prer14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Encore Acquisition Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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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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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
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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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Form, Schedule or Registration Statement No.: |
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ENCORE ACQUISITION COMPANY
777 Main Street
Suite 1400
Fort Worth, Texas 76102
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Encore Acquisition Company:
Notice is hereby given that the Annual Meeting of Stockholders
of Encore Acquisition Company (the Company) will be
held at the Fort Worth Petroleum Club, 777 Main Street,
39th Floor, Fort Worth, Texas 76102, on Tuesday,
May 3, 2005, at 9:00 a.m., Fort Worth time. The
annual meeting is being held for the following purposes:
(1) to elect seven directors, each for a term of one year;
(2) to amend the Companys Second Amended and Restated
Certificate of Incorporation to (a) increase the authorized
number of shares of the Companys common stock from
60,000,000 to 144,000,000 and (b) delete Article Six
(an outdated provision renouncing corporate opportunities known
to former principal stockholders of the Company) in its entirety;
(3) to ratify the appointment of the independent registered
public accounting firm for the fiscal year ending
December 31, 2005; and
(4) to transact such other business as may properly come
before the meeting.
These proposals are described in the accompanying proxy
materials. You will be able to vote at the annual meeting only
if you were a stockholder of record at the close of business on
March 15, 2005.
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By Order of the Board of Directors, |
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Roy W. Jageman |
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Corporate Secretary |
Fort Worth, Texas
April 4, 2005
YOUR VOTE IS IMPORTANT
Please sign, date and return the enclosed proxy promptly to
ensure that your shares are voted in accordance with your wishes
and a quorum is present at the annual meeting. Instead of
returning the paper proxy, you may vote by telephone at
1-866-540-5760 or over the Internet by accessing
http://www.proxyvoting.com/eac. To do so by either method, you
will need the control numbers that are printed on your
personalized proxy card or voting instruction card.
ENCORE ACQUISITION COMPANY
777 Main Street
Suite 1400
Fort Worth, Texas 76102
PROXY STATEMENT
2005 ANNUAL MEETING OF STOCKHOLDERS
May 3, 2005
The Board of Directors (the Board) of Encore
Acquisition Company (the Company) is providing these
proxy materials in connection with the Companys annual
meeting of stockholders that will be held at the Fort Worth
Club, 777 Main Street, 39th Floor, Fort Worth, Texas 76102,
on Tuesday, May 3, 2005, at 9:00 a.m., Fort Worth
time. Stockholders of record as of March 15, 2005, which is
the record date established for the annual meeting by the Board,
are entitled and requested to vote on the items of business
described in this proxy statement. Each stockholder of record is
entitled to one vote for each share registered in the
stockholders name. As of the record date,
32,870,815 shares of the Companys common stock were
entitled to be voted at the annual meeting.
This proxy statement and the accompanying notice of annual
meeting and proxy are first being sent or given to stockholders
of the Company on or about April 4, 2005.
Voting Procedures
You may vote your shares in person at the annual meeting, by
Internet, by telephone or by mail.
Voting in Person. Shares held in your name as the
stockholder of record may be voted in person at the annual
meeting. If your shares are held in the name of a broker,
trustee or another nominee (that is, street name),
you may vote the shares in person at the annual meeting only if
you obtain a legal proxy from the broker, trustee or nominee
that holds your shares giving you the right to vote the shares.
Even if you plan to attend the annual meeting, we recommend
that you also submit your proxy or voting instructions as
described below so that your vote will be counted if you later
decide not to attend the meeting.
Voting by Internet. Stockholders of record of the
Companys common stock with Internet access may submit
proxies by following the Vote by Internet
instructions on their proxy cards. Most stockholders who hold
shares beneficially in street name may vote by accessing the
website specified on the voting instruction cards provided by
their brokers, trustee or nominees. Please check the voting
instruction card for Internet voting availability.
Voting by Telephone. Stockholders of record of the
Companys common stock may submit proxies by following the
Vote by Phone instructions on their proxy cards.
Most stockholders who hold shares beneficially in street name
may vote by phone by calling the number specified on the voting
instruction cards provided by their brokers, trustee or
nominees. Please check the voting instruction card for telephone
voting availability.
Voting by Mail. Stockholders of record of the
Companys common stock may submit proxies by completing,
signing and dating their proxy cards and mailing them in the
accompanying pre-addressed envelopes. Stockholders who hold
shares beneficially in street name may vote by mail by
completing, signing and dating the voting instruction cards
provided and mailing them in the accompanying pre-addressed
envelopes.
Changing Your Vote
You may change your vote at any time prior to the vote at the
annual meeting, except that votes submitted through the Internet
or telephone must be received by 11:59 p.m., New York time,
on May 2, 2005. If you are the stockholder of record, you
may change your vote by granting a new proxy bearing a later date
(which automatically revokes the earlier proxy), by providing a
written notice of revocation to the Companys Corporate
Secretary prior to your shares being voted, or by attending the
annual meeting and voting in person. Attendance at the meeting
will not cause your previously granted proxy to be revoked
unless you specifically so request. For shares you hold
beneficially in street name, you may change your vote by
submitting new voting instructions to your broker, trustee or
nominee, or, if you have obtained a legal proxy from your broker
or nominee giving you the right to vote your shares, by
attending the meeting and voting in person.
Quorum and Adjournments
The presence, in person or by proxy, of the holders of a
majority of the votes eligible to be cast at the annual meeting
is necessary to constitute a quorum at the annual meeting. Both
abstentions and broker non-votes (described below) are counted
for the purpose of determining the presence of a quorum. If a
quorum is not present, the stockholders entitled to vote who are
present in person or by proxy at the annual meeting have the
power to adjourn the annual meeting from time to time, without
notice other than an announcement at the annual meeting, until a
quorum is present. At any adjourned annual meeting at which a
quorum is present, any business may be transacted that might
have been transacted at the annual meeting as originally
notified.
Required Vote; Effect of Broker Non-Votes and Abstentions
The nominees for election as directors at the annual meeting who
receive the highest number of FOR votes will be
elected as directors. This is called plurality voting. The
amendments to the Companys Second Amended and Restated
Certificate of Incorporation each require the affirmative vote
of the holders of a majority of the shares of common stock
outstanding on the record date. The ratification of the
appointment of the Companys independent registered public
accounting firm requires the affirmative vote of a majority of
the votes cast at the annual meeting.
In the election of directors, you may vote FOR all
or some of the nominees or your vote may be WITHHELD
with respect to one or more of the nominees. For the other items
of business, you may vote FOR, AGAINST
or ABSTAIN. If you elect to ABSTAIN, the
abstention has the same effect as a vote AGAINST. If
you provide specific instructions with regard to certain items,
your shares will be voted as you instruct on such items. If you
sign your proxy card or voting instruction card without giving
specific instructions, your shares will be voted in accordance
with the recommendations of the Board set forth below under
Board Recommendation.
Brokers holding shares must vote according to specific
instructions they receive from the beneficial owners of those
shares. If specific instructions are not received, brokers may
generally vote the shares in their discretion. However, the New
York Stock Exchange precludes brokers from exercising voting
discretion on certain proposals without specific instructions
from the beneficial owner. Under the rules of the New York Stock
Exchange, brokers will have discretion to vote on all items
scheduled to be presented at the annual meeting.
A broker non-vote has the effect of a negative vote when a
majority of the issued and outstanding shares is required for
approval of a particular proposal and has no effect when a
majority of the shares present in person or by proxy and
entitled to vote or a plurality or majority of the votes cast is
required for approval. Since directors are elected by a
plurality and the ratification of the appointment of the
independent registered public accounting firm requires the
affirmative vote of a majority of the votes cast, broker
non-votes will not affect the outcome of voting on those
proposals. Since the amendments to the Companys Second
Amended and Restated Certificate of Incorporation each require
the affirmative vote of the holders of a majority of the
Companys outstanding shares of common stock, broker
non-votes will have the same effect as votes against that
proposal.
Because abstentions are considered votes cast on a
proposal, abstentions will have the same effect as votes against
the ratification of the appointment of the Companys
independent registered public accounting firm and the amendments
to the Companys Second Amended and Restated Certificate of
Incorporation.
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Board Recommendation
The Board recommends that you vote:
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FOR the election of the seven persons named in this proxy
statement as nominees for election to the Board. If any nominee
becomes unable or unwilling to accept nomination or election,
the persons acting under proxy will vote for the election of a
substitute nominee that the Board recommends. |
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FOR the amendment to the Companys Second Amended
and Restated Certificate of Incorporation to increase the
authorized number of shares of the Companys common stock
from 60,000,000 to 144,000,000. |
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FOR the amendment to the Companys Second Amended
and Restated Certificate of Incorporation to delete
Article Six (an outdated provision renouncing corporate
opportunities known to former principal stockholders of the
Company) in its entirety. |
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FOR the ratification of the appointment of
Ernst & Young LLP as the Companys independent
registered public accounting firm. |
Voting on Other Matters
If any other business properly comes before the stockholders for
a vote at the meeting, your shares will be voted in accordance
with the discretion of the proxy holders, I. Jon Brumley, Jon S.
Brumley and Roy W. Jageman. The Board knows of no matters, other
than those described above, to be presented for consideration at
the annual meeting.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
The Company has adopted a Code of Business Conduct and Ethics
for directors, officers (including the Companys principal
executive officer, principal financial officer and principal
accounting officer) and employees. The Company also has adopted
Corporate Governance Guidelines, which, in conjunction with the
Companys certificate of incorporation, bylaws and Board
committee charters, form the framework for governance of the
Company. The Companys Code of Business Conduct and Ethics
and Corporate Governance Guidelines are available on the
Corporate Governance section of the Companys
website at www.encoreacq.com. The Company will post on its
website any amendments to the Code of Business Conduct and
Ethics or waivers of the Code of Business Conduct and Ethics for
directors and executive officers.
Stockholders may request free printed copies of the Code of
Business Conduct and Ethics and the Corporate Governance
Guidelines from:
Encore Acquisition Company
Attention: Corporate Secretary
777 Main Street, Suite 1400
Fort Worth, Texas 76102
(817) 877-9955
Director Independence
The Board had determined that each director nominee is
independent, as defined for purposes of the listing standards of
the New York Stock Exchange (the NYSE), other than
Mr. I. Jon Brumley, who is Chairman and Chief Executive
Officer of the Company, and Mr. Jon S. Brumley, who is
President of the Company. In making this determination, the
Board affirmatively determined that each independent director or
nominee had no material relationship with the Company (either
directly or as a partner, shareholder or officer of an
organization that has a relationship with the Company), and that
none of the express disqualifications contained in the NYSE
rules applied to any of them.
As contemplated by NYSE rules, the Board has adopted categorical
standards to assist it in making independence determinations,
under which relationships that fall within the categorical
standards are not
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required to be disclosed in the proxy statement and their impact
on independence need not be separately discussed. The Board,
however, considers all material relationships with each director
in making its independence determinations. A relationship falls
within the categorical standards if it:
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Is a type of relationship addressed in Item 404 of
Regulation S-K under the Securities Exchange Act of 1934
(the Exchange Act) or Section 303A.02(b) of the
NYSE Listed Company Manual, but under those rules neither
requires disclosure nor precludes a determination of
independence; or |
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Consists of charitable contributions by the Company to an
organization where a director is an executive officer and does
not exceed the greater of $1 million or 2% of the
organizations gross revenue in any of the last
3 years. |
None of the independent director nominees had relationships
relevant to an independence determination that were outside the
scope of the Boards categorical standards.
Board Structure and Committee Composition
As of the date of this proxy statement, the Board has eight
directors and the following three committees: (1) Audit,
(2) Compensation, and (3) Nominating and Corporate
Governance. The committee membership and meetings during the
last fiscal year and the function of each of the committees are
described below. Each of the committees operates under a written
charter adopted by the Board. All of the committee charters are
available on the Corporate Governance section of the
Companys website at www.encoreacq.com.
Composition of Board Committees
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Nominating and |
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Audit(1) |
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Compensation(2) |
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Corporate Governance |
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Martin C. Bowen
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Member |
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Ted Collins, Jr.
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Member |
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Chair |
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Ted A Gardner
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Chair |
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John V. Genova
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Member |
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Howard H. Newman(3)
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Member |
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James A. Winne III
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Chair |
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Member |
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Messrs. Collins and Winne served on the Audit Committee
until April 2004, when Messrs. Bowen and Genova joined the
Audit Committee. |
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Mr. Arnold Chavkin served on the Compensation Committee
until April 2004. Mr. Chavkin did not stand for reelection
in April 2004. |
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Mr. Newman is not a nominee for director at the annual
meeting. |
The Audit Committee held eight meetings in 2004; the
Compensation Committee held one meeting and acted by unanimous
written consent on two occasions in 2004; and the Nominating and
Corporate Governance Committee did not meet in 2004. The
Nominating and Corporate Governance Committee met in February
2005 in connection with matters related to the annual meeting.
The Board held nine meetings in fiscal 2004. Each director
attended at least 75% of all Board and applicable committee
meetings in 2004. Directors are encouraged to attend annual
meetings of the Companys stockholders. All of the
Companys directors attended the 2004 annual meeting of
stockholders.
Audit Committee. The Audit Committees purpose is,
among other things, to assist the Board in overseeing:
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the integrity of the Companys financial statements; |
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the Companys compliance with legal and regulatory
requirements; |
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the independence, qualifications and performance of the
Companys independent registered public accounting
firm; and |
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the performance of the Companys internal audit function. |
The Board has determined that all three members of the Audit
Committee are independent under the listing standards of the
NYSE and the rules of the Securities and Exchange Commission. In
addition, the Board has determined that Mr. Gardner is an
audit committee financial expert as such term is
defined in Item 401(h) of Regulation S-K under the
Exchange Act.
The report of the Audit Committee is included in this proxy
statement on page 23. The charter of the Audit Committee is
available on the Corporate Governance section of the
Companys website at www.encoreacq.com and also is included
as Annex A. A free printed copy also is available to any
stockholder who requests it from the address on page 3.
Compensation Committee. The Compensation Committees
functions include the following:
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review and approve corporate goals and objectives relevant to
chief executive officer compensation, evaluate the chief
executive officers performance in light of those goals and
objectives, and, either as a committee or together with the
other independent directors (as directed by the Board),
determine and approve the chief executive officers
compensation level based on this evaluation; |
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approve, or make recommendations to the Board with respect to,
the compensation of other executive officers; |
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from time to time consider and take action on the establishment
of and changes to incentive compensation plans and equity-based
compensation plans, including making recommendations to the
Board on plans, goals or amendments to be submitted for action
by the Companys stockholders; |
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administer the Companys compensation plans that it is
assigned responsibility to administer, including taking action
on grants and awards, determinations with respect to achievement
of performance goals, and other matters provided in the
respective plans; |
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review from time to time when and as it deems appropriate the
compensation and benefits of non-employee directors, including
compensation pursuant to equity-based plans, and approve, or
recommend to the Board for its action, any changes in such
compensation and benefits; and |
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produce a compensation committee report on executive
compensation as required by the Securities and Exchange
Commission to be included in the Companys annual proxy
statement or annual report on Form 10-K. |
The Board has determined that all three members of the
Compensation Committee are independent under the listing
standards of the NYSE.
The report of the Compensation Committee is included in this
proxy statement on page 19. The charter of the Compensation
Committee is available on the Corporate Governance
section of the Companys website at www.encoreacq.com. A
free printed copy also is available to any stockholder who
requests it from the address on page 3.
Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committees functions
include the following:
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identify individuals qualified to become Board members,
consistent with criteria approved by the Board; |
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recommend to the Board a slate of director nominees to be
elected by the stockholders at the next annual meeting of
stockholders and, when appropriate, director appointees to take
office between annual meetings; |
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develop and recommend to the Board the corporate governance
guidelines applicable to the Company; |
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oversee the Boards annual evaluation of its performance of
the Board and management; and |
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recommend to the Board membership on standing Board committees. |
The Board has determined that both members of the Nominating and
Corporate Governance Committee are independent under the listing
standards of the NYSE.
The charter of the Nominating and Corporate Governance Committee
is available on the Corporate Governance section of
the Companys website at www.encoreacq.com.. A free printed
copy also is available to any stockholder who requests it from
the address on page 3.
Selection of Nominees for the Board
The Nominating and Corporate Governance Committee solicits ideas
for potential Board candidates from a number of sources,
including members of the Board, executive officers of the
Company, individuals personally known to the members of the
Board and research. The Nominating and Corporate Governance
Committee also has sole authority to select and compensate a
third-party executive search firm to help identify candidates,
if it deems advisable. In addition, the Nominating and Corporate
Governance Committee will consider candidates for the Board
submitted by stockholders. Any stockholder submission should
include the candidates name and qualifications for Board
membership and should be directed to:
Encore Acquisition Company
Attention: Corporate Secretary
777 Main Street, Suite 1400
Fort Worth, Texas 76102
Although the Nominating and Corporate Governance Committee does
not require the stockholder to submit any particular information
regarding the qualifications of the stockholders
candidate, the level of consideration that the Nominating and
Corporate Governance Committee will give to the
stockholders candidate will be commensurate with the
quality and quantity of information about the candidate that the
nominating stockholder makes available to the committee. The
Nominating and Corporate Governance Committee will consider all
candidates identified through the processes described above, and
will evaluate each of them on the same basis.
In addition, the Companys bylaws permit stockholders to
nominate directors for election at an annual meeting of
stockholders whether or not such nominee is submitted to and
evaluated by the Nominating and Corporate Governance Committee.
To nominate a director using this process, the stockholder must
follow the procedures described under Stockholder
Proposals below.
Each director candidate must meet certain minimum
qualifications, including:
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the ability to represent the interests of all stockholders of
the Company and not just one particular constituency; |
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independence of thought and judgment; |
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the ability to dedicate sufficient time, energy and attention to
the performance of his or her duties, taking into consideration
the nominees service on other public company boards; |
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skills and expertise complementary to the existing Board
members skills; and |
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a high degree of personal and professional integrity. |
In addition, the Nominating and Corporate Governance Committee
considers other qualities that it may deem to be desirable from
time to time, such as the extent to which the candidate
contributes to the diversity of the Board with
diversity being construed broadly to include a variety of
perspectives, opinions,
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experiences and backgrounds. The Nominating and Corporate
Governance Committee may also consider the ability of the
candidate to work with the then-existing interpersonal dynamics
of the Board and his or her ability to contribute to the
collaborative culture among Board members.
Based on this initial evaluation, the Chairman of the Nominating
and Corporate Governance Committee will determine whether to
interview the candidate, and if warranted, will recommend that
one or more members of the committee, other members of the Board
and executives, as appropriate, interview the candidate in
person or by telephone. After completing this evaluation and
interview process, the committee will make a recommendation to
the full Board as to the persons who should be nominated by the
Board, and the Board will determine the nominees after
considering the recommendation of the Nominating and Corporate
Governance Committee.
Compensation of Directors
The following table provides information on the Companys
compensation and reimbursement practices for non-employee
directors. At a meeting in February 2005, the Board increased
director compensation to the amounts shown below. During 2004,
neither Mr. I. Jon Brumley, Mr. Jon S. Brumley nor
Mr. Howard H. Newman received any compensation for Board
activities.
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Fiscal 2005 |
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Fiscal 2004 |
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Annual Retainer
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$40,000 |
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$40,000 |
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Additional Retainer for Chair of Audit Committee
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$10,000 |
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$0 |
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Additional fee for attendance at Board meetings
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$2,000 |
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$2,000 |
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Additional fee for attendance at committee meetings
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$1,000 |
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$1,000 |
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Equity-based compensation
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3,000 shares of restricted stock issued upon the directors election or reelection to the Board(1) |
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Options to purchase 5,000 shares of the Companys common stock issued upon the directors election or reelection to the Board(2) |
Reimbursement of expenses attendant to Board membership
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Yes |
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Yes |
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(1) |
Shares of restricted stock vest in three equal annual
installments beginning three years from the date of grant,
subject to earlier vesting in the event of a change in control,
death or disability and to such other terms as are set forth in
the award agreement. |
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Options vest in three equal annual installments beginning one
year from the date of grant, subject to earlier vesting in the
event of a change in control, death or disability and to such
other terms as are set forth in the award agreement. |
Executive Sessions
The Companys non-management directors include all
directors other than I. Jon Brumley and Jon S. Brumley. Each of
the non-management directors is also independent
under the listing standards of the NYSE. The non-management
directors meet in executive session without management
participation at least three times per year. These meetings are
chaired on a rotating basis by the chairmen of the Audit
Committee, the Compensation Committee and the Nominating and
Corporate Governance Committee.
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Stockholder Communications
Individuals may communicate with the entire Board or with the
Companys non-management directors. Any such communication
should be sent via letter addressed to the member or members of
the Board to whom the communication is directed, care of the
Companys Corporate Secretary, Encore Acquisition Company,
777 Main Street, Suite 1400, Fort Worth, Texas 76102.
All such communications, other than unsolicited commercial
solicitations or communications, will be forwarded to the
appropriate director or directors for review.
PROPOSALS TO BE VOTED ON
PROPOSAL NO. 1
ELECTION OF DIRECTORS
There are seven nominees for election to our Board this year.
All of the nominees have served as directors since the last
annual meeting. Information regarding the business experience of
each nominee is provided below. Each director is elected
annually to serve until the next annual meeting or until his
successor is elected.
If you sign your proxy or voting instruction card but do not
give instructions with respect to voting for directors, your
shares will be voted for the seven persons recommended by the
Board. If you wish to give specific instructions with respect to
voting for directors, you may do so by indicating your
instructions on your proxy or voting instruction card.
All of the nominees have indicated to the Company that they will
be available to serve as directors. In the event that any
nominee should become unavailable, however, the proxy holders,
I. Jon Brumley, Jon S. Brumley and Roy W. Jageman, will vote for
a nominee or nominees designated by the Board, unless the Board
chooses to reduce the number of directors serving on the Board.
Required Vote
The seven nominees for director who receive the highest number
of FOR votes cast in person or by proxy at the
annual meeting will be elected as directors.
Board Recommendation
The Board recommends a vote FOR the election of each of
the following nominees:
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I. Jon Brumley
Age 65 |
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Mr. I. Jon Brumley has been Chairman of the Board, Chief
Executive Officer and a director of the Company since its
inception in April 1998. He also served as President of the
Company from its inception in April 1998 until August 2002.
Beginning in August 1996, Mr. Brumley served as Chairman and
Chief Executive Officer of MESA Petroleum (an independent oil
and gas company) until MESAs merger in August 1997 with
Parker & Parsley to form Pioneer Natural Resources Company
(an independent oil and gas company). He served as Chairman and
Chief Executive Officer of Pioneer until joining the Company in
1998. Mr. Brumley serves as a director of Hanover Compressor
Company. Mr. Brumley received a Bachelor of Business
Administration from the University of Texas and a Master of
Business Administration from the University of Pennsylvania
Wharton School of Business. He is the father of Jon S. Brumley. |
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Jon S. Brumley
Age 34 |
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Mr. Jon S. Brumley has been President of the Company since
August 2002 and a director of the Company since November 2001.
He also held the positions of Executive Vice
President Business |
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Development and Corporate Secretary from inception in April 1998
until August 2002 and was a director of the Company from April
1999 until May 2001. Prior to joining the Company, Mr. Brumley
held the position of Manager of Commodity Risk and Commercial
Projects for Pioneer Natural Resources Company. He was with
Pioneer since its creation by the merger of MESA and Parker
& Parsley in August 1997. Prior to August 1997, Mr. Brumley
served as Director Business Development for MESA.
Mr. Brumley received a Bachelor of Business Administration in
Marketing from the University of Texas. He is the son of I. Jon
Brumley. |
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Martin C. Bowen
Age 61 |
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Mr. Bowen has been a director of the Company since May 2004.
Since 1993, Mr. Bowen has been Vice President and Chief
Financial Officer of Fine Line, Inc., a private holding company.
He also serves on the Board of Directors of AZZ, Inc. and
several privately held companies. In addition, he is a Director
and Executive Committee Member of the Southwestern Exposition
and Livestock Show, President and Chief Executive Officer of
Performing Arts Fort Worth and a Council Member of the World
Wildlife Fund. Mr. Bowen received a Bachelor of Business
Administration in Finance from Texas A&M University, a
Bachelor of Foreign Trade from the American Graduate School of
International Management and a J.D. from Baylor University
School of Law. |
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Ted Collins, Jr.
Age 66 |
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Mr. Collins has been a director of the Company since May 2001.
From 1988 to July 2000, he was a co-founder and president of
Collins & Ware, Inc. (an independent oil and gas exploration
company which was sold in July 2000). Since that time he has
engaged in private oil and gas investments. Mr. Collins is a
past President of the Permian Basin Petroleum Association, the
Permian Basin Landmens Association, Midland Petroleum Club
and serves as Chairman of the Midland Wildcat Committee. He is a
graduate of the University of Oklahoma with a Bachelor of
Science in Geological Engineering. Mr. Collins serves on the
Board of Directors of Hanover Compressor Company and U.S.
Propane L.L.C., the general partner of the general partner of
Energy Transfer Partners, L.P. Mr. Collins in also an active
board member on the Midland Metropolitan YMCA, the University of
Oklahoma Sarkeys Energy Center and the University of Texas
Development Board. |
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Ted A. Gardner
Age 47 |
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Mr. Gardner has been a director of the Company since May 2001.
Mr. Gardner is currently an independent investor. Mr. Gardner
was a Managing Partner of Wachovia Capital Partners (a private
equity investment group) and a Senior Vice President of Wachovia
Corporation (a provider of commercial and retail banking and
trust services) from 1990 until 2003. Mr. Gardner received a
Bachelor of Arts degree in Economics from Duke University and a
J.D. and Masters of Business Administration from the University
of Virginia. He currently serves on the Board of Directors of
Kinder Morgan, Inc. and COMSYS IT Partners Inc. |
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John V. Genova
Age 50 |
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Mr. Genova has been a director of the Company since May 2004.
Beginning January 2005, Mr. Genova became an independent |
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consultant to the energy industry. In 2004, Mr. Genova was
Executive Vice President Refining and Marketing of
Holly Corporation (an independent U.S. petroleum refiner). Prior
to Holly, Mr. Genova worked over 27 years with ExxonMobil. From
January 1999 to December 1999, he served as Vice President of
the Gas Department of Exxon Company, International. From
December 1999 to March 2002, he served as Director of
International Gas Marketing of ExxonMobil International Limited
in London. From April 2002 through 2003, Mr. Genova served as
Executive Assistant to the Chairman and General Manager,
Corporate Planning of ExxonMobil Corporation. Mr. Genova
received a Bachelor of Science degree in Chemical and Petroleum
Refining Engineering from the Colorado School of Mines. |
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James A. Winne III
Age 53 |
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Mr. Winne has been a director of the Company since May 2001. Mr.
Winne has been a director of Belden & Blake Corporation (an
independent oil and gas company) since September 2004 and was
elected Chairman of the Board and Chief Executive Officer of
Belden & Blake in December 2004. He has been President and
Chief Executive Officer of Legend Natural Gas II, L.P. (an
independent oil and gas company) since its inception in
September 2004. In addition, Mr. Winne has been President and
Chief Executive Officer of Legend Natural Gas, L.P. (an
independent oil and gas company) since its inception in
September 2001. From March 2001 until September 2001, Mr. Winne
developed plans for a business that became Legend Natural Gas.
He formerly was employed by North Central Oil Corporation (an
independent oil and gas company) for 18 years and was President
and CEO from September 1993 until March 2001. After attending
the University of Houston, he started his career as an
independent landman and also worked at Tomlinson Interest, Inc.
(an independent oil and gas company) and Longhorn Oil and Gas
(an independent oil and gas company) before joining North
Centrals land department in January 1983. Mr. Winne is a
registered land professional with 26 years of experience in the
oil and gas industry. |
10
PROPOSAL NO. 2
AMENDMENTS TO SECOND AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
The Board has adopted, subject to stockholder approval,
amendments to the Companys Second Amended and Restated
Certificate of Incorporation to (a) increase the authorized
number of shares of the Companys common stock from
60,000,000 to 144,000,000 and (b) delete Article Six
in its entirety, which relates to the Companys renouncing
of certain oil and gas opportunities known to former principal
stockholders of the Company.
The amendment to the Companys Second Amended and Restated
Certificate of Incorporation to increase the authorized shares
of common stock will be voted on as proposal 2(a) on the
proxy card, while the amendment to the Companys Second
Amended and Restated Certificate of Incorporation to delete the
Article Six in its entirety will be voted on as proposal
2(b) on the proxy card.
Proposal 2(a): Increase in Authorized Shares of Common
Stock
Available Authorized Capital. The Companys Second
Amended and Restated Certificate of Incorporation currently
authorizes the Company to issue up to 60,000,000 shares of
common stock. As of March 15, 2005:
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32,870,815 shares of common stock were issued and
outstanding, including 436,261 shares of restricted stock; |
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1,036,214 shares of common stock were reserved for issuance
upon the exercise of stock options granted by the Company; |
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1,122,932 shares of common stock were available for
issuance under the Companys 2000 Incentive Stock
Plan; and |
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24,970,039 shares of common stock were available for future
corporate purposes. |
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The Companys Second Amended and Restated Certificate of
Incorporation also authorizes the Company to issue
5,000,000 shares of preferred stock. There are no
outstanding shares of preferred stock, and this amendment would
not change the number of authorized shares of preferred stock.
Reasons for and Effects of Increasing the Companys
Authorized Common Stock. The Company believes that the
number of shares of common stock currently available for
issuance may be insufficient to meet the Companys future
needs. The additional shares may be used for various purposes,
including:
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paying stock dividends or effecting stock splits; |
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raising capital; |
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providing equity incentives to employees, officers and directors; |
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expanding the Companys business through
acquisitions; and |
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other general corporate purposes. |
The Board of Directors has preliminarily discussed the
possibility of a stock split by means of a stock dividend.
However, the Company does not currently have sufficient
authorized shares to effect a stock split. If proposal 2(a) is
approved by the Companys stockholders, the Board may again
consider a stock split in the form of a stock dividend in the
near term. A decision on whether to effect a stock split is
subject to many factors, including prevailing market conditions,
and there can be no assurances that a stock split will occur.
Except for considering the possibility of a stock split in the
form of a stock dividend, the Company currently has no specific
plans to issue the additional shares of common stock that would
be authorized by this proposal.
11
Like the presently authorized but unissued shares of the
Companys common stock, the additional shares of common
stock authorized by this proposal would be available for
issuance without further action by the Companys
stockholders, unless further action is required by law, the
rules of the New York Stock Exchange or any other stock exchange
on which Company common stock may be listed in the future. The
authorization of additional shares of the Companys common
stock will enable the Company, as the need may arise, to take
advantage of market conditions and favorable opportunities
without the delay and expense associated with the holding of a
special meeting of the Companys stockholders.
The Company could also use the additional shares of common stock
to oppose a hostile takeover attempt or delay or prevent changes
in control or management. For example, without further
stockholder approval, the Company could adopt a poison
pill that would, under certain circumstances related to an
acquisition of shares that the Company did not approve, give
certain holders the right to acquire additional shares of common
stock at a low price. The Company also could strategically sell
shares of common stock in a private transaction to purchasers
who would oppose a takeover or favor the current Board. This
proposal to increase the authorized number of shares of common
stock has been prompted by business and financial
considerations, and not by the threat of any hostile takeover
attempt (nor is the Company currently aware of any such attempts
directed at it). However, stockholders should be aware that
approval of this proposal could facilitate future efforts to
prevent changes in control of the Board, including transactions
in which stockholders might otherwise receive a premium for
their shares over then current market prices.
To the extent that additional authorized shares are issued in
the future, they may decrease the existing stockholders
percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the existing stockholders.
The holders of common stock have no preemptive rights and the
Board has no plans to grant such rights with respect to any such
shares.
Resolution Approving the Proposed Amendment to Increase the
Authorized Shares of Common Stock
The following resolution, which will be presented to the annual
meeting, will adopt the proposed amendment to the Second Amended
and Restated Certificate of Incorporation to increase the
authorized shares of common stock:
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RESOLVED, that the Second Amended and Restated Certificate of
Incorporation of the Company be amended by deleting the first
sentence of Article Four and substituting the following in lieu
thereof: |
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The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 149,000,000 shares,
consisting solely of (i) 144,000,000 shares of common
stock, par value $.01 per share (the Common Stock),
and (ii) 5,000,000 shares of preferred stock, par value
$.01 per share (the Preferred Stock). |
Proposal 2(b): Removal of Article Six Relating to
Oil and Gas Opportunities
Article Six of the Companys Second Amended and
Restated Certificate of Incorporation provides that certain
principal stockholders of the Company and their affiliates may
pursue business opportunities related to or competitive with the
Companys business of acquiring, developing and exploiting
North American oil and natural gas reserves. In addition, as
allowed by the Delaware General Corporation Law, the Company in
Article Six renounces any interest or expectation in any
oil and natural gas opportunities known to a principal
stockholder or its affiliates.
Article Six defines principal stockholders as
Warburg, Pincus Equity Partners L.P., J.P. Morgan Partners
(SBIC), LLC, Natural Gas Partners V, L.P. and First Union
Capital Partners, Inc. These entities were early investors in
the Company and have reduced or disposed of all or substantially
all of their ownership interests in the Company. Under Delaware
law, directors, officers and controlling stockholders of a
corporation may not appropriate a corporate opportunity
belonging to the corporation unless the corporation provides
otherwise in its certificate of incorporation or by board
resolution. For this reason, the Company believes it is no
longer necessary to include provisions governing corporate
opportunities in the Second Amended and Restated Certificate of
Incorporation. The removal of Article Six may make it less
desirable for one of the
12
principal stockholders or its affiliates to acquire a
significant interest in the Company in the future. No change
will occur to the rights and privileges afforded to the
Companys stockholders, other than the principal
stockholders, under the current Second Amended and Restated
Certificate of Incorporation.
Resolution Approving the Proposed Amendment to Delete Article
Six Relating to Oil and Gas Opportunities
The following resolution, which will be presented to the annual
meeting, will adopt the proposed amendment to the Second Amended
and Restated Certificate of Incorporation to delete Article Six
relating to oil and gas opportunities:
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RESOLVED, that the Second Amended and Restated Certificate of
Incorporation of the Company be amended by deleting Article Six
thereof in its entirety. |
Required Vote
The approval of proposal 2(a) and proposal 2(b) each require the
affirmative vote of the holders of a majority of the shares of
common stock outstanding on the record date. For this reason,
abstentions and broker non-votes will effectively count as a
vote against the proposal.
Effectiveness of Amendments
If either or both of the amendments to the Companys Second
Amended and Restated Certificate of Incorporation are approved
by the Companys stockholders, such amendment or
amendments, as the case may be, will become effective when the
Companys files a certificate of amendment with the
Secretary of State of the State of Delaware.
Board Recommendation
The Board recommends that stockholders vote FOR the
amendments of the Second Amended and Restated Certificate of
Incorporation.
PROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed Ernst &
Young LLP as the independent registered public accounting firm
to audit the Companys consolidated financial statements as
of and for the fiscal year ending December 31, 2005 and the
Companys internal controls over financial reporting.
During fiscal 2004, Ernst & Young LLP served as the
Companys independent registered public accounting firm and
also provided certain tax and other audit-related services. See
Principal Accountant Fees and Services on
page 24. Representatives of Ernst & Young LLP are
expected to attend the annual meeting, where they will be
available to respond to appropriate questions and, if they
desire, to make a statement.
Required Vote
Ratification of the appointment of Ernst & Young LLP as
the Companys independent registered public accounting firm
for fiscal 2005 requires the affirmative vote of a majority of
the votes cast on the proposal at the annual meeting. If the
appointment is not ratified, the Board will consider whether it
should select another independent registered public accounting
firm.
Board Recommendation
Our Board recommends a vote FOR the ratification of the
appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm for the 2005
fiscal year.
13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of
March 15, 2005, regarding the ownership of the
Companys common stock by:
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all persons known by the Company to be beneficial owners of more
than five percent of the Companys stock; |
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each director nominee; |
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each of the Companys executive officers named in the
Summary Compensation Table below; and |
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all directors and named executive officers of the Company as a
group. |
Unless otherwise noted, the persons named below have sole voting
and investment power with respect to such shares.
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Shares Beneficially | |
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Percent of | |
Name and Address of Beneficial Owner |
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Owned(1)(2) | |
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Class | |
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FMR Corp.(3)
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4,083,072 |
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12.4 |
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82 Devonshire Street
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Boston, Massachusetts 02109
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T. Rowe Price Associates, Inc.(4)
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3,232,532 |
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9.8 |
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100 East Pratt Street
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Baltimore, Maryland 21202
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Baron Capital Group, Inc.(5)
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2,925,350 |
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8.9 |
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767 Fifth Avenue
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New York, NY 10153
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Wellington Management Company, LLP(6)
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1,744,300 |
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5.3 |
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75 State Street
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Boston, Massachusetts 02109
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I. Jon Brumley(7)
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1,972,540 |
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6.0 |
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Jon S. Brumley
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470,340 |
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1.4 |
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Robert S. Jacobs
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93,391 |
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* |
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Thomas H. Olle
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32,001 |
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* |
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Roy W. Jageman
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28,885 |
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* |
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Martin C. Bowen
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1,667 |
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* |
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Ted Collins, Jr.
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7,000 |
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* |
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Ted A. Gardner
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5,000 |
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* |
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John V. Genova
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1,667 |
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* |
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Howard H. Newman
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583 |
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* |
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James A. Winne III
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7,000 |
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* |
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Ronald Baron(5)
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2,925,350 |
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8.9 |
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All directors and named executive officers as a group
(11 persons)
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2,620,074 |
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7.9 |
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(1) |
Includes common stock for which the indicated owner has sole or
shared voting or investment power. |
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(2) |
Includes options that are or become exercisable within
60 days of March 15, 2005 as follows: Mr. I. Jon
Brumley (148,382), Mr. Jon S. Brumley (132,021),
Mr. Olle (16,881), Mr. Jageman (14,852),
Mr. Jacobs (10,289), Mr. Gardner (5,000),
Mr. Collins (7,000), Mr. Winne (7,000), Mr. Bowen
(1,667) and Mr. Genova (1,667), and all directors and named
executive officers as a group (344,759) upon the exercise of
stock options granted pursuant to the Companys 2000
Incentive Stock Plan. |
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(3) |
Based on an amendment to Schedule 13G filed with the
Securities and Exchange Commission on February 14, 2005 by
FMR Corp., Edward C. Johnson 3d, chairman of FMR Corp. and
Abigail P. |
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Johnson, a director of FMR Corp. Such filing indicates that FMR
Corp. has sole voting power with respect to 824,200 shares
and that FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson
each have sole dispositive power with respect to
4,083,072 shares. Fidelity Management & Research
Company, an investment advisor and wholly owned subsidiary of
FMR Corp. (Fidelity), is the beneficial owner of
3,258,872 shares as a result of acting as investment
adviser to various investment companies. Fidelity Management
Trust Company, a wholly owned subsidiary of FMR Corp., is the
beneficial owner of 824,200 shares as a result of its
serving as investment manager of the institutional account(s).
Members of the Johnson family, including Edward C. Johnson 3d
and Abigail P. Johnson, are the predominant owners of
Class B shares of common stock of FMR Corp., representing
approximately 49% of the voting power of FMR Corp. |
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(4) |
Based on an amendment to Schedule 13G filed with the
Securities and Exchange Commission on February 10, 2005 by
T. Rowe Price Associates, Inc. (Price Associates).
Such filing indicates that Price Associates has sole voting
power with respect to 964,817 shares and sole dispositive
power with respect to 3,232,532 shares. These securities
are owned by various individual and institutional investors
which Price Associates serves as investment advisor with power
to direct investments and/or sole power to vote the securities.
For purposes of the reporting requirements of the Securities
Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates
expressly disclaims that it is, in fact, the beneficial owner of
such securities. |
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(5) |
Based on a Schedule 13G filed with the Securities and
Exchange Commission on February 15, 2005 by Baron Capital
Group, Inc. (BCG), BAMCO, Inc., an investment
advisor (BAMCO), Baron Capital Management, Inc., an
investment advisor (BCM), Baron Growth Fund, a
registered investment company (BGF), and Ronald
Baron. Such filing indicates that (i) each of BCG and
Ronald Baron has shared voting power with respect to
2,688,350 shares and shared dispositive power with respect
to 2,925,350 shares, (ii) BAMCO has shared voting
power with respect to 2,508,000 shares and shared
dispositive power with respect to 2,738,000 shares,
(iii) BCM has shared voting power with respect to
180,350 shares and shared dispositive power with respect to
187,350 shares, and (iv) BCF has shared voting and
dispositve power with respect to 2,325,000 shares. BAMCO
and BCM are subsidiaries of BCG. Ronald Baron owns a controlling
interest in BCG. By virtue of investment advisory agreements
with their respective clients, BAMCO and BCM have been given the
discretion to direct the disposition of the securities in the
advisory accounts. BCG and Ronald Baron disclaim beneficial
ownership of shares held by their controlled entities (or the
investment advisory clients thereof) to the extent such shares
are held by persons other than BCG and Ronald Baron. BAMCO and
BCM disclaim beneficial ownership of shares held by their
investment advisory clients to the extent such shares are held
by persons other than BAMCO, BCM and their affiliates. |
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(6) |
Based on a Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2005 by Wellington
Management Company, LLP, an investment advisor
(WMC). Such filing indicates that WMC has shared
voting power with respect to 1,485,100 shares and shared
dispositive power with respect to 1,744,300 shares. WMC, in
its capacity as investment advisor, may be deemed to
beneficially own 1,744,300 shares which are held of record
by clients of WMC. Those clients have the right to receive, or
the power to direct the receipt of, dividends from, or the
proceeds from the sale of, such securities. |
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(7) |
Mr. Brumley directly owns 21,529 shares. Two limited
partnerships own a total of 1,697,848 shares.
Mr. Brumley is the sole officer, director and shareholder
of the corporation that is the sole general partner of each of
the partnerships. Accordingly, Mr. Brumley has sole voting
and dispositive power with respect to the shares owned by these
partnerships. Furthermore, Mr. Brumley has the power to
vote or to direct the vote of 104,781 shares of restricted
common stock. Mr. Brumley is also deemed to beneficially
own 148,382 shares of common stock that may be acquired
upon the exercise of options that were or would have become
exercisable within 60 days of March 15, 2005. |
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our directors, executive officers and holders
of more than 10% of the Companys common stock to file with
the Securities and
15
Exchange Commission reports regarding their ownership and
changes in ownership of our securities. The Company believes
that, during fiscal 2004, its directors, executive officers and
10% stockholders complied with all Section 16(a) filing
requirements. In making these statements, the Company has relied
upon examination of the copies of Forms 3, 4 and 5,
and amendments thereto, provided to the Company and the written
representations of its directors, executive officers and 10%
stockholders.
EXECUTIVE OFFICERS
The Companys executive officers serve at the discretion of
the Board. Information regarding the business experience of each
of the Companys executive officers is provided below.
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I. |
Jon Brumley, age 67, Chairman of the Board and Chief
Executive Officer |
Please read page 8 for information regarding Mr. I.
Jon Brumleys business experience.
Jon S. Brumley, age 34, President
Please read page 8 for information regarding Mr. Jon
S. Brumleys business experience.
Roy W. Jageman, age 37, Executive Vice President, Chief
Financial Officer, Treasurer and Corporate Secretary
Mr. Jageman has been Executive Vice President, Chief
Financial Officer and Treasurer of the Company since November
2003 and Corporate Secretary since February 2004.
Mr. Jageman was a member of the corporate finance group of
Simmons & Company International (an independent
investment bank specializing in the energy industry) from May
1999 to November 2003. Prior to joining Simmons &
Company International, he was a member of the energy investment
banking and equity capital markets groups of Lehman Brothers
Inc. from July 1994 to April 1999. Mr. Jageman received a
B.B.A. in Finance from The University of Texas at Austin.
Thomas H. Olle, age 50, Senior Vice
President Asset Management
Mr. Olle has been Senior Vice President Asset
Management since February 2005. Mr. Olle was Senior Vice
President, Asset Management of the Cedar Creek Anticline from
April 2003 to February 2005. Mr. Olle joined the Company in
March 2002 as Vice President of Engineering. Prior to joining
the Company, Mr. Olle served as Senior Engineering Advisor
of Burlington Resources, Inc. (an independent oil and gas
company) from September 1999 to March 2002. From July 1986 to
September 1999, he served as a Regional Engineer of Burlington
Resources. Mr. Olle received a Bachelor of Science degree
with Highest Honors in Mechanical Engineering from the
University of Texas at Austin.
Robert S. Jacobs, age 43, Senior Vice
President Business Development and Planning
Mr. Jacobs has been the Senior Vice President
Business Development and Planning of the Company since April
2003. Mr. Jacobs was a Senior Geologist at the Company from
July 1998 until August 1999, Vice President Geology
of the Company from August 1999 until September 2001 and Senior
Vice President Asset Management of the Company from
September 2001 until April 2003. Mr. Jacobs worked as an
exploration and development geologist for Bass Enterprises
Production Company (an independent oil and gas company) from
1986 until joining the Company in 1998. He received his Bachelor
of Science in Geology from Duke University and his Master of
Science in Geology from North Carolina State University.
Mr. Jacobs is a Certified Petroleum Geologist.
Donald P. Gann, Jr., age 44, Senior Vice
President Operations
Mr. Gann has been the Senior Vice President
Operations of the Company since April 2003. Mr. Gann was a
Senior Engineer at the Company from August 1998 until June 1999,
a Production Manager at the Company from June 1999 until January
2001, Vice President Production of the Company from
January
16
2001 until February 2002 and Senior Vice President
Production of the Company from February 2002 to April 2003.
Prior to joining the Company, Mr. Gann was a Senior
Engineer at Mitchell Energy Corporation (an independent oil and
gas company) from July 1984 until August 1998. Mr. Gann
received a Bachelor of Science in Petroleum Engineering from the
University of Texas at Austin and is a Registered Professional
Engineer.
EXECUTIVE COMPENSATION
The following table summarizes the total compensation awarded
to, earned by, or paid to the chief executive officer and to the
next four most highly compensated executive officers for the
periods indicated:
Summary Compensation Table
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|
|
Long-Term Compensation | |
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| |
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|
|
|
Annual Compensation | |
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Restricted | |
|
Securities | |
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All Other | |
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| |
|
Stock Awards | |
|
Underlying Options | |
|
Compensation | |
Name and Principal Position |
|
Year | |
|
Salary ($) | |
|
Bonus ($) | |
|
($)(a) | |
|
(#)(b)(c) | |
|
($)(d) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
I. Jon Brumley
|
|
|
2004 |
|
|
|
421,875 |
|
|
|
700,000 |
|
|
|
2,100,505 |
|
|
|
|
|
|
|
12,300 |
|
|
Chairman and Chief Executive
|
|
|
2003 |
|
|
|
400,000 |
|
|
|
450,000 |
|
|
|
728,500 |
|
|
|
62,641 |
|
|
|
12,000 |
|
|
Officer |
|
|
2002 |
|
|
|
375,000 |
|
|
|
337,500 |
|
|
|
441,750 |
|
|
|
87,096 |
|
|
|
12,000 |
|
Jon S. Brumley
|
|
|
2004 |
|
|
|
306,875 |
|
|
|
450,000 |
|
|
|
899,932 |
|
|
|
20,180 |
|
|
|
12,300 |
|
|
President
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|
|
2003 |
|
|
|
285,000 |
|
|
|
275,000 |
|
|
|
267,100 |
|
|
|
45,643 |
|
|
|
12,000 |
|
|
|
|
|
2002 |
|
|
|
220,000 |
|
|
|
150,000 |
|
|
|
199,280 |
|
|
|
38,710 |
|
|
|
11,000 |
|
Roy W. Jageman(e)
|
|
|
2004 |
|
|
|
244,375 |
|
|
|
160,000 |
|
|
|
318,560 |
|
|
|
7,175 |
|
|
|
12,300 |
|
|
Executive Vice President,
|
|
|
2003 |
|
|
|
30,000 |
|
|
|
175,000 |
|
|
|
155,410 |
|
|
|
44,556 |
|
|
|
|
|
|
Chief Financial Officer,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Treasurer and Corporate Secretary
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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Thomas H. Olle(f)
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|
2004 |
|
|
|
203,125 |
|
|
|
150,000 |
|
|
|
300,641 |
|
|
|
6,700 |
|
|
|
12,300 |
|
|
Senior Vice President |
|
|
2003 |
|
|
|
181,250 |
|
|
|
125,000 |
|
|
|
121,400 |
|
|
|
20,747 |
|
|
|
10,875 |
|
|
Asset Management
|
|
|
2002 |
|
|
|
116,667 |
|
|
|
90,000 |
|
|
|
53,140 |
|
|
|
20,332 |
|
|
|
5,670 |
|
Robert S. Jacobs
|
|
|
2004 |
|
|
|
204,375 |
|
|
|
125,000 |
|
|
|
250,070 |
|
|
|
5,600 |
|
|
|
12,300 |
|
|
Senior Vice President
|
|
|
2003 |
|
|
|
192,500 |
|
|
|
120,000 |
|
|
|
116,600 |
|
|
|
19,917 |
|
|
|
11,550 |
|
|
Business Development
|
|
|
2002 |
|
|
|
161,000 |
|
|
|
60,000 |
|
|
|
79,701 |
|
|
|
15,433 |
|
|
|
6,572 |
|
|
and Planning
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(a) |
The value of the restricted stock awards is based on the price
of the common stock as of the date of grant. At
December 31, 2004, Mr. I. Jon Brumley held
52,031 shares of restricted stock with a value of
$1,816,402; Mr. Jon S. Brumley held 21,084 shares of
restricted stock with a value of $736,042; Mr. Jageman held
6,033 shares of restricted stock with a value of $210,612;
Mr. Olle held 7,570 shares of restricted stock with a
value of $264,269; and Mr. Jacobs held 8,810 shares of
restricted stock with a value of $307,557. Each restricted stock
award vests in three equal installments beginning on the third
anniversary of the date of grant, subject to the achievement of
performance objectives and to earlier vesting on a change in
control or the termination of the employees employment due
to death or disability and to such other terms as are set forth
in the award agreement. Holders of restricted stock have the
right to vote and to receive dividends paid with respect to
shares of restricted stock. |
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|
(b) |
|
Securities Underlying Options represent options to purchase
shares of the Companys common stock. The 2000 Incentive
Stock Plan provides for employee and non-employee director
awards in the form of stock options and restricted stock. |
|
(c) |
|
Stock option awards listed for 2004 were granted on
February 14, 2005 as compensation for fiscal year 2004. The
options were granted at an exercise price equal to the fair
market value of the Companys common stock on the date of
grant. For fiscal year 2002 and prior years, annual stock option
awards were granted to executive officers in the fourth quarter
of each year. Starting with fiscal year 2003, stock option
awards were granted in the first quarter of the following year.
As a result, no stock options were granted to the named
executive officers in fiscal year 2003. However, the stock
option awards granted to the named |
17
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executive officers in February 2004, as compensation for
performance in 2003, are listed as compensation for 2003. |
|
(d) |
|
Represents contributions to the Companys 401(k) Plan for
each named officer in 2004, 2003 and 2002. |
|
(e) |
|
Mr. Jageman joined the Company in November 2003. |
|
(f) |
|
Mr. Olle joined the Company in March 2002. |
The following table contains information with respect to the
grant of stock options under the Companys 2000 Incentive
Stock Plan to the named executive officers in February 2005, as
compensation for performance in 2004:
Option/ SAR Grants in Last Fiscal Year
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Individual Grants | |
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Number of | |
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Percent of Total | |
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|
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Assumed Annual Rates of | |
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|
Securities | |
|
Options/SARs | |
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Stock Price Appreciation for | |
|
|
Underlying | |
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Granted to | |
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Exercise or | |
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|
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Option Term | |
|
|
Options/SARs | |
|
Employees in | |
|
Base Price | |
|
|
|
| |
Name |
|
Granted (#)(a) | |
|
Fiscal Year (%) | |
|
($/share) | |
|
Expiration Date | |
|
5% ($) | |
|
10% ($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
I. Jon Brumley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon S. Brumley
|
|
|
20,180 |
|
|
|
26.3 |
|
|
|
39.82 |
|
|
|
02/14/2015 |
|
|
|
505,359 |
|
|
|
1,280,680 |
|
Roy W. Jageman
|
|
|
7,175 |
|
|
|
9.3 |
|
|
|
39.82 |
|
|
|
02/14/2015 |
|
|
|
179,681 |
|
|
|
455,346 |
|
Thomas H. Olle
|
|
|
6,700 |
|
|
|
8.7 |
|
|
|
39.82 |
|
|
|
02/14/2015 |
|
|
|
167,785 |
|
|
|
425,201 |
|
Robert S. Jacobs
|
|
|
5,600 |
|
|
|
7.3 |
|
|
|
39.82 |
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|
|
02/14/2015 |
|
|
|
140,238 |
|
|
|
355,392 |
|
|
|
(a) |
The options vest and become exercisable in three equal
installments beginning on February 14, 2006. |
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
The following table sets forth information concerning the
exercise of stock options during 2004 by each named executive
officer and the value of unexercised stock options as of
December 31, 2004:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares of | |
|
|
|
|
Common | |
|
|
|
Common Stock Underlying | |
|
Value of Unexercised In-the- | |
|
|
Stock | |
|
|
|
Unexercised Stock | |
|
Money Common Stock | |
|
|
Acquired | |
|
|
|
Options at 12/31/04 (#) | |
|
Options at 12/31/04 ($)(a) | |
|
|
on | |
|
Value | |
|
| |
|
| |
Name |
|
Exercise | |
|
Realized ($) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
I. Jon Brumley
|
|
|
32,000 |
|
|
|
509,160 |
|
|
|
137,064 |
|
|
|
91,273 |
|
|
|
2,654,914 |
|
|
|
1,043,017 |
|
Jon S. Brumley
|
|
|
|
|
|
|
|
|
|
|
116,807 |
|
|
|
58,546 |
|
|
|
2,379,717 |
|
|
|
628,087 |
|
Roy W. Jageman
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
38,556 |
|
|
|
87,120 |
|
|
|
417,227 |
|
Thomas H. Olle
|
|
|
|
|
|
|
|
|
|
|
13,548 |
|
|
|
27,521 |
|
|
|
251,368 |
|
|
|
315,519 |
|
Robert S. Jacobs
|
|
|
50,000 |
|
|
|
612,000 |
|
|
|
10,289 |
|
|
|
25,061 |
|
|
|
167,808 |
|
|
|
266,145 |
|
|
|
(a) |
Computed based on the difference between the option exercise
price and $34.91 (the closing price of the common stock at
December 31, 2004). |
Change in Control Arrangements
On February 11, 2003, the Board adopted the Employee
Severance Protection Plan, which provides employees of the
Company with severance payments and benefits upon certain
terminations of employment occurring from 90 days prior to
until two years following a Change in Control (as described
below) of the Company. If during such time period, a named
executive officer is involuntarily terminated by the Company
other than for cause or he resigns for Good Reason (as described
below), the officer will receive a cash amount equal to twice
his annual salary and bonus, continued insurance coverage for up
to 36 months, and the automatic vesting of all his stock
options and restricted stock. The Company would also be
obligated to pay an
18
additional amount to gross up the amount, if any, of
excise and related income tax payable by the officer under the
golden parachute provisions of the Internal Revenue Code in
order for the officer to be able to retain the full amount due
under the severance plan.
Generally, a Change in Control occurs upon (1) the
acquisition by a party of 40% or more of the voting securities
of the Company unless the party owned 20% prior to
February 11, 2003; (2) a majority of the Board no
longer consists of persons who were Board members on
February 11, 2002 or persons appointed to the Board by
those members; (3) approval by the stockholders of the
Company of a complete liquidation or dissolution of the Company;
or (4) approval by the stockholders of the Company of a
reorganization, merger, share exchange, consolidation or a sale
of all or substantially all of the assets of the Company, unless
more than 60% of the voting securities of the new entity are
held by persons who were stockholders of the Company.
A resignation for Good Reason occurs when an officer resigns as
a result of a reduction in his titles, duties, responsibilities,
compensation level or the relocation of his place of employment.
Retirement Plan
The Company makes contributions to the Encore Acquisition
Company 401(k) Plan, which is a voluntary and contributory plan
for eligible employees. The Companys contributions, which
are based on a percentage of matching employee contributions,
totaled approximately $0.8 million in 2004,
$0.5 million in 2003, and $0.5 million in 2002.
Compensation Committee Report on Executive Compensation
The Companys executive compensation program is
administered by the Compensation Committee of the Board (the
Compensation Committee). The Compensation Committee
is composed entirely of independent directors. The specific
duties and responsibilities of the Compensation Committee are
described above under Board Structure and Committee
Composition Compensation Committee and in the
charter of the Compensation Committee, which is available on the
Corporate Governance section of the Companys
website at www.encoreacq.com.
The Compensation Committee meets each February to establish base
salaries for the then-current fiscal year, to set cash bonuses
and award equity-based compensation in respect of Company and
executive performance during the preceding fiscal year and to
review and, as appropriate, make changes to the Companys
executive compensation program. The Compensation Committee also
acts by written consent when necessary and appropriate. For the
past two years, the Compensation Committee has engaged an
outside compensation consulting firm to assist the Compensation
Committee in its review of the compensation for the executive
officers.
The Compensation Committee has furnished the following report on
executive compensation for fiscal 2004.
Executive Compensation Philosophy
In establishing executive compensation, the Company believes
that:
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|
|
base salaries should be at levels competitive with peer group
companies that compete with the Company for business
opportunities and executive talent; |
|
|
|
annual cash bonuses, stock option awards and restricted stock
awards should reflect progress toward the Companys goals
and individual performance; and |
|
|
|
the Company should encourage significant executive stock
ownership through stock options and restricted stock awards. |
19
Purpose of the Executive Compensation Program
The Companys executive compensation program has been
designed to accomplish the following long-term objectives:
|
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|
|
create a proper balance between building stockholder wealth and
executive wealth while maintaining good corporate governance; |
|
|
|
produce long-term, positive results for the Companys
stockholders; |
|
|
|
align executive compensation with Company performance and
appropriate peer group comparisons; |
|
|
|
provide market-competitive compensation and benefits that will
enable the Company to attract and retain a talented workforce;
and |
|
|
|
prevent short-term manipulation to the extent possible. |
Elements of Compensation
The Companys executive compensation program consists of
(1) base salaries, (2) annual incentive compensation
consisting of cash bonuses, stock option awards and restricted
stock awards and (3) contributions to the Companys
401(k) retirement plan. In setting executive compensation, the
Compensation Committee considers the aggregate compensation
payable to an executive and the form of the compensation. The
Compensation Committee pays base salaries at levels it believes
are competitive with peer group companies (described below). In
general, an executives annual incentive compensation
consists of approximately 25% cash (in the form of an annual
cash bonus), 50% restricted stock and 25% stock options,
although the mix of restricted stock and stock options may vary.
The Compensation Committee believes that making approximately
75% of an executives annual incentive compensation
contingent on long-term stock price performance more closely
aligns the executives interests with those of the
Companys stockholders.
The Compensation Committee evaluates the executive compensation
programs and practices for the Companys executive officers
against an industry peer group in order to achieve a competitive
level of compensation. Overall, the Company targets total
compensation for its executive officers at between the 50th and
75th percentiles of total compensation for similar positions in
the peer group, although actual total compensation may be lower
than the 50th percentile or higher than the 75th percentile
based on individual performance and experience and Company
performance and other factors. The companies chosen by the
Compensation Committee for the peer group generally are not the
same companies that comprise the Independent Oil and Gas Index
shown in the Stock Performance Graph included in this proxy
statement. The peer group companies for executive compensation
purposes represent oil and gas companies of comparable size to
the Company, including companies that compete with the Company
both for business opportunities and for executive talent, while
the Independent Oil and Gas Index is an amalgamation of many
companies designed simply to provide a market barometer for an
entire sectors performance.
The Companys executive compensation program contains
performance-based goals relating to, among other things, the
following:
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|
|
budgeted oil and natural gas production; |
|
|
|
rates of return on invested capital; |
|
|
|
finding and development costs; |
|
|
|
efficiency ratios (defined as EBITDA divided by three year
finding and development costs); and |
|
|
|
reserve replacement. |
20
For 2004, the Company met or exceeded the performance-based
goals. In addition to specific performance-based goals, the
Company also considered the following factors, among others,
when establishing 2004 compensation:
|
|
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|
|
the Companys success in integrating acquisitions; |
|
|
|
implementation of the Companys development program,
including results of the Companys high-pressure air
injection project; |
|
|
|
the Companys safety record; |
|
|
|
accomplishments of the Companys land, acquisition, finance
and accounting groups; |
|
|
|
the Companys financial performance; and |
|
|
|
the Companys compliance with Section 404 of the
Sarbanes-Oxley Act of 2002. |
The Compensation Committee evaluates Company performance in
light of oil and natural gas industry fundamentals and assesses
how effectively management adapts to changing industry
conditions and opportunities during the year in preparing itself
to capitalize on opportunities in the future.
Base Salaries. An executives base salary is viewed
as a component of total compensation that should be competitive
with base salaries of the peer group. The Compensation Committee
evaluates the base salaries of the Companys executive
officers on the basis of competitive base salary data and
consideration of each officers duties and
responsibilities. The Compensation Committee views the named
executive officers that report to the CEO as a team with diverse
duties, but shared corporate results and goals.
Annual Cash Bonuses. An executives annual cash
bonus is set at a level intended to result in approximately 25%
of the executives total annual incentive compensation
being paid in cash. Annual cash bonuses reflect progress toward
the Companys goals and individual performance.
Stock Option Awards and Restricted Stock Awards. The
Compensation Committee makes stock option and restricted stock
awards in amounts intended to result in approximately 75% of the
executives total annual incentive compensation being paid
in stock. The Compensation Committee believes that making
approximately 75% of an executives compensation contingent
on long-term stock price performance more closely aligns the
executives interests with those of the Companys
stockholders. Like cash bonuses, stock options and restricted
stock awards reflect progress toward the Companys goals
and individual performance.
Stock options vest in three equal annual installments beginning
on the first anniversary of the date of grant, subject to
earlier vesting on a change in control or the termination of an
employees employment due to death or disability and to
such other terms as are set forth in the award agreement.
Restricted stock awards vest in three equal annual installments
beginning on the third anniversary of the date of grant, subject
to the achievement of performance objectives (achievement of
reserve replacement or finding and development cost goals) and
to earlier vesting on a change in control or the termination of
an employees employment due to death or disability and to
such other terms as are set forth in the award agreement.
Chief Executive Officer Compensation
Compensation for Mr. I. Jon Brumley, the Companys
Chairman of the Board and Chief Executive Officer, is determined
in the same manner set forth above with regard to named
executive officers generally. In February 2005, the Compensation
Committee increased Mr. Brumleys annual base salary
from $425,000 to $500,000 (effective March 1, 2005) after
consideration of historical and expected future performance and
competitive market data. With respect to Mr. Brumleys
annual incentive compensation for 2004, the Compensation
Committee evaluated the factors described above and granted
Mr. Brumley an annual cash bonus of $700,000 and
52,750 shares of restricted stock (with a value of
approximately $2.1 million on the date of grant).
21
Stock Ownership Guidelines
In February 2005, the Compensation Committee adopted stock
ownership guidelines that require each executive officer (and
certain other members of management) to own shares of the
Companys common stock with a value at least equal to such
persons base salary. Until this guideline is achieved, the
executive officer (or other member of management) will be
required to retain at least 25% of his or her restricted stock
for a period of two years after vesting. The Companys
stock ownership guidelines are designed to increase
executives equity stakes in the Company and to align
executives interests more closely with those of the
Companys stockholders.
Corporate Tax Deduction on Compensation In Excess of
$1 Million a Year
Section 162(m) of the U.S. Internal Revenue Code of
1986, as amended (the Code) generally disallows a
tax deduction to public companies for compensation in excess of
$1 million paid to the CEO or any of the four other most
highly compensated officers. Performance-based compensation
arrangements may qualify for an exemption from the deduction
limit if they satisfy various requirements under
Section 162(m). Although the Company considers the impact
of this rule when developing and implementing the Companys
executive compensation program, the Company believes that it is
important to preserve flexibility in designing compensation
programs. Accordingly, the Company has not adopted a policy that
all compensation must qualify as deductible under
Section 162(m). While the Companys restricted stock
and stock option awards are intended to qualify as
performance-based (as defined in the Code), amounts
paid under the Companys other compensation programs may
not qualify.
|
|
|
Compensation Committee of the Board |
|
|
James A Winne III, Chairman |
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Ted Collins, Jr. |
|
Howard H. Newman |
22
STOCK PERFORMANCE GRAPH
The following graph compares the Companys cumulative total
stockholder return during the period from March 9, 2001
(the date of the Companys initial public offering) to
December 31, 2004 with total stockholder return during the
same period for the Independent Oil and Gas Index and the
Standard & Poors 500 Index. The graph assumes
that $100 was invested in the Companys common stock and
each index on March 9, 2001 and that all dividends were
reinvested.
Comparison of Total Return Since March 9, 2001 Among
Encore Acquisition Company, the Standard &
Poors 500 Index,
and the Independent Oil and Gas Index
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03/09/2001 |
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12/31/2001 |
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12/31/2002 |
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12/31/2003 |
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12/31/2004 |
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Encore Acquisition Company
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$ |
100.00 |
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$ |
91.50 |
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$ |
126.62 |
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$ |
169.45 |
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$ |
239.98 |
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S&P 500
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$ |
100.00 |
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$ |
93.08 |
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$ |
71.33 |
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$ |
90.15 |
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$ |
98.26 |
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Independent Oil & Gas Index
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$ |
100.00 |
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$ |
87.88 |
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$ |
90.28 |
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$ |
135.47 |
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$ |
177.61 |
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AUDIT COMMITTEE REPORT
The Audit Committee assists the Board in overseeing (1) the
integrity of the Companys financial statements;
(2) the Companys compliance with legal and regulatory
requirements; (3) the independence, qualifications and
performance of the Companys independent registered public
accounting firm; and (4) the Companys performance of
its internal audit function.
The Companys management has primary responsibility for the
preparation, presentation and integrity of the Companys
consolidated financial statements, accounting and financial
reporting principles, and internal controls and procedures
designed to assure compliance with accounting standards and
applicable laws and regulations. The Companys independent
registered public accounting firm, Ernst & Young LLP,
is responsible for performing an independent audit of the
Companys consolidated financial statements and expressing
an opinion on the conformity of the Companys audited
consolidated financial statements with accounting principles
generally accepted in the United States.
23
In performing its oversight role, the Audit Committee has
reviewed and discussed the audited consolidated financial
statements with management and the independent registered public
accounting firm. The Audit Committee has discussed with the
independent registered public accounting firm the matters
required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees, as currently
in effect. The Audit Committee has received the written
disclosures and the letter from the independent registered
public accounting firm required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit
Committees, as currently in effect. The Audit Committee has also
considered whether the performance of other non-audit services
by the independent registered public accounting firm is
compatible with maintaining the auditors independence and
has discussed with the auditors the auditors independence.
Based on the reports and discussions described in this report,
and subject to the limitations on the roles and responsibilities
of the Audit Committee referred to in this report and in its
charter, the Audit Committee recommended to the Board that the
audited consolidated financial statements be included in the
Annual Report on Form 10-K for the fiscal year ended
December 31, 2004, for filing with the Securities and
Exchange Commission.
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Audit Committee of the Board |
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Ted A. Gardner, Chairman |
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Martin C. Bowen |
|
John V. Genova |
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Audit Committee has appointed Ernst & Young LLP as
the Companys independent registered public accounting firm
for the fiscal year ending December 31, 2005. Stockholders
are being asked to ratify the appointment of Ernst &
Young LLP at the annual meeting pursuant to
Proposal No. 3. Representatives of Ernst &
Young LLP are expected to be present at the annual meeting, will
have the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate
questions.
Fees Incurred by the Company for Services Provided by
Ernst & Young LLP
The following table shows the fees paid or accrued by the
Company for the audit and other services provided by
Ernst & Young LLP for fiscal 2004 and 2003.
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Year Ended December 31, | |
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2004 | |
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2003 | |
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Audit Fees(1)
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$ |
413,266 |
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$ |
207,935 |
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Audit-Related Fees(2)
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55,528 |
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Tax Fees(3)
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200,465 |
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139,653 |
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All Other Fees
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Total
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$ |
669,259 |
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$ |
347,588 |
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(1) |
Audit fees represent fees for professional services provided in
connection with the audit of our consolidated financial
statements and review of our quarterly consolidated financial
statements and audit services provided in connection with
filings with the Securities and Exchange Commission, including
comfort letters, consents and comment letters. |
|
(2) |
Audit-related fees consisted of services related to business
acquisitions. |
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(3) |
For fiscal 2004 and 2003, respectively, tax fees included tax
compliance fees of $120,000 and $47,500, and tax advice and tax
planning fees of $80,465 and $92,153. |
24
Audit Committees Pre-Approval Policy and Procedures
The Audit Committees policy is to pre-approve all audit
and permissible non-audit services provided by the independent
registered public accounting firm. These services may include
audit services, audit-related services, tax services and other
services. Pre-approval is detailed as to the particular service
or category of service and is subject to a specific approval.
The Audit Committee requires the independent registered public
accounting firm and management to report on the actual fees
charged for each category of service at Audit Committee meetings
throughout the year.
During the year, circumstances may arise when it may become
necessary to engage the independent registered public accounting
firm for additional services not contemplated in the original
pre-approval. In those instances, the Audit Committee requires
specific pre-approval before engaging the independent registered
public accounting firm. The Audit Committee has delegated
pre-approval authority to the Chairman of the Audit Committee
for those instances when pre-approval is needed prior to a
scheduled Audit Committee meeting. The Chairman of the Audit
Committee must report on such approvals at the next scheduled
Audit Committee meeting.
All fiscal year 2004 audit and non-audit services provided by
the independent registered public accounting firm were
pre-approved.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 2004, the Board approved indemnity agreements between
the Company and each of its officers and directors. The
indemnity agreements provide for indemnification by the Company
of each indemnitee to the fullest extent permitted by Delaware
law for claims relating to the indemnitees service as an
officer or director, excluding any claim in which a judgment
determines that the indemnitee personally gained financial
profit or other advantage to which he was not legally entitled
and acted in bad faith or was deliberately dishonest in a manner
that was material to the claim. The agreements also provide for
advancement of expenses relating to the indemnification
obligations and obligate the Company to purchase and maintain
liability insurance for each indemnitees acts as an
officer or director.
The Company and Mr. I. Jon Brumley and Mr. Jon S.
Brumley (collectively, the rights holders) are
parties to a registration rights agreement dated as of
August 18, 1998 that provides the rights holders with
registration rights with respect to shares of the Companys
common stock held by them. To date, none of the rights holders
has effected a registration of securities. The Company is
required under the registration rights agreement to pay for the
offering costs for the registrations.
STOCKHOLDER PROPOSALS
Advance Notice Procedures for Director Nominees
For director nominations by a stockholder to be properly made at
the Companys annual meeting of stockholders, stockholders
must also comply with Section 2.14 of the Companys
Second Amended and Restated By-Laws. Under Section 2.14, a
stockholder must submit to the Company, on a timely basis, a
written notice setting forth:
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as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Schedule 14A
under the Exchange Act and Rule 14a-11 thereunder
(including such persons written consent to being named in
the proxy statement as a nominee and to serving as a director if
elected), and |
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as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination is made
(1) the name and address of such stockholder, as they
appear on the Companys books, and of such beneficial owner
and (2) the class or series and number of shares of the
Company which are owned beneficially and of record by such
stockholder and such beneficial owner. |
25
For nominations to be properly made at an annual meeting by a
stockholder, the stockholder must have given timely notice
thereof in writing to the Corporate Secretary of the Company at
the Companys principal executive offices not more than
120 days and not less than 90 days prior to the first
anniversary of the preceding years annual meeting.
However, if the date of the annual meeting is more than
30 days before or more than 90 days after the
anniversary date of the preceding years annual meeting,
then to be timely the notice by the stockholder must be
delivered not more than 120 days and not less than
90 days prior to the annual meeting or the 10th day on
following the day on which public announcement of the date of
the annual meeting is first made by the Company. These
requirements are separate from and in addition to the SECs
requirements that a stockholder must meet in order to have a
stockholder proposal included in the Companys proxy
statement.
With respect to the 2006 annual meeting, a stockholders
written notice must be received by the Company not earlier than
January 3, 2006 and not later than February 2, 2006.
Director nominations should be sent to Corporate Secretary,
Encore Acquisition Company, 777 Main Street, Suite 1400,
Fort Worth, Texas 76102. The Company recommends that any
such proposal be sent by certified mail with return receipt
requested.
Rule 14a-8 Stockholder Proposals
Any stockholder of the Company who desires to submit a proposal
for inclusion in the Companys proxy statement for the
annual meeting of stockholders in 2006 may do so by following
the procedures prescribed in Rule 14a-8 under the Exchange
Act. To be eligible for inclusion, stockholder proposals must be
received by the Companys Corporate Secretary no later than
December 5, 2005. Proposals should be sent to Corporate
Secretary, Encore Acquisition Company, 777 Main Street,
Suite 1400, Fort Worth, Texas 76102. The Company
recommends that any such proposal be sent by certified mail with
return receipt requested.
Non-Rule 14a-8 Stockholder Proposals
If a stockholder notifies the Company after February 18,
2006 of an intent to present a proposal at the annual meeting of
stockholders in 2006, the Company will have the right to
exercise its discretionary voting authority with respect to such
proposal without including information regarding such proposal
in its proxy materials. Discretionary voting
authority is the ability to vote proxies that stockholders
have executed and returned to the Company, on matters not
specifically reflected in the Companys proxy materials,
and on which stockholders have not had an opportunity to vote by
proxy. Proposals should be sent to Corporate Secretary, Encore
Acquisition Company, 777 Main Street, Suite 1400,
Fort Worth, Texas 76102. The Company recommends that any
such proposal be sent by certified mail with return receipt
requested.
SOLICITATION OF PROXIES
Solicitation of proxies may be made by mail, personal interview,
telephone or other means by officers, directors and regular
employees of the Company for which they shall receive no
compensation in addition to their normal compensation. The
Company may also request banking institutions, brokerage firms,
custodians, nominees and fiduciaries to forward solicitation
material to the beneficial owners of the common stock that those
companies or persons hold of record. The Company will reimburse
the forwarding expenses of any institution that performs this
service. The Company has engaged its transfer agent, Mellon
Investor Services, to assist it in the production of proxy cards
and envelopes, the mailing of proxy materials and the tabulation
of proxy votes. The Company will reimburse Mellon Investor
Services for its costs, which are not expected to exceed $10,000.
STOCKHOLDER LIST
The Company will maintain at its corporate offices in
Fort Worth, Texas a list of the stockholders entitled to
vote at the annual meeting. During the ten days before the
annual meeting, any stockholder may examine the list at the
Fort Worth office during normal business hours.
26
ANNUAL REPORT
The Companys Annual Report to Stockholders for the fiscal
year ended December 31, 2004 is being mailed to
stockholders concurrently with this proxy statement. A copy of
the Companys Annual Report on Form 10-K for the year
ended December 31, 2004, as filed with the Securities and
Exchange Commission, will be sent to any stockholder without
charge upon request. Forward written requests to Investor
Relations, Encore Acquisition Company, 777 Main Street,
Suite 1400, Fort Worth, Texas 76102. Oral requests may
be requested at telephone number (817) 877-9955. The Annual
Report on Form 10-K is also available on the SECs
website (www.sec.gov) and the Companys website
(www.encoreacq.com).
HOUSEHOLDING
The Securities and Exchange Commission has adopted rules that
permit companies and intermediaries such as brokers to satisfy
delivery requirements for proxy statements with respect to two
or more stockholders sharing the same address by delivering a
single proxy statement addressed to those shareholders. This
process, which is commonly referred to as
householding, potentially provides extra convenience
for stockholders and cost savings for companies. Some brokers
household proxy materials, delivering a single proxy statement
to multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders.
Once you have received notice from your broker that they will be
householding materials to your address, householding will
continue until you are notified otherwise or until you revoke
your consent. If, at any time, you no longer wish to participate
in householding and would prefer to receive a separate proxy
statement, or if you are receiving multiple copies of the proxy
statement and wish to receive only one, please notify your
broker.
*****
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, SIGN, AND RETURN THE PROXY IN THE ENCLOSED
POSTAGE-PAID, ADDRESSED ENVELOPE OR TO VOTE THROUGH THE INTERNET
OR TELEPHONE.
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By Order of the Board of Directors |
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Roy W. Jageman |
|
Corporate Secretary |
Fort Worth, Texas
April 4, 2005
27
ENCORE ACQUISITION COMPANY
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board of Directors to
assist the Board of Directors of Encore Acquisition Company (the
Company) in overseeing (1) the integrity of the
financial statements of the Company, (2) the compliance by
the Company with legal and regulatory requirements, (3) the
independence, qualifications and performance of the
Companys independent auditors and (4) the performance
of the Companys internal audit function. Pursuant to the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the
Securities and Exchange Commission, the Audit Committee shall be
directly responsible for the appointment, compensation,
retention and oversight of the work of any registered public
accounting firm engaged for the purpose of preparing or issuing
an audit report or performing other audit, review or attest
services for the Company (any such firm is referred to in this
Charter as the Companys independent auditors). The Audit
Committee shall have and may exercise all the powers of the
Board of Directors, except as may be prohibited by law, with
respect to all matters encompassed by this Charter, and shall
have all the power and authority required under the
Sarbanes-Oxley Act of 2002.
The Audit Committee shall be appointed by the Board of Directors
and shall consist of not less than three members of the Board of
Directors. The Board of Directors shall also elect a chairman of
the Audit Committee. The Board of Directors intends that the
members of the Audit Committee meet the independence, expertise,
experience and financial literacy requirements of the New York
Stock Exchange, Section 10A(m)(3) of the Securities
Exchange Act of 1934 and the rules and regulations of the SEC.
The Company will seek to have at least one member of the Audit
Committee who is an audit committee financial expert
as defined by Item 401(h)(2) of Regulation S-K
promulgated by the SEC. Unless otherwise determined by the Board
of Directors, no member of the Audit Committee shall
simultaneously serve on the audit committees of more than two
other public companies.
The independent auditors of the Company are ultimately
accountable to the Audit Committee and the Board of Directors,
as opposed to management of the Company. The Audit Committee
shall have the sole authority to appoint and, where appropriate,
replace the Companys independent auditors and to approve
all audit engagement fees and terms. The Audit Committee shall
be directly responsible for the compensation and oversight of
the work of the independent auditors (including resolution of
disagreements between management and the independent auditors
regarding financial reporting) for the purpose of preparing or
issuing an audit report or related work or performing other
audit, review or attest services for the Company. The
independent auditors shall report directly to the Audit
Committee.
The Audit Committee shall preapprove all audit, review or attest
engagements, internal control-related services and permissible
non-audit services, including the fees and terms thereof, to be
performed by the independent auditors, subject to, and in
compliance with, the de minimis exception for non-audit
services described in Section 10A(i)(1)(B) of the
Securities Exchange Act of 1934 and the applicable rules and
regulations of the SEC.
The Audit Committee may form and delegate authority to
subcommittees consisting of one or more members when
appropriate, including the authority to grant preapprovals of
audit and permissible non-audit services. The Audit Committee
also may delegate such preapproval authority to any of its
members. Any decisions of such subcommittees or members to grant
preapprovals shall be reported to the full Audit Committee at
its next scheduled meeting.
The Audit Committee, to the extent it deems necessary or
appropriate, shall:
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Financial Statement and Disclosure Matters |
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Review and discuss with management and the independent auditors
the annual audited financial statements, as well as the specific
disclosures made in managements discussion and analysis of
financial condition and results of operations in the
Companys Annual Report on Form 10-K. |
28
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Recommend to the Board of Directors whether the Companys
annual audited financial statements and accompanying notes
should be included in the Companys Annual Report on
Form 10-K. |
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Review and discuss with management, the internal auditors and
the independent auditors the Companys annual report on
internal control over financial reporting and the independent
auditors attestation of the report prior to the filing of
the Companys Annual Report on Form 10-K. |
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Prepare and approve the audit committee report as required by
the SEC to be included in the Companys proxy statement for
the annual meeting (or in the Companys Annual Report on
Form 10-K if required to be included therein). |
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Review and discuss with management and the independent auditors
the Companys quarterly financial statements, as well as
the specific disclosures made in managements discussion
and analysis of financial condition and results of operations,
prior to the filing of the Companys Quarterly Reports on
Form 10-Q, including the results of the independent
auditors reviews of the Companys quarterly financial
statements. |
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Review and discuss with management and the independent auditors: |
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Major issues regarding accounting principles and financial
statement presentations, including any significant changes in
the selection or application of accounting principles, any major
issues concerning the adequacy of the Companys internal
controls, any special audit steps adopted in light of material
control deficiencies and the adequacy of disclosures about
changes in internal control over financial reporting. |
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Analyses prepared by management and/or the independent auditors
setting forth significant financial reporting issues and
judgments made in connection with the preparation of the
Companys financial statements, including analyses of the
effects of alternative methods of generally accepted accounting
principles on the financial statements. |
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Review and discuss reports from the independent auditors on: |
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All critical accounting policies and practices to be used. |
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All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, including (1) ramifications of
the use of such alternative disclosures and treatments and
(2) the treatment preferred by the independent auditors. |
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Other material written communications between the independent
auditors and management, such as any management letters or
schedules of unadjusted differences. |
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Discuss with management the Companys earnings press
releases, with particular emphasis on the use of any
non-GAAP financial measures, as well as financial
information and earnings guidance provided to analysts and
rating agencies. Such discussion may be done generally
(covering, for example, the types of information to be disclosed
and the type of presentation to be made). |
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Discuss with management and the independent auditors the effect
of regulatory and accounting initiatives as well as off-balance
sheet structures on the Companys financial statements. |
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Discuss with management the Companys major financial risk
exposures and the steps management has taken to monitor and
control those exposures, including the Companys risk
assessment and risk management policies. |
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Discuss with the independent auditors the matters required to be
communicated by the independent auditors pursuant to Statement
on Auditing Standards No. 61 relating to the conduct of the
audit, including any problems or difficulties encountered in the
course of the audit work and managements response, any
restrictions on the scope of activities or access to requested
information and any significant disagreements with management. |
29
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Review the disclosures that the Companys chief executive
officer and chief financial officer make to the Audit Committee
and the independent auditors in connection with the
certification process for the Companys Reports on
Form 10-K and Form 10-Q concerning any significant
deficiencies or weaknesses in the design or operation of
internal control over financial reporting and any fraud that
involves management or other employees who have a significant
role in the Companys internal control over financial
reporting. |
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Oversight of the Companys Relationship with the
Independent Auditors |
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Review the capabilities and performance of the lead partner of
the independent auditors. |
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Obtain and review a report by the independent auditors
describing (i) the independent auditors internal
quality-control procedures; (ii) any material issues raised
by the most recent internal quality-control review, or peer
review, of the independent auditors, or by any inquiry or
investigation by governmental or professional authorities,
within the preceding five years, respecting one or more
independent audits carried out by the firm, and any steps taken
to deal with any such issues; and (iii) all relationships
between the independent auditors and the Company. Evaluate the
independent auditors qualifications, performance and
independence, including considering whether the independent
auditors quality controls are adequate and the provision
of permitted non-audit services is compatible with maintaining
the independent auditors independence, taking into account
the opinions of management and internal auditors. The Audit
Committee shall present its conclusions with respect to the
independent auditors to the full Board of Directors. |
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Confirm the regular rotation of the audit partners as required
by law. Consider whether there should be regular rotation of the
independent auditing firm. |
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Establish hiring policies for the Companys employment of
the independent auditors personnel or former personnel,
which may take into account whether a proposed employee
participated in any capacity in the audit of the Company. |
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Discuss with the independent auditors any communication or
consultation between the Companys audit team and the
independent auditors national office respecting auditing
or accounting issues presented by the engagement. |
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Meet with the independent auditors prior to the audit to discuss
the planning and staffing of the audit. |
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Oversight of the Companys Internal Audit
Function |
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Oversee the internal audit function, including the appointment
and replacement of the senior internal auditing executive or
other personnel responsible for the internal audit function. |
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Review the significant reports to management prepared by the
internal auditors and managements responses. |
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Review with management and the independent auditors the
responsibilities, budget and staffing of the internal auditors
and any recommended changes in the planned scope of the internal
audit. The internal audit function (which may be outsourced to a
third-party service provider other than the independent auditor)
is intended to provide management and the Audit Committee with
ongoing assessments of the Companys risk management
processes and system of internal control. |
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Compliance Oversight Responsibilities |
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Obtain from the independent auditors assurance that no illegal
acts required to be reported under Section 10A(b) of the
Securities Exchange Act of 1934 have been detected or otherwise
come to the attention of the independent auditors in the course
of the audit. |
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Obtain reports from management, the internal auditors and the
independent auditors that the Company and its subsidiary
entities are in conformity with applicable legal requirements
and the |
30
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Companys Code of Business Conduct and Ethics. Review
reports and disclosures of insider and affiliated party
transactions. |
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Advise the Board of Directors with respect to the Companys
policies and procedures regarding compliance with applicable
laws and regulations and with the Companys Code of
Business Conduct and Ethics. |
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Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, and the
confidential, anonymous submission by employees of the Company
of concerns regarding questionable accounting or auditing
matters. |
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Review with the Companys legal counsel any legal matters
that may have a material impact on the Companys financial
statements, the Companys compliance policies and the
Companys internal controls and any material reports or
inquiries received from regulators or governmental agencies. |
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Meet with management (including the chief financial officer and
chief accounting officer), the internal auditors and the
independent auditors in separate executive sessions. |
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Review and reassess the adequacy of this charter from time to
time and recommend any proposed changes to the Board of
Directors for approval. |
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Review annually the Audit Committees own performance. |
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Make regular reports to the Board of Directors. |
While the Audit Committee has the responsibilities and powers
set forth in this Charter, it is not the duty of the Audit
Committee to plan or conduct audits or to determine that the
Companys financial statements are complete and accurate
and are in accordance with generally accepted accounting
principles. It is also not the duty of the Audit Committee to
conduct investigations or to assure compliance with laws and
regulations and the Companys Code of Business Conduct and
Ethics.
The Audit Committee shall have the authority to engage and
obtain advice and assistance from current or independent legal,
accounting or other advisors without seeking approval of the
Board of Directors. The Audit Committee may request any officer
or employee of the Company or the Companys outside counsel
or independent auditors to attend a meeting of the Audit
Committee or to meet with any members of, or advisors to, the
Audit Committee. The Company shall provide for appropriate
funding, as determined by the Audit Committee, for payment of
compensation to the independent auditors for the purpose of
preparing or issuing an audit report or performing other audit,
review or attest services for the Company, compensation to any
advisors employed by the Audit Committee, and administrative
expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
The Audit Committee will meet as often as the members shall
determine to be necessary or appropriate, but at least four
times during each year. In addition, the Audit Committee will
make itself available to the independent auditors and the
internal auditors of the Company as requested. Reports of
meetings of the Audit Committee shall be made to the Board of
Directors at its next regularly scheduled meeting following the
Audit Committee meeting, accompanied by any recommendations to
the Board of Directors approved by the Audit Committee.
As revised by the Board of Directors on February 15, 2005.
31
APPENDIX
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THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRETION
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Please mark |
IS INDICATED, WILL BE
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your votes as |
VOTED FOR PROPOSALS 1, 2 AND 3.
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indicated in þ |
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this example |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
1. ELECTION OF DIRECTORS -
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WITHHELD |
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Nominees: |
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FOR ALL |
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FOR ALL |
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I. Jon Brumley |
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Jon S. Brumley |
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Martin C. Bowen |
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Ted Collins, Jr. |
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Ted A. Gardner |
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John V. Genova |
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James A. Winne III |
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FOR ALL, except the nominees you list below: (Write that nominees name in the space provided below.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF FOR THE AMENDMENTS TO THE SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION.
2.(a) AMENDMENTS TO SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK-
To
approve an amendment to the Second Amended and Restated Certificate of Incorporation
to increase the authorized shares of common stock.
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2.(b) AMENDMENTS TO SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO DELETE ARTICLE SIX IN ITS ENTIRETY.
To
approve an amendment to the Second Amended and Restated Certificate of Incorporation
to delete Article Six in its entirety.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF FOR THE RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM-
To ratify the appointment of the independent registered public accounting firm.
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ABSTAIN |
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Please sign as name
appears hereon.
Joint owners should
each sign. When
signing as attorney,
executor,
administrator,
trustee or guardian,
please give full
title as such.
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Dated: , 2005 |
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Signature |
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Signature if held jointly |
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Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting
is available through 11:59 PM Eastern Time the business day prior
to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you
marked, signed and returned your proxy card.
VOTE BY INTERNET
http://www.proxyvoting.com/eac
Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site. You will be
prompted to enter your control number, located in the box below, to create and submit an electronic ballot.
OR
VOTE BY TELEPHONE
1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be
prompted to enter your control number, located in the box below, and then follow the directions given.
OR
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ENCORE ACQUISITION COMPANY
The undersigned hereby appoints I. Jon Brumley, Jon S. Brumley and Roy W. Jageman, and each of
them, with power to act without the other and with power of substitution, as proxies and
attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side,
all the shares of Encore Acquisition Company Common Stock which the undersigned is entitled to
vote, and, in their discretion, to vote upon such other business as may properly come before the
Annual Meeting of Stockholders of the Company to be held May 3, 2005 or any adjournment thereof,
with all powers which the undersigned would possess if present at the Annual Meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
FOLD AND DETACH HERE