnson, Vice President-Exploration
and Development as of December 31, 1999 (10,000 shares), December 31, 2000
(10,000 shares) and upon sale or merger of the Company (10,000 shares),
provided Mr. Johnson continues to be employed by the Company.

The above table also excludes 7,000 shares of restricted stock
committed to be issued to non-executive officer employees on or about
December 31, 1999 provided the employees continued to be employed by the
Company as of such date.

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<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 amendment to 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 AMENDMENT TO THE STOCK OPTION AND
RESTRICTED STOCK PLAN OF 1998

VOTING SECURITIES

Holders of record of Common Stock, at the close of business on April
30, 1999, will be entitled to notice of and to vote at the annual meeting
and any adjournment of the meeting. As of April 23, 1999, there were
4,014,308 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 23, 1999:

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP <F1>
-------------------------------------------------------
SOLE VOTING AND SHARED VOTING PERCENT
NAME OF DISPOSITIVE OR DISPOSITIVE TOTAL BENEFICIAL OF
BENEFICIAL OWNER POWER<F2> POWER<F3> OWNERSHIP<F2><F3> CLASS
--------------------- --------------- -------------- ----------------- -------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 430,334 10,300 440,634 10.7
280 Fort Sanders West Boulevard,
Suite 200
Knoxville, Tennessee 37922

Richard S. Cooper 420,183 -- 420,813 10.2
280 Fort Sanders West Boulevard,
Suite 200
Knoxville, Tennessee 37922

-12-
<PAGE>
Robert L. Remine 431,670 2,400 434,070 10.5
280 Fort Sanders West Boulevard,
Suite 200
Knoxville, Tennessee 37922
____________________________
<FN>
<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
conversion of issued and outstanding convertible preferred stock, as
well as shares that may be acquired upon the exercise of stock options
or warrants granted under various Company plans within 60 days after
April 30, 1999. The number of shares subject to stock options
exercisable within 60 days after April 30, 1999, for each listed
person is shown below:

Mr. Torrey 115,251
Mr. Cooper 101,160
Mr. Remine 105,251

<F3> These numbers include shares over which the listed person is legally
entitled to share voting or dispositive power by reason of joint
ownership, trust or other contract or property right, and shares held
by spouses, children or other relatives over whom the listed person
may have substantial influence by reason of relationship.
</FN>
</TABLE>

SECURITIES OWNERSHIP OF MANAGEMENT

The following table sets forth the number of shares of Common Stock
beneficially owned as of April 30, 1999 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:

-13-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP <F1>
-------------------------------------------------------
SOLE VOTING AND SHARED VOTING PERCENT
NAME OF DISPOSITIVE OR DISPOSITIVE TOTAL BENEFICIAL OF
BENEFICIAL OWNER POWER<F2> POWER<F3> OWNERSHIP<F2><F3> CLASS
- ----------------------- --------------- -------------- ----------------- -------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 430,334 10,300 440,634 10.7
Richard S. Cooper 420,183 -- 420,183 10.2
Robert L. Remine 431,670 2,400 434,070 10.5
John M. Johnston 60,200 -- 60,200 1.5
Douglas A. Yoakley 10,822 -- 10,822 <F*>
Kim A. Walbe 6,000 -- 6,000 <F*>
All directors and executive
officers as a group 1,359,209 12,700 1,371,909 32.9
- -------------------
<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.

Mr. Torrey 115,251
Mr. Cooper 101,160
Mr. Remine 105,251
Mr. Johnston --
Mr. Yoakley 5,000
Mr. Walbe 5,000
All directors and executive
officers as a group 331,662

-14-
<PAGE>
<F3> These numbers include shares over which the listed person is legally
entitled to share voting or dispositive power by reason of joint
ownership, trust or other contract or property right, and shares held
by spouses, children or other relatives over whom the listed person
may have substantial influence by reason of relationship.
</FN>
</TABLE>

BOARD OF DIRECTORS

The Company's Board of Directors currently consists of five directors,
two of whom are standing for reelection. The Company's Charter and 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. Each class of
directors serves a term of office of three years, with the term of one
class expiring at the annual meeting of shareholders in each successive
year.

Biographical information as of April 30, 1999, is presented below for
each person who is a director and nominees who are 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 2002

RICHARD S. COOPER (age 49) 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.

DOUGLAS A. YOAKLEY (age 44), 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.

INCUMBENT DIRECTORS - TERMS EXPIRING IN 2000

ROBERT L. REMINE (age 50), a certified public accountant, has been a
director of the Company since its inception in 1990. Mr. Remine, a founder

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<PAGE>
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 53) 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.

INCUMBENT DIRECTOR - TERM EXPIRING IN 2001

CHARLES P. TORREY, JR. (age 52) 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.

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<PAGE>
SIGNIFICANT EMPLOYEE

JOHN M. JOHNSTON (age 39) 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.

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 was
required to allow an observer designated by the underwriters of the
offering, which was acceptable to the Company, to attend all meetings of
the Board of Directors. The observer had no voting rights, was reimbursed
for all out-of-pocket expenses incurred in attending meetings and received
compensation equal to that received by outside directors. The observer was
entitled to 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 appointed Anthony B.
Petrelli, senior vice president of Neidiger/Tucker/Bruner, Inc. as the
observer of meetings of the Board of Directors. Until January 1999, the
Company agreed 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

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<PAGE>
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 (Chairman) and Walbe
currently serve on the Audit Committee and Mr. Remine serves on the Audit
Committee as a non-voting member. During 1998, the Audit Committee held
two meetings.

EXECUTIVE MANAGEMENT AND COMPENSATION COMMITTEE. The Executive
Management and Compensation Committee (the "Compensation Committee") 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
non-employee directors, 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 (Chairman) and
Yoakley currently serve on the Compensation Committee and Mr. Torrey serves
on the Compensation Committee as a non-voting member. During 1998, the
Compensation Committee held two meetings.

The Board of Directors does not have a standing nominating committee.
The Company will consider nominees for election to the Board of Directors
submitted by shareholders. The Company's Charter provides that any
shareholder entitled to vote generally in the election of directors may
nominate one or more persons for election as directors at a meeting only if
written notice of such shareholder's intent to make such nomination or
nominations has been given to the Secretary of the Company not less than
120 days before the date of notice of the meeting in the case of an annual
meeting, and not more than seven days following the date of notice of the
meeting in the case of a special meeting. Each such notice to the
Secretary shall set forth: (i) the name, age, business address and
residence address of each nominee proposed in the notice; (ii) the
principal occupation or employment of each nominee; (iii) the number of
shares of capital stock of the Company which are beneficially owned by each
nominee; (iv) a statement that the nominee is willing to be nominated; and
(v) such other information concerning each 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.

During the Company's last fiscal year, the Board of Directors held six
regular meetings. Each of the directors attended 75% or more of the

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<PAGE>
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 $3,000 annual
retainer fee, plus $500 for each meeting of the Board that the director
attends. In January of 1999, Messrs. Yoakley and Walbe were issued 1,000
shares of restricted stock each pursuant to the Company's Stock Option and
Restricted Stock Plan of 1998. 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.

Under the Company's Stock Option and Restricted Stock Plan of 1998,
directors who are not employees of the Company may be granted stock
options. Each outside director is to be granted an option to purchase
2,500 shares of Common Stock (as adjusted for stock splits) on the date of
the director's 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 the director's appointment or election.
Under the Stock Option and Restricted Stock Plan of 1998, 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 15 years. Options granted to non-employee
directors under this plan are Nonqualified Options.

In December of 1998 the Board of Directors and the Compensation
Committee authorized the reduction of the exercise price of certain common
stock purchase warrants issued to non-employee directors and employees.
These warrants were considered to be cancelled and reissued under the
Company's Stock Option and Restricted Stock Plan of 1998. There are 19,000
shares of Common Stock issuable pursuant to these reissued options,
including 10,000 in the aggregate owned equally by Messrs. Yoakley and
Walbe, as non-employee directors. The exercise price has been reduced from
an initial range of $5.25 to $6.50 per share, to a new exercise price of
$4.50 per share. The options currently are exercisable and have various
expiration dates.

EXECUTIVE COMPENSATION

COMPENSATION SUMMARY

The following Summary Compensation Table shows certain information
concerning the compensation earned during the fiscal years ended December

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<PAGE>
31, 1998 and 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:

<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------
NUMBER
OF SHARES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS<F1> OPTIONS<F2> COMPENSATION<F3>
- ---------------------- ---- -------- -------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Charles P. Torrey, Jr. 1998 $194,775 $ -- 62,978 $ 5,622
Chairman, Chief Executive 1997 180,000 52,500 32,978 6,052
Officer and Director

Richard S. Cooper 1998 $194,775 $ -- 62,978 $ 5,761
President and Director 1997 180,000 52,500 32,978 5,166

Robert L. Remine 1998 $194,775 $ -- 62,978 $ 7,946
Secretary, Treasurer 1997 180,000 52,500 32,778 7,875
and Director
- ---------------
<FN>
<F1> Includes payments or accruals under the annual bonus program contained
in each individual's employment agreement. See "Employment Contracts
and Termination of Employment and Change in Control Arrangements" for
a description of an amendment to the employment agreements with regard
to bonuses earned by each individual in 1998.

<F2> Amounts reported for 1998 include the following number of options
granted during 1998 which were subsequently canceled in connection
with the Company's stock option exchange program effective January 1,
1999: Mr. Torrey - 30,000 options; Mr. Cooper - 30,000 options; and
Mr. Remine - 30,000 options. Certain option grants reported for 1997
for each of the named executive officers (30,000 each) also were
subsequently canceled effective January 1, 1999 in connection with the
stock option exchange program.

<F3> The compensation listed in this column for 1998 consisted of: (i)
Company contributions to the accounts of the named executive officers

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<PAGE>
under the Company's simplified employee pension plan (SEP) as follows:
$4,571 for Mr. Torrey, $4,571 for Mr. Cooper and $4,571 for Mr.
Remine; and (ii) payments made by the Company for the premiums on
certain life insurance policies as follows: $1,051 for Mr. Torrey,
$1,190 for Mr. Cooper and $3,375 for Mr. Remine.
</FN>
</TABLE>

STOCK OPTIONS AND STOCK OPTION REPRICINGS

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.

The following tables set forth information regarding stock options
granted to the named executive officers during the fiscal year ended
December 31, 1998:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES PRICE
OPTIONS IN FISCAL PER EXPIRATION
NAME GRANTED<F1> YEAR SHARE<F2> DATE
- ---------------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 30,000 29.4 $8.00 1/1/03
Richard S. Cooper 30,000 29.4 $8.00 1/1/03
Robert L. Remine 30,000 29.4 $8.00 1/1/03
- -----------------
<FN>
<F1> These represent options that were previously granted and have vested
during 1998 under the Company's executive officer common stock
purchase warrants program. All such options are exercisable for a
term of five years after the vesting date.

<F2> Effective January 1, 1999, the exercise price for all options in this
table was reduced to $4.50 per share.
</FN>
</TABLE>
-21-
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<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. 62,978 -- -- --
Richard S. Cooper 62,978 -- -- --
Robert L. Remine 62,978 -- -- --
__________________
<FN>
<F1> No named executive officer exercised any stock options in 1998.
</FN>
</TABLE>

Also in December of 1998, the Board of Directors and the Compensation
Committee authorized the reduction of the exercise price of 180,000 vested
executive officer common stock purchase warrants issued in equal amounts to
Messrs. Torrey, Remine and Cooper. The exercise price was reduced from
$8.00 per share to $4.50 per share. It is the Company's intent to bring
these warrants under the Stock Option and Restricted Stock Plan of 1998 if
the proposed amendment to the Plan is adopted by the shareholders.

EMPLOYMENT CONTRACTS 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

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<PAGE>
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 year 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.

In December of 1998, the Board of Directors amended the employment
agreements of Messrs. Torrey, Cooper and Remine as follows: each
individual was entitled to a 1998 cash performance bonus of $47,500
pursuant to their respective employment agreements. In an effort to reduce
corporate cash outlays for the Company, an alternative criteria was adopted
for payment of the 1998 cash performance payable to Messrs. Torrey, Cooper
and Remine. Accordingly, the employment agreements of each individual were
amended to provide that: (i) the criteria for determining entitlement to
the yearly performance bonus will be growth in Company oil and gas reserves
rather than gross working interest revenue; and (ii) the 1998 cash
performance bonus will be a $57,000 bonus which will be earned and payable
at the sooner of (a) sale of substantially all of the assets of the Company
or participation of the Company in a merger or other business combination
in which the Company is not the surviving entity, or (b) the 1998 growth in
oil and gas reserves benchmark is met and the Company oil and gas reserves
for 1999 increase 10% over the prior year.

Messrs. Torrey, Cooper and Remine also were, pursuant to their
respective employment agreements, entitled to acquire 1% of any Company
well drilled in exchange for payment of 1% of the completion costs of any
well selected. The value of the contractual right was estimated to be
$75,000 per person. To maximize Company cash flow, management recommended
and the Board adopted that the Company purchase from Messrs. Torrey, Cooper
and Remine their working interest or right to working interest in Company
wells described above for $75,000 payable interest only at the rate of 10%
per annum with the principal due and payable at the earlier of three years
or the date on which the Company is sold or merged in a transaction in
which it is not the surviving entity.

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

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<PAGE>
insure the life of the employee, the employee will be responsible for
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; and three weeks paid vacation.

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, Cooper's and Remine's employment agreements each
contain confidentiality provisions (generally requiring that all of 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 develops and recommends to the Board of
Directors the compensation policies of the Company. The Compensation
Committee also administers the Company's compensation plans and recommends
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.

The basic compensation philosophy of the Compensation Committee is 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:

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<PAGE>
- 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 is the
Compensation Committee's policy to establish base salaries at levels and
provide benefit packages that the Compensation Committee 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 Compensation
Committee 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 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 1998 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 each employment agreement provides that in each
year in which the Company's oil and gas reserves increase by at least 20%
compared to the level in the preceding year, the Executives will receive a

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<PAGE>
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. The measure of corporate
performance under the Annual Program exceeded the targeted level for 1998.
See "Employment Contracts and Termination of Employment and Change in
Control Arrangements" for a description of a recent amendment to the
payment terms of the Annual Bonus Program for 1998.

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
Compensation Committee believes stock ownership by management is beneficial
to all shareholders. The Compensation Committee administers all aspects of
these plans and reviews, modifies (to the extent appropriate) and takes
final action on any such awards.

Under the Stock Option and Restricted Stock Plan of 1998, which
previously has been adopted 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 and Stock Option and Restricted
Stock Plan of 1998, which previously have been adopted by the shareholders,
the Compensation Committee may grant to executives and other key employees
options to purchase shares of stock. The Compensation Committee reviews,
modifies (to the extent appropriate) and takes 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.

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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 was originally $8.00 per warrant, but this exercise price was
reduced to $4.50 per share effective January 1, 1999. The Executive
Warrants may be exercised at any time within five years from the date of
vesting.

In determining the number of shares of restricted stock and/or the
number of options to be awarded to an executive, the Compensation Committee
generally considers the levels of responsibility and compensation practices
of similar companies. The Compensation Committee also considers 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.

REPORT ON REPRICING OF OPTIONS AND WARRANTS

In December of 1998 the Board of Directors and the Compensation
Committee authorized the reduction of the exercise price of certain common
stock purchase warrants issued to non-employee directors and employees.
These warrants were considered to be cancelled and reissued under the
Company's Stock Option and Restricted Stock Plan of 1998. There are 19,000
shares of Common Stock issuable pursuant to these reissued options. The
exercise price has been reduced from an initial range of $5.25 to $6.50 per
share, to a new exercise price of $4.50 per share. The options currently
are exercisable and have various expiration dates.

Also in December of 1998, the Board of Directors and the Compensation
Committee authorized the reduction of the exercise price of 180,000 vested
executive officer common stock purchase warrants issued in equal amounts to
Messrs. Torrey, Cooper and Remine. The exercise price was reduced from
$8.00 per share to $4.50 per share. It is the Company's intent to bring
these warrants under the Stock Option and Restricted Stock Plan of 1998 if
the proposed amendment to the Plan is adopted by the shareholders.

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

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evergreen provisions), as Chief Executive Officer. The Employment Agreement
also is described in this Proxy Statement under the heading "Employment
Contracts and Termination of Employment and Change in Control
Arrangements."

Under the Employment Agreement, Mr. Torrey will receive a base salary
in 1999 of $202,248. 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 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 oil and gas reserves 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
recognized that Mr. Torrey was entitled to a 1998 annual bonus. See
"Employment Contracts and Termination of Employment and Change in Control
Arrangements" for a description of a recent amendment to the payment terms
of the 1998 annual bonus.

In 1998, Mr. Torrey was awarded options to purchase an additional
30,000 shares of Common Stock.

During 1998, Mr. Torrey's base salary was commensurate with base
salaries paid by similar companies to chief executive officers. Due to the
Company's 1998 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 Compensation Committee attributable to 1998
compensation were unanimously approved by the Board of Directors.

Respectfully submitted,

Kim A. Walbe, Chairman
Douglas A. Yoakley
Charles P. Torrey, Jr.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 1998, the Company received $115,200 from affiliated oil and gas
partnerships for drilling costs which were the responsibility of the
affiliated oil and gas partnerships. As of December 31, 1998 approximately
$59,002 was due from affiliated partnerships.

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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 $110,856 in 1998. 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 $2,500 per month.
The Company believes that such fees are representative of the fair 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 1998, the Company paid
approximately $192,837 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 1998.
The Company paid approximately $69,650 to Pershing & Yoakley & Associates
in 1998.

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 1998. The Company paid approximately
$27,600 to Walbe & Associates in 1998.

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

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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 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, 1998, the Adjusted Gas Price
Spread with respect to the Gas Servicing Agreement was approximately $.55
per Mcf.

In December of 1998 the Board of Directors approved a purchase option
in favor of Mr. Torrey to purchase the Company's airplane in cash for an
amount equal to its depreciated book value, but not less than 50% of its
original cost.

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 1998 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 one report which omitted two transactions that were
later reported on Form 5; Mr. Remine filed one report which omitted six
transactions that were later reported on Form 5; Mr. Walbe filed one
report late involving one transaction; and Mr. Yoakley filed one report
late involving two transactions.

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, 1998. 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.

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SHAREHOLDER PROPOSALS

Shareholder proposals intended to be presented at the 1999 annual
meeting of shareholders and that a shareholder would like to have included
in the proxy statement and form of proxy relating to that meeting must be
received by the Company not later than January 8, 2000, to be considered
for inclusion in the proxy statement and form of proxy relating to that
meeting. Such 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. All other proposals of
shareholders that are intended to be presented at the annual meeting in the
year 2000 must be received by the Company not later than May 3, 2000 or
they will be considered untimely.

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 $10,000, 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

May 7, 1999

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[ENERGY SEARCH INCORPORATED LOGO]

280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922

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APPENDIX A

ENERGY SEARCH, INCORPORATED

STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998

(AS AMENDED)

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

<PAGE>
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
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.

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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.

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

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(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
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.

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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
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

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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 1,000,000 shares of Common Stock shall be
available for Incentive Awards under the Plan. Such shares may be
authorized but unissued shares.

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

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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
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

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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.

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

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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
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.

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(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
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

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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
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

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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.

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

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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.

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.

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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.

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

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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.

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.

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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 B

[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 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
Country Club, 9317 Linksvue Drive, Knoxville, Tennessee, on Thursday, June
17, 1999, 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: Richard S. Cooper and For Withheld Except
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 adopt amendment to Stock For Against Abstain
Option and Restricted Stock Plan of
1998 [ ] [ ] [ ]

Your Board of Directors Recommends that
You Vote FOR this Proposal

Dated: ______________________, 1999
___________________________________
___________________________________
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.