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Previous: ULTRADATA SYSTEMS INC, DEF 14A, 2000-06-27 |
Next: FIRST OMAHA FUNDS INC, 24F-2NT, 2000-06-27 |
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. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[ ] |
Preliminary Proxy Statement |
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[X] |
Definitive Proxy Statement |
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[ ] |
Definitive Additional Materials |
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[ ] |
Soliciting Material Under Rule 14a-12 |
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[ ] |
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
ENERGY SEARCH, INCORPORATED
Payment of Filing Fee (Check the appropriate box):
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[X] |
No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(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): |
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(4) |
Proposed maximum aggregate value of transaction: |
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(5) |
Total fee paid: |
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Fee paid previously with preliminary materials. |
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[ ] 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. |
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(1) |
Amount previously paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
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Filing party: |
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(4) |
Date filed: |
[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 Wednesday, July 19, 2000, at 10:00 a.m., local time, for the following purposes:
(a) Election of two directors for terms expiring in 2003.
(b) Transaction of such other business as may properly come before the meeting.
Shareholders of record at the close of business on June 23, 2000, 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 June 25, 2000.
A copy of the Annual Report to Shareholders for the year ended December 31, 1999, is enclosed with this Notice. The following Proxy Statement and enclosed proxy are being furnished to shareholders on and after June 26, 2000.
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By Order of the Board of Directors |
June 21, 2000
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Your Vote is Important. Even if you plan to attend the meeting, |
ENERGY SEARCH, INCORPORATED
280 Fort Sanders West Boulevard
Suite 200
Knoxville, Tennessee 37922
ANNUAL MEETING OF SHAREHOLDERS
July 19, 2000
PROXY STATEMENT
This Proxy Statement and the enclosed proxy are being furnished on and after June 26, 2000, to holders of common stock, no par value, of Energy Search, Incorporated (the "Company") 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 July 19, 2000, 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 election of two directors for terms expiring in 2003. 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 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 2003 annual meeting:
Robert L. Remine
Kim A. Walbe
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
VOTING SECURITIES
Holders of record of common stock, at the close of business on June 23, 2000, will be entitled to notice of and to vote at the annual meeting and any adjournment of the meeting. As of June 21, 2000, the Company anticipates there will be approximately 4,481,030 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following lists information as to each individual known to the Company to have been the beneficial owner of more than 5% of the Company's outstanding shares of common stock as of April 24, 2000. The address of each individual listed below is c/o Energy Search, Incorporated, 280 Fort Sanders West Boulevard, Suite 200, Knoxville, Tennessee 37922.
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Amount and Nature of |
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Sole Voting |
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Shared |
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Charles P. Torrey, Jr. |
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498,776 |
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10,875 |
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509,651 |
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11.0% |
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Richard S. Cooper |
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488,625 |
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-- |
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488,625 |
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10.6% |
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Robert L. Remine |
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497,412 |
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2,400 |
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499,812 |
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10.8% |
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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. |
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(2) |
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 24, 2000. The number of shares subject to stock options exercisable within 60 days after April 24, 2000, for each listed person is shown below: |
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Mr. Torrey |
159,737 |
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Mr. Cooper |
145,646 |
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Mr. Remine |
147,037 |
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(3) |
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. |
SECURITY OWNERSHIP OF MANAGEMENT
The following table lists the number of shares of Common Stock beneficially owned as of April 24, 2000 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:
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Amount and Nature of |
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Shared |
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Charles P. Torrey, Jr. |
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498,776 |
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10,875 |
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509,651 |
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11.0% |
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Richard S. Cooper |
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488,625 |
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-- |
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488,625 |
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10.6% |
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Robert L. Remine |
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497,412 |
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2,400 |
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499,812 |
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10.8% |
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John M. Johnston |
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85,000 |
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-- |
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85,000 |
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1.9% |
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Douglas A. Yoakley |
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11,822 |
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-- |
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11,822 |
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* |
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Kim A. Walbe |
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7,000 |
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-- |
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7,000 |
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* |
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All directors and executive officers |
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* Less than 1%.
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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. |
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(2) |
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 24, 2000. The number of shares subject to stock options exercisable within 60 days after April 24, 2000, for each listed person is shown below: |
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Mr. Torrey |
159,737 |
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Mr. Cooper |
145,646 |
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Mr. Remine |
147,037 |
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Mr. Johnston |
7,300 |
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Mr. Yoakley |
5,000 |
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Mr. Walbe |
5,000 |
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All directors and executive officers as a group |
469,720 |
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(3) |
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 |
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shares held by spouses, children or other relatives over whom the listed person may have substantial influence by reason of relationship. |
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 June 21, 2000, 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 2003
Robert L. Remine (age 51), a certified public accountant, has been a director of the Company since its inception in 1990. Mr. Remine, a founder of the Company, has served as the Company's Secretary and Treasurer since 1990. Mr. Remine actively has participated in the syndication, capital formation, investment and management of over $50 million in oil and gas related programs for the Company. Mr. Remine is responsible for overview of all financial, tax and accounting matters of the Company. Mr. Remine is a registered securities representative, principal, director and secretary and treasurer of Equity Financial Corporation ("EFC"), a wholly owned subsidiary of the Company. EFC is a member of the National Association of Securities-Dealers and a registered broker-dealer with the Securities and Exchange Commission and in the states of Tennessee, Alabama, Georgia, Florida and Kentucky.
Kim A. Walbe (age 54) 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 53) 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.
Incumbent Directors - Terms Expiring in 2002
Richard S. Cooper (age 50) 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 45), 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.
Significant Employee
John M. Johnston (age 40) 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.
BOARD COMMITTEES AND MEETINGS
The Company's Board of Directors has two standing committees: the Audit Committee and the Compensation Committee.
Audit Committee. The Audit Committee recommends to the Board of Directors the selection of independent accountants; approves the nature and scope of services to be performed by the independent accountants and reviews the range of fees for such services; confers with the independent accountants and reviews the results of the annual audit; reviews with the independent accountants the Company's internal auditing, accounting and financial controls; and reviews policies and practices regarding compliance with laws and conflicts of interest. Messrs. Yoakley (Chairman) and Walbe currently serve on the Audit Committee and Mr. Remine serves on the Audit Committee as a non-voting member. During 1999, the Audit Committee held one meeting.
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,
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: (a) the name, age, business address and residence address of each nominee proposed in the notice; (b) the principal occupation or employment of each nominee; (c) the number of shares of capital stock of the Company which are beneficially owned by each nominee; (d) a statement that the nominee is willing to be nominated; and (e) 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 seven regular meetings. Each of the directors attended 75% or more of the aggregate of (a) the total number of meetings of the Board of Directors and (b) 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, $500 for each meeting of the Board that the director attends and an annual grant of 1,000 shares of restricted common stock. In January of 2000, 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.
EXECUTIVE COMPENSATION
Compensation Summary
The following Summary Compensation Table shows certain information concerning the compensation earned during the fiscal years ended December 31, 1999, 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:
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Number of |
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Charles P. Torrey, Jr. |
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1999 |
$ |
202,248 |
$ |
72,089 |
$ |
30,818 |
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107,464 |
$ |
6,607 |
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Richard S. Cooper |
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1999 |
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202,248 |
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72,089 |
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32,319 |
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107,464 |
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6,607 |
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Robert L. Remine |
1999 |
202,248 |
69,089 |
29,614 |
104,764 |
6,607 |
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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 1999. |
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(2) |
The compensation listed in this column for 1999 includes: (a) payments made by the Company for an automobile allowance of $12,000 to each of Messrs. Torrey, Cooper and Remine; and (b) payments made by the Company for 1997, 1998 and 1999 in lieu of individual life insurance policies as follows: $15,025 to Mr. Torrey, $15,792 to Mr. Cooper and $13,928 to Mr. Remine. |
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The compensation listed in this column for 1999 consisted of Company contributions to the accounts of the named executive officers under the Company's simplified employee pension plan. |
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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. These options were re-issued to the executive officers in 1999 at an exercise price of $4.50. 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. |
Stock Options
The Company's stock option plans are administered by the Compensation Committee of the Board of Directors which has authority to determine the individuals to whom and the terms upon which options will be granted, the number of shares to be subject to each option and the form of consideration that may be paid upon the exercise of an option. The Board of Directors of the Company makes recommendations of stock incentive grants which the Compensation Committee will then consider.
The following tables list information regarding stock options granted to the named executive officers during the fiscal year ended December 31, 1999:
OPTION GRANTS IN LAST FISCAL YEAR
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Individual Grants |
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Percent of |
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Charles P. Torrey, Jr. |
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986 |
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0.7 |
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4.50 |
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July 20, 2004 |
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Richard S. Cooper |
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986 |
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0.7 |
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4.50 |
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July 20, 2004 |
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Robert L. Remine |
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986 |
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0.7 |
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4.50 |
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July 20, 2004 |
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These represent options that were previously granted and have vested during 1999 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. |
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
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Number of Securities |
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Exercisable |
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Unexercisable |
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Charles P. Torrey, Jr. |
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107,464 |
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-- |
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Richard S. Cooper |
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107,464 |
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-- |
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Robert L. Remine |
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104,764 |
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-- |
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(1) |
No named executive officer exercised any stock options in 1999. |
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 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
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. The Company made a principal payment of $15,000 and an interest payment of $8,125 to each individual as of December 31, 1999.
Under the employment agreements, Messrs. Torrey, Cooper and Remine also are entitled to receive the following: a nonaccountable automobile allowance of $1,000 per month and reimbursement of itemized fuel, cleaning and related expenses; a life insurance policy in the face amount of $500,000 (with the employee to name the beneficiary) provided the employee is insurable at standard rates (and if extra premiums are incurred to insure the life of the employee, the employee will be responsible for 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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Attract and retain well-qualified executives who will lead the Company and achieve and inspire superior performance; |
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Provide incentives for achievement of specific short-term individual and corporate goals; and |
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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 1999 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 yearly performance bonus equal
to 25% of the executive's base salary.
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.
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.
Chief Executive Officer
The Chief Executive Officer's compensation is based upon the policies and objectives discussed above.
Effective January 1, 1997, the Company executed an employment agreement (the "Employment Agreement") with Mr. Torrey which provides for his continued service to the Company through December 31, 2002 (with evergreen provisions), as Chief Executive Officer. The Employment Agreement also is described 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 2000 of $214,382. 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 an amendment to the payment terms of the 1998 annual bonus.
In 1999, Mr. Torrey was awarded options to purchase an additional 44,486 shares of Common Stock.
During 1999, Mr. Torrey's base salary was commensurate with base salaries paid by similar companies to chief executive officers. Due to the Company's 1999 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 1999 compensation were unanimously approved by the Board of Directors.
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Respectfully submitted, |
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Kim A. Walbe, Chairman |
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Douglas A. Yoakley |
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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 $0 was due from affiliated partnerships. During 1999, the Company did not receive any funds from affiliated oil and gas partnerships.
In its role as operator of the oil and gas wells owned by various related partnerships, the Company charges a monthly wellhead and administrative fee of between $100 and $300 for each producing well. These fees totaled approximately $110,856 in 1998 and $46,100 in 1999. 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. The Company paid approximately $192,837 in 1998 and $104,300 in 1999 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 1999. The Company paid approximately $69,650 in 1998 and $64,500 in 1999 to Pershing & Yoakley & Associates.
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 1999 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 failed to file three reports concerning seven transactions that occurred in 1999, which were later reported on Form 5; Mr. Remine failed to file two reports concerning four transactions that occurred in 1999, which were later reported on Form 5; Mr. Cooper failed to file two reports concerning four transactions that occurred in 1999, which were later reported on Form 5; and Mr. Yoakley failed to file one report concerning one transaction that occurred in 1999, which was later reported on Form 5.
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, 1999. Representatives of Plante & Moran, LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions from shareholders.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the annual meeting of shareholders in 2001 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, 2001, 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,
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 $15,000, plus expenses and disbursements, to assist in solicitation of proxies.
By Order of the Board of Directors
Robert L. Remine, Secretary and Treasurer
June 21, 2000
[ENERGY SEARCH,
INCORPORATED LOGO]
280 Fort Sanders West Boulevard
Suite 200
Knoxville, Tennessee 37922
[FRONT]
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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 Richard S. Cooper, 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 Wednesday, July 19, 2000, 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)
[BACK]
ENERGY SEARCH, INCORPORATED
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING
DARK INK ONLY. [X]
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ELECTION OF DIRECTORS- For All |
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Nominees: Robert L. Remine and For Withheld Except Kim A. Walbe |
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(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE THROUGH THAT NOMINEE'S NAME IN THE LIST ABOVE.) |
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For All |
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Your Board of Directors Recommends that You Vote FOR ALL NOMINEES |
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Dated: _______________________________, 2000 |
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Signature of Shareholder(s) |
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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. |
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