UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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by Rule 14a-6(e)(2))
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Encore Acquisition Company
(Name of Registrant as Specified in Its Charter)
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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 in the Derrick I Room at the
Petroleum Club, 777 Main Street, 39th floor, Fort Worth, Texas 76102, on
Tuesday, April 23, 2002, at 10:00 a.m. The Annual Meeting is being held for the
following purposes:
1. To elect seven directors, each for a term of one year; and
2. 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 1, 2002.
By Order of the Board of Directors,
/s/ JON S. BRUMLEY
Corporate Secretary
Fort Worth, Texas
March 20, 2002
YOUR VOTE IS IMPORTANT
Please date, sign, 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 over the
telephone at 1-800-435-6710 or through the Internet by accessing
http://www.eproxy.com/eac. To do so by either method, you will need the control
numbers that are printed on your personalized proxy card.
ENCORE ACQUISITION COMPANY
777 MAIN STREET
SUITE 1400
FORT WORTH, TEXAS 76102
PROXY STATEMENT
2002 ANNUAL MEETING OF STOCKHOLDERS
MARCH 20, 2002
The Board of Directors of Encore Acquisition Company (the "Board of
Directors") requests your proxy for the Annual Meeting of Stockholders that will
be held at 10:00 a.m., on Tuesday, April 23, 2002, in the Derrick I Room at the
Petroleum Club, 777 Main Street, 39th floor, Fort Worth, Texas 76102 (the
"Annual Meeting"). By granting the proxy, you authorize the persons named on the
proxy card to represent you and vote your shares at the Annual Meeting. Those
persons will also be authorized to vote your shares to adjourn the meeting from
time to time and to vote your shares at any adjournments or postponements of the
meeting.
You may grant your proxy by signing, dating and returning the enclosed
paper proxy card. Instead of returning the paper proxy, you may vote over the
telephone or through the Internet. See "Internet and Telephone Voting."
Telephone Voting. Use any touch-tone telephone to vote your proxy at
1-800-435-6710. Have your proxy card in hand when you call. You will be prompted
to enter your control number, located on your proxy card, and then follow the
directions given.
Internet Voting. Use the Internet to vote your proxy by accessing
http://www.eproxy.com/eac. Have your proxy card in hand when you access the web
site. You will be prompted to enter your control number, located on your proxy
card, to create and submit an electronic ballot.
If you attend the Annual Meeting, you may vote in person. If you are not
present at the Annual Meeting, your shares may be voted only by a person to whom
you have given a proper proxy. You may revoke the proxy at any time before it is
exercised at the Annual Meeting by (i) delivering to the Secretary of Encore
Acquisition Company (the "Company") a written notice of the revocation; (ii)
signing and delivering to the Secretary of the Company a proxy with a later
date; or (iii) submitting your vote with a later date by the telephone or the
Internet. Your attendance at the Annual Meeting will not revoke the proxy unless
you give written notice of revocation to the Secretary of the Company before the
proxy is exercised, or you vote your shares in person.
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
March 22, 2002.
QUORUM AND VOTING
Voting Stock. The Company has one outstanding class of securities that
entitles holders to vote generally at meetings of the Company's stockholders:
common stock, par value $.01 per share. Each share of common stock outstanding
on the record date is entitled to one vote.
Record Date. The record date for stockholders entitled to notice of and to
vote at the Annual Meeting is the close of business on March 1, 2002. As of the
record date, 30,029,961 shares of common stock were outstanding and entitled to
be voted at the Annual Meeting.
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.
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.
Vote Required. Directors will be elected by a plurality of the votes
present, or presented by proxy, and entitled to be voted at the Annual Meeting.
An automated system that the Company's transfer agent administers will tabulate
the votes. Brokers who hold shares in street name for customers are required to
vote shares in accordance with instructions received from the beneficial owners.
Brokers are permitted to vote on discretionary items if they have not received
instructions from the beneficial owners, but they are not permitted to vote (a
"broker non-vote") on non-discretionary items absent instructions from the
beneficial owner. Abstentions and broker non-votes will count in determining
whether a quorum is present at the Annual Meeting. Both abstentions and broker
non-votes will not have any effect on the outcome of voting on director
elections.
Default Voting. A Proxy that is properly completed and returned will be
voted at the Annual Meeting in accordance with the instructions on the Proxy. If
you properly complete and return a Proxy, but do not indicate any contrary
voting instructions, your shares will be voted as follows:
- FOR the election of the seven persons named in this Proxy Statement as
the Board of Directors' nominees for election to the Board of Directors.
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
holders of the Proxy. The Board of Directors knows of no matters, other than the
election of directors, to be presented for consideration at the Annual Meeting.
ITEM ONE
ELECTION OF DIRECTORS
The Board of Directors has nominated the following persons for election as
directors of the Company with their terms to expire at the annual meeting of
stockholders in 2003 when their successors are elected and qualified:
I. Jon Brumley
Jon S. Brumley
Arnold L. Chavkin
Howard H. Newman
Ted A. Gardner
Ted Collins, Jr.
James A. Winne III
These nominees are currently serving as directors of the Company. Their
biographical information is contained under the caption "Directors and Executive
Officers."
The Board of Directors has no reason to believe that any of its nominees
will be unable or unwilling to serve if elected. If a nominee becomes unable or
unwilling to accept nomination or election, either the number of the Company's
directors will be reduced or the persons acting under the Proxy will vote for
the election of a substitute nominee that the Board of Directors recommends.
The Board of Directors recommends that stockholders vote FOR the election
of each of the nominees.
2
DIRECTORS AND EXECUTIVE OFFICERS
After the Annual Meeting, assuming the stockholders elect the nominees of
the Board of Directors as set forth in "Item One -- Election of Directors," the
Board of Directors and executive officers of the Company will be:
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
I. Jon Brumley....................... 62 Chairman of the Board, President, Chief
Executive Officer and Director
Jon S. Brumley....................... 31 Executive Vice President -- Business
Development, Secretary and Director
Gene R. Carlson...................... 48 Executive Vice President -- Operations
Morris B. Smith...................... 57 Executive Vice President and Chief Financial
Officer
Robert S. Jacobs..................... 40 Senior Vice President -- Asset Management
Donald P. Gann, Jr................... 40 Senior Vice President -- Production
Arnold L. Chavkin.................... 50 Director
Howard H. Newman..................... 54 Director
Ted A. Gardner....................... 44 Director
Ted Collins, Jr...................... 54 Director
James A. Winne III................... 50 Director
</Table>
The members of the Board of Directors each serve a term of one year. The
members are reelected each year at the Annual Meeting of shareholders.
Executive officers serve at the discretion of the Board of Directors.
Set forth below is biographical information about each of the Company's
directors and executive officers named above.
I. Jon Brumley, 62, has been the Chairman, President, Chief Executive
Officer and Director since inception in April 1998. From August 1996 until
April 1998, Mr. Brumley was Chairman and Chief Executive Officer of Pioneer
Natural Resources Company. Currently, Mr. Brumley serves as Director of
Hanover Compressor Company. Mr. Brumley holds a BBA from the University of
Texas and a MBA from the University of Pennsylvania Wharton School of
Business. He is the father of Jon S. Brumley.
Jon S. Brumley, 31, has been the Executive Vice President -- Business
Development and Secretary since inception in April 1998 and has served as
Director since November 2001. He also served as a director of the Company
from April 1998 to May 2001. Prior to joining Encore, 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. Before the merger, he
served as Director -- Business Development for MESA. Mr. Brumley holds a
Bachelor of Business Administration in Marketing from the University of
Texas. He is the son of I. Jon Brumley.
Gene R. Carlson, 48, has been the Executive Vice President --
Operations since inception in April 1998. He became Corporate Development
Manager for Duncan Oil in July 1996 and served in that capacity until
joining Encore. Mr. Carlson is a 1974 graduate of Texas A&M University and
holds a Bachelor of Science degree in Mechanical Engineering.
Morris B. "Sam" Smith, 57, has served as Executive Vice President,
Treasurer and Chief Financial Officer since August 2000. Prior to joining
Encore, Mr. Smith held the position of Vice President of Finance and Chief
Financial Officer for Union Pacific Resources Group, Inc. Mr. Smith held
this position since the spin-off of Union Pacific Resources Group from
Union Pacific Corporation in October 1996. Mr. Smith is a graduate of
McMurry University located in Abilene, Texas and holds a Bachelor of
Business Administration degree in Accounting. He also completed the
Advanced Management Program/
3
International Senior Management Program at Harvard Business School. He is a
Certified Public Accountant.
Robert S. Jacobs, 40, has been the Senior Vice President -- Asset
Management since September 2001. He served the Company as Senior Geologist
from August 1998 until August 1999 and Vice President -- Geology from
August 1999 until September 2001. Mr. Jacobs worked as an exploration and
development geologist for Bass Enterprises Production Company from 1986
until joining Encore in 1998. He received his B.S. in Geology from Duke
University in 1984 and his M.S. in Geology from North Carolina State
University in 1986. Mr. Jacobs is a Certified Petroleum Geologist.
Donald P. Gann, Jr., 40, has been the Senior Vice
President -- Production since February 2002. He served the Company as
Senior Engineer from August 1998 until June 1999, Production Manager from
June 1999 until January 2001 and Vice President -- Production from January
2001 until February 2002. Prior to joining Encore, Mr. Gann was a Senior
Engineer at Mitchell Energy Corporation from July 1984. Mr. Gann graduated
with a Bachelor of Science degree in Petroleum Engineering from the
University of Texas in 1984 and is a Registered Professional Engineer.
Arnold L. Chavkin, 50, has served as Director since August 1998. Mr.
Chavkin is an executive partner of JP Morgan Partners, an affiliate of JP
Morgan Chase Bank, and has served in such capacity for more than the past
five years. Mr. Chavkin is a Certified Public Accountant. He received his
B.A. and M.B.A. degrees from Columbia University. Mr. Chavkin is a director
of American Tower Corporation, Better Minerals & Aggregates, Carrizo Oil &
Gas, Inc., Crown Media Holdings, Inc., HDFC Bank, R&B Falcon Corporation,
and Triton PCS, Inc. He serves on the Advisory Investment Boards of Richina
Group, the India Private Equity Fund and the Asia Development Partners
Fund.
Howard H. Newman, 54, has served as Director since August 1998. Mr.
Newman has been employed by Warburg Pincus LLC since January 1984 and has
been a partner of Warburg, Pincus & Co. since January 1987. Mr. Newman
holds Bachelor of Arts and Master of Arts degrees in economics from Yale
University and a Ph.D. degree in Business-Economics from Harvard
University. At Warburg Pincus, Mr. Newman is currently Vice Chairman and a
member of its Operating, Compensation and Investment Policy Committees. He
is also a director of ADVO, Inc., Cox Insurance Holdings, Plc., EEX
Corporation, Newfield Exploration Company, Spinnaker Exploration Company
and several privately held companies. He also serves as Vice Chairman of
the Yale Alumni Fund.
Ted A. Gardner, 44, has been a Director since May 2001. Mr. Gardner
has been a Managing Partner of Wachovia Capital Partners (formerly First
Union Capital Partners) and a Senior Vice President of Wachovia Corporation
(formerly First Union Corporation) since 1990. Mr. Gardner holds a Bachelor
of Arts degree in Economics from Duke University in 1979. In 1983, he
earned his J.D. and Master of Business Administration from the University
of Virginia. He currently serves on the Board of Directors and compensation
committee of Kinder Morgan, Inc.
Ted Collins, Jr., 54, has been a Director since May 2001. From 1988 to
present, Mr. Collins has been president of Collins & Ware, Inc., an
independent oil and gas exploration and production company. Mr. Collins is
a past President of the Permian Basin Petroleum Association, the Permian
Basin Landmen's Association, Midland Petroleum Club and serves as Chairman
of the Midland Wildcat Committee. He graduated from the University of
Oklahoma with a B.S. in Geological Engineering. Mr. Collins serves on the
Board of Directors of Hanover Compressor Company, Chaparral Resources, Inc.
and Energy Transfer Co. He is also a member of the compensation committee
of Hanover Compressor Company. He is an active board member on the Midland
Metropolitan YMCA Board, the University of Oklahoma Sarkey's Energy Center
and the University of Texas Development Board.
James A. Winne III, 50, has been a Director since May 2001. Mr. Winne
is a registered land professional with 26 years of experience in the oil
and gas industry. He was employed by North Central Oil Corporation for 18
years and was President and CEO from September 1993 until the sale of the
Company in March 2001. After attending the University of Houston, he
started his career as an independent landman and also worked at Tomlinson
Interest, Inc. and Longhorn Oil and Gas before
4
joining the North Central's land department in January 1983. He is
currently President and CEO of Legend Natural Gas, LP and also serves on
the Board of Directors of PI Corp. and Windward Oil and Gas.
MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors of the Company held three meetings during 2001.
Every Director attended all Board of Directors meetings for 2001, and every
Director attended all meetings of their respective committees for 2001.
The Board of Directors has two standing committees: the Audit Committee and
the Compensation Committee.
Information regarding the functions performed by the Audit Committee and
its membership is set forth in the "Audit Committee Report" and the "Audit
Committee Charter" included in this Proxy Statement. The Audit Committee held
two meetings during 2001. The members of the Audit Committee are Messrs. Gardner
(Chairman), Collins and Winne.
The Compensation Committee periodically reviews the compensation, employee
benefit plans and other benefits paid to or provided for officers of the Company
and approves the annual salaries, bonuses and stock option awards of the
Company's officers. The members of the Compensation Committee are Messrs. Winne
(Chairman), Chavkin, Newman and Collins. The Compensation Committee held one
meeting during 2001. See "Compensation Committee Report on Executive
Compensation" included in this Proxy Statement for additional information.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company or an employee,
affiliate, or associate of any entity that owns in excess of 2.5% of the
Company's issued and outstanding common stock, receives fees of $20,000 per
year, plus $2,000 per Board meeting attended and $1,000 per committee meeting
attended. Each member of the Board of Directors of the Company is reimbursed for
all expenses of attending meetings. Executive officers of the Company do not
receive additional compensation for serving on the Board of Directors.
Non-employee directors are eligible to receive awards under the Company's
2000 Incentive Stock Plan (the "Plan"). The Board of Directors determines the
form (or combination of forms) of awards each year, based on the economic and
other circumstances at the time and based on its view of which awards will best
align the interests of the stockholders and the directors.
On May 4, 2001, Messrs. Winne and Collins each received stock option awards
covering 2,000 shares of common stock with an exercise price of $13.47, which
was the closing sale price on the New York Stock Exchange on that date for a
share of common stock.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1, 2002,
regarding the ownership of the Company's common stock by (a) all persons known
by the Company to be beneficial owners of more than five percent of such stock,
(b) each director and nominee for director of the Company, (c) each of the
executive officers of the Company named in the Summary Compensation Table below,
and (d) all directors and 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.
<Table>
<Caption>
SHARES BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(A)(B) OF CLASS
- ------------------------------------ ----------------- --------
Warburg, Pincus Equity Partners L.P.(1)..................... 9,613,300 32.0%
466 Lexington Avenue
New York, New York 10017
J.P. Morgan Partners (SBIC), LLC(2)......................... 6,866,643 22.9%
1221 Avenue of the Americas
New York, New York 10020-1080
T. Rowe Price Associates, Inc.(3)........................... 2,285,600 7.6%
100 East Pratt Street
Baltimore, Maryland 21202
Natural Gas Partners V, L.P................................. 2,034,993 6.9%
125 E. John Carpenter Freeway
Irving, Texas 75062
I. Jon Brumley(4)........................................... 1,694,948 5.7%
Jon S. Brumley.............................................. 376,635 1.3%
Gene R. Carlson............................................. 138,340 *
Robert S. Jacobs............................................ 78,039 *
Morris B. Smith............................................. 70,668 *
Ted Collins, Jr............................................. 67,500 *
Ted A. Gardner.............................................. 2,000 *
Howard H. Newman(1)......................................... 9,613,300 32.0%
Arnold L. Chavkin(2)........................................ 6,866,643 22.9%
All executive officers and directors as a group............. 18,957,563 63.1%
</Table>
- ---------------
* Represents beneficial ownership of less than 1%.
(a) Includes common stock for which the indicated owner has sole or shared
voting or investment power.
(b) Included in the table are shares issuable within 60 days of March 1, 2002,
to Mr. I. Jon Brumley (17,000), Mr. Jon S. Brumley (17,000), Mr. Carlson
(17,000), Mr. Jacobs (6,667), Mr. Smith (20,000) and all executive officers
and directors as a group (84,334) upon the exercise of stock options
granted pursuant to the Company's 2000 Incentive Stock Plan.
(1) These shares are owned by Warburg, Pincus Equity Partners, L.P., a Delaware
limited partnership, and three related limited partnerships. The sole
general partner of Warburg, Pincus Equity Partners, L.P. is Warburg, Pincus
& Co., a New York general partnership, and Warburg Pincus LLC, a New York
limited liability company, manages Warburg, Pincus Equity Partners, L.P.
Lionel I. Pincus is the managing member of Warburg Pincus LLC and the
managing partner of Warburg, Pincus & Co. and may be deemed to control both
entities. Each of Warburg, Pincus Equity Partners, L.P., Warburg, Pincus &
Co. and Warburg Pincus LLC share the power to vote and dispose of 9,613,300
shares. This information was obtained from the beneficial owner's Schedule
13G Report filed with the Securities and Exchange Commission on February 12,
2002. Mr. Newman, a director of the Company, is a managing director and
member of Warburg Pincus LLC and a general partner of Warburg, Pincus & Co.
All shares owned by
6
Mr. Newman are included because of his affiliation with the Warburg Pincus
entities. Mr. Newman disclaims beneficial ownership of the shares owned by
Warburg, Pincus Equity Partners, L.P.
(2) These shares are owned by J.P. Morgan Partners (SBIC), LLC, a Delaware
limited liability company (formerly known as Chase Venture Capital
Associates, L.L.C.). J.P. Morgan Partners (SBIC), LLC has the sole power to
vote and dispose of 6,866,643 shares. Mr. Chavkin is an Executive Vice
President of J.P. Morgan Partners (SBIC), LLC and an Executive Vice
President of the general partner of the general partner of J.P. Morgan
Partners (SBIC), LLC. This information was obtained from the beneficial
owner's Schedule 13G Report filed with the Securities and Exchange
Commission on February 11, 2002. In the foregoing capacities, Mr. Chavkin
may be deemed to have shared voting and dispositive power with respect to
the shares owned by J.P. Morgan Partners (SBIC), LLC, and the shares are
shown in the table as being owned by Mr. Chavkin. However, Mr. Chavkin
disclaims beneficial ownership of the shares owned J.P. Morgan Partners
(SBIC), LLC.
(3) T. Rowe Price Associates, Inc., an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, is deemed the beneficial
owner of the shares. T. Rowe Price Associates, Inc. has the sole voting
power of 360,400 shares and the sole disposition power of 2,285,600 shares.
T. Rowe Price Associates, Inc. expressly denies beneficial ownership of the
shares. This information was obtained from the beneficial owner's Schedule
13G Report and Schedule 13G/A Report filed with the Securities and Exchange
Commission on February 12, 2002 and February 20, 2002.
(4) Two limited partnerships own a total of 1,677,948 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 such shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than 10 percent of a registered class of the Company's equity securities,
to file with the Securities and Exchange Commission (the "Commission") and the
New York Stock Exchange (the "NSYE") initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Such persons are required by the Commission regulations to furnish the Company
with copies of all Section 16(a) forms they file. Additionally, Commission
regulations impose specific due dates for such reports, and the Company is
required to disclose in this Proxy Statement any failure to file by these dates
during and with respect to fiscal 2001.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during and with respect to fiscal 2001, all Section 16(a)
filing requirements applicable to its officers, directors and more than 10
percent stockholders were complied with, except that each of Messrs. Gann,
Jacobs and Reeves failed to file his Form 3 on a timely basis, and each of
Messrs. Jacobs and Collins failed to file a Form 4 on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions since the beginning of the last fiscal year
between us and our officers, directors and stockholders owning more than 5% of
the outstanding shares of common stock, in which the amount involved exceeded
$60,000. In addition, there are no currently proposed transactions, or series of
similar transactions, to which the Company was or is to be a party.
7
MANAGEMENT COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The compensation paid to the Company's executive officers generally
consists of base salaries, annual bonuses, awards under the 2000 Incentive Stock
Plan, and contributions to the Company's 401(k) retirement plan. The following
table summarizes the total compensation for 2001 awarded to, earned by, or paid
to the following persons:
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM COMPENSATION AWARDS
----------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES LONG-TERM ALL OTHER
NAME AND --------------------------- STOCK UNDERLYING INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARD(S)($) OPTIONS(#)(A) PAYOUTS($) ($)(B)
- ------------------ ---- --------- -------- ----------- ------------- ---------- ------------
I. Jon Brumley............... 2001 313,500 275,000 -- 111,000 -- 10,570
Chairman, President, Chief
Executive Officer
Jon S. Brumley............... 2001 198,550 100,000 -- 91,000 -- 10,440
Executive Vice President --
Business Development
Gene R. Carlson.............. 2001 198,550 100,000 -- 91,000 -- 14,226(c)
Executive Vice President --
Operations
Morris B. Smith.............. 2001 198,550 90,000 -- 100,000 -- 69,798(d)
Executive Vice President,
Chief Financial Officer,
Treasurer
Kyle M. Schultz.............. 2001 141,626 -- -- 51,000 -- 269,701(f)
Executive Vice President --
Exploitation(e)
Robert S. Jacobs............. 2001 132,867 52,059 -- 50,000 -- 8,368
Senior Vice
President -- Asset
Management
</Table>
- ---------------
(a) Securities Underlying Options represent options to purchase shares of the
Company's common stock. The 2000 Incentive Stock Plan provides for employee
and non-employee director awards in the form of stock options and
restricted stock. As of December 31, 2001 none of the options granted under
the 2000 Incentive Stock Plan were exercisable.
(b) Includes Company 401(k) Plan contributions for each named officer in 2001.
(c) Includes $3,802 of compensation related to a reimbursement of tax payment
for stock Mr. Carlson received in 2001.
(d) Includes $59,374 of compensation related to a reimbursement of tax payment
for stock Mr. Smith received in 2001.
(e) Mr. Schultz' employment was terminated September 17, 2001.
(f) In connection with Mr. Schultz' termination of employment, Mr. Schultz
received $261,250 in severance payments paid during 2001 or accrued at
December 31, 2001. Additionally, he was granted a SAR, exercisable at any
time until March 18, 2002, whereby the Company will pay Mr. Schultz on the
exercise date an amount equal to 51,000 multiplied by the difference
between $14.00 and the closing price of the Company's common stock on the
exercise date if such closing price is greater than $14.00. As of December
31, 2001, the value of the SAR was zero.
8
2000 STOCK INCENTIVE PLAN
During 2000, the Company's Board of Directors approved the 2000 Incentive
Stock Plan (the "Plan"). The purpose of the Plan is to attract, motivate, and
retain selected employees of the Company and to provide the Company with the
ability to provide incentives more directly linked to the profitability of the
business and increases in shareholder value. The total number of shares reserved
and available for distribution pursuant to the Plan is 1,802,000 shares. The
Plan provides for the granting of incentive stock options, non-qualified stock
options, and restricted stock at the discretion of the Company's Board of
Directors, unless, and until, a Compensation Committee of the Board, or a
committee or subcommittee, shall be designated by the Board to administer the
Plan. All directors and full time regular employees of the Company and its
subsidiaries and affiliates are eligible to be granted awards under the Plan.
In accordance with the provisions of the Plan, during 2001, 936,000
incentive and non-qualified stock options were granted to employees and 4,000
incentive stock options were granted to non-employee directors. The Plan had
954,500 shares available for additional awards at December 31, 2001. All options
were granted with a strike price equal to the market price on the date of grant.
The options have a ten-year life and vest equally over a two or three-year
period. The following table summarizes the number of options and their related
weighted average strike prices for 2001:
<Table>
<Caption>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS STRIKE PRICE
--------- ------------
Outstanding at December 31, 2000............................ -- $ --
Granted during 2001....................................... 940,000 13.49
Forfeited during 2001..................................... (92,500)(b) 14.00
-------
Outstanding at December 31, 2001(a)......................... 847,500 13.44
=======
</Table>
- ---------------
(a) None of the options outstanding at December 31, 2001 were exercisable. The
options outstanding December 31, 2001 had strike prices ranging from $12.49
to $14.00 and had a weighted average remaining life of 9.4 years.
(b) Includes 51,000 shares forfeited by Mr. Schultz in September 2001.
The following table sets forth information about stock option grants made
during 2001 to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
POTENTIAL REALIZED VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE PER FOR OPTION
OPTIONS EMPLOYEES IN SHARE ---------------------------
NAME GRANTED 2001 ($/SHARE) EXPIRATION DATE 5% 10%
- ---- ---------- ------------ --------- --------------- ----------- -------------
I. Jon Brumley......... 51,000 5.4% 14.00 03/08/11 $448,800 $1,137,810
60,000 6.4% 12.60 10/23/11 475,200 1,204,800
Jon S. Brumley......... 51,000 5.4% 14.00 03/08/11 448,800 1,137,810
40,000 4.3% 12.60 10/23/11 316,800 803,200
Gene R. Carlson........ 51,000 5.4% 14.00 03/08/11 448,800 1,137,810
40,000 4.3% 12.60 10/23/11 316,800 803,200
Morris B. Smith........ 60,000 6.4% 14.00 03/08/11 528,000 1,338,600
40,000 4.3% 12.60 10/23/11 316,800 803,200
Kyle M. Schultz........ 51,000 5.4% 14.00 03/08/11 448,800 1,137,810
Robert S. Jacobs....... 20,000 2.1% 14.00 03/08/11 176,000 446,200
30,000 3.2% 12.60 10/23/11 237,600 602,400
</Table>
9
The following table sets forth, for each named executive officer,
information concerning the exercise of stock options during 2001, and the value
of unexercised stock options as of December 31, 2001:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<Table>
<Caption>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED STOCK OPTIONS MONEY COMMON STOCK
AT 12/31/01(#)(A) OPTIONS AT 12/31/01($)(A)
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------ --------------
I. Jon Brumley........................ -- 111,000 -- 42,600
Jon S. Brumley........................ -- 91,000 -- 28,400
Gene R. Carlson....................... -- 91,000 -- 28,400
Morris B. Smith....................... -- 100,000 -- 28,400
Robert S. Jacobs...................... -- 50,000 -- 21,300
</Table>
- ---------------
(a) Shares included in the table are shares underlying stock options granted
under the 2000 Incentive Stock Plan.
RETIREMENT PLAN
The Company makes contributions to the Encore Acquisition Company 401(k)
Plan, which is a voluntary and contributory plan for eligible employees. Our
contributions, which are based on a percentage of matching employee
contributions, totaled $0.4 million in 2001, $0.3 million in 2000, and $0.1
million in 1999.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
submits the following report with respect to the executive compensation program
of the Company.
COMPENSATION PRINCIPLES AND PHILOSOPHY
1. Base salaries should be at levels competitive with peer group
companies that compete with the Company for acquisitions of similar size
and quality.
2. Annual bonus and stock option levels should reflect Company
progress.
3. The combination of salaries and bonuses should not be out of line
when compared to competitive companies.
4. The Company should encourage significant executive stock ownership
through stock options.
The Omnibus Budget Reconciliation Act of 1993 placed restrictions on the
deductibility of executive compensation paid by public companies. Under the
restrictions, the Company is not able to deduct compensation paid to any of the
named executive officers in excess of $1,000,000 unless the compensation meets
the definition of "performance based compensation" in the legislation.
Non-deductibility could result in additional tax costs to the Company. While the
Committee cannot assess with certainty how the Company's compensation program
will ultimately be affected by this law, the Committee generally tries to
preserve the deductibility of all executive compensation if it can do so without
interfering with the Company's ability to attract and retain capable and highly
motivated senior management.
ELEMENTS OF COMPENSATION
The elements of the compensation program the Committee administers for
executive officers, including the Chief Executive Officer, consist of base
salaries, annual bonuses, stock option awards, contributions to the
10
Company's 401(k) retirement plan, and miscellaneous perquisites. Base salaries,
annual bonuses, and stock options are discussed separately below; however, the
Committee considers the aggregate remuneration of executives when evaluating the
executive compensation program.
Base Salaries. An executive's base salary is viewed as a component of
total compensation that is competitive with base salaries of companies that
compete for similar size and quality of oil and natural gas acquisitions. The
committee evaluates the base salaries of the Company's executive officers on the
basis of competitive base salary data and consideration of each officer's duties
and responsibilities. The committee views the named executives that report to
the CEO as a team with diverse duties, but shared corporate results and goals.
Annual Bonuses and Stock Option Grants. Each year the Committee reviews
the progress of the Company. The Committee sets bonuses for the CEO and other
named executives that report to the CEO as well as approve the bonuses for the
entire Company.
In setting executive bonuses and option grants, the Committee not only
reviews the progress of the Company, but also considers competitive bonuses and
options of the peer group. In awarding 2001 bonuses, the Committee reviewed the
following criteria.
- Growth Relative to Oil and Natural Gas Acquisition Market Conditions in
2001
- Reserve Replacement
- Cost of Reserve Replacement
- Production Growth
- Acquisition Opportunities Evaluated
- Quality of Future Growth
- Inventory of Future Growth
- Operating Cost in Total and Per Barrel of Oil Equivalent
- Hedging Implementation
- Quality of Balance Sheet
- Safety Record
The 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.
Compensation Committee of the Board of
Directors
James A. Winne III, Chairman
Arnold L. Chavkin
Ted Collins, Jr.
Howard H. Newman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our Board of Directors or Compensation
Committee. Prior to July 2001, compensation matters were addressed by our Board
of Directors, on which each of Mr. I. Jon Brumley, Mr. Jon S. Brumley and Mr.
Kyle M. Schultz served.
11
AUDIT COMMITTEE REPORT
The Audit Committee's purpose is to assist the Board of Directors in its
oversight of the Company's internal controls, financial statements and the audit
process. The Board of Directors, in its business judgment, has determined that
all members of the committee are independent as required under the listing
standards of the New York Stock Exchange. The committee operates pursuant to a
charter adopted by the Board of Directors. A copy of the current charter is
attached to this Proxy Statement as Appendix A.
Management is responsible for the preparation, presentation and integrity
of the Company's 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 independent
auditors, Arthur Andersen LLP, are responsible for performing an independent
audit of the consolidated financial statements in accordance with generally
accepted auditing standards.
In performing its oversight role, the Audit Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The committee has also discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. The committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as currently in effect. The committee has
also considered whether the performance of other non-audit services by the
independent auditors 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 committee referred
to below and in the charter, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Annual Report
on Form 10-K for the fiscal year ended December 31, 2001, for filing with the
Securities and Exchange Commission. The committee and the board have also
recommended the selection of the Company's independent auditors for the year
2001.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting for the Company and are not experts in
auditor independence standards. Members of the committee rely without
independent verification on the information provided to them and on the
representations made by management and the independent auditors. Accordingly,
the Audit Committee's oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or appropriate internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions referred to
above do not assure that the audit of the Company's financial statements has
been carried out in accordance with generally accepted auditing standards, that
the financial statements are presented in accordance with generally accepted
accounting principles, or that Arthur Andersen LLP is in fact independent.
Audit Committee of the Board of
Directors
Ted A. Gardner, Chairman
Ted Collins, Jr.
James A. Winne III
12
COMPANY STOCK PERFORMANCE
The following graph compares the Company's total stockholder return on
common stock during the period from March 9, 2001 to December 31, 2001 with
total stockholder return during the same period for the Independent Oil and Gas
Index and the Standard and Poor's 500 Index, as prescribed by SEC rules. The
Company's cumulative total stockholder return for the period from March 9, 2001
to December 31, 2001 represents results since the Company's initial public
offering on March 9, 2001. The graph assumes that $100 was invested in 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 & POOR'S 500 INDEX,
AND THE INDEPENDENT OIL AND GAS INDEX
[PERFORMANCE GRAPH]
- - Assumes $100 invested on March 9, 2001 in stock or index, including
reinvestment of dividends for the fiscal year ending December 31, 2001.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------------
03/31/01 04/30/01 05/31/01 06/30/01 07/31/01 08/31/01 09/30/01 10/31/01 11/30/01 12/31/01
- ----------------------------------------------------------------------------------------------------------------------------------
Encore Acquisition
Company 87 99 109 79 100 98 103 89 93 92
Standard & Poor's
500 Index 94 101 102 99 98 92 84 86 92 93
Independent Oil and
Gas Index 93 101 101 91 91 86 77 84 79 82
</Table>
13
OTHER MATTERS
INDEPENDENT AUDITORS AND AUDITOR FEES
Encore Acquisition Company retains Arthur Andersen LLP as its principal
independent public accountants, as recommended by the Audit Committee and
approved by the Board of Directors. Representatives of Arthur Andersen LLP will
be present at the Annual Meeting to respond to appropriate questions from
stockholders and to make a statement at the meeting should they desire to do so.
During 2001, the Company incurred the following fees with Arthur Andersen LLP
for the following service categories:
<Table>
Audit....................................................... $130,000
Financial information systems design and implementation..... --
All other................................................... 209,000(i)
</Table>
- ---------------
(i) "All other" consists of $74,000 in fees billed for tax compliance and tax
consulting services and $135,000 in fees billed for preparation of the
registration statement on Form S-1 related to our initial public offering.
STOCKHOLDER PROPOSALS
For director nominations by a stockholder to be properly made at the
Company's annual meeting of stockholders, stockholders must also comply with
Section 2.14 of the Second Amended and Restated By-Laws of the Company. Under
Section 2.14, a stockholder must submit to the Company, on a timely basis, a
written notice setting forth: (a) 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 Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected) and (b) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination is made (i) the name and address of such stockholder, as they
appear on the Company's books, and of such beneficial owner and (ii) 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. 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 Secretary of the Company. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Company not later than the close of business
on the 90th day, nor earlier than the close of business on the 120th day, prior
to the first anniversary of the preceding year's annual meeting of the
stockholders unless the date of the annual meeting is more than 30 days before
or more than 90 days after such anniversary date. If the date of the annual
meeting is more than 30 days before or more than 90 days after the anniversary
date of the annual meeting, then the notice by the stockholder to be timely must
be delivered not earlier than the close of business on the 120th day prior to
such annual meeting and not later than the close of business on the later of the
90th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the Company.
The person presiding at the annual meeting will determine whether business is
properly brought before the meeting and will not permit the consideration of any
business determined to have been improperly presented before the meeting.
The Board of Directors will consider any nominee recommended by
stockholders for election at the annual meeting of stockholders to be held in
2003 if that nomination is submitted in writing, not later than the close of
business on January, 24, 2003, nor earlier than the close of business on
December 23, 2002, to Corporate Secretary, Encore Acquisition Company, 777 Main
Street, Suite 1400, Fort Worth, Texas 76102. Each submission must include a
statement of the qualifications of the nominee, a notarized consent signed by
the nominee evidencing a willingness to serve as a director, if elected, and a
commitment by the nominee to meet personally with members of the Board of
Directors.
14
Any stockholder of the Company who desires to submit a proposal for action
at the Company's annual meeting of stockholders for 2003 and wishes to have such
proposal (a "Rule 14a-8 Proposal") included in the Company's proxy materials,
must submit the Rule 14a-8 Proposal to the Company at its principal executive
offices no later than November 20, 2002, unless the Company notifies the
stockholders otherwise. Only those Rule 14a-8 Proposals that are timely received
by the Company and proper for stockholder action (and otherwise proper) will be
included in the Company's proxy materials.
Any stockholder of the Company who desires to submit a proposal for action
at the annual meeting of stockholders in 2003, but does not wish to have such
proposal (a "Non-Rule 14a-8 Proposal") included in the Company's proxy
materials, must submit such Non-Rule 14a-8 Proposal to the Company at its
principal executive offices no later than February 19, 2003, unless the Company
notifies the stockholders otherwise. If a Non-Rule 14a-8 Proposal is not
received by the Company on or before February 19, 2003, then the Company intends
to exercise its discretionary voting authority with respect to such Non-Rule
14a-8 Proposal. "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 Company's proxy materials, and on which
stockholders have not had an opportunity to vote by proxy.
Written requests for inclusion of any stockholder proposal should be
addressed 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 aforementioned forwarding expenses.
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 costs related thereto, which are expected not to exceed
$10,000.
STOCKHOLDER LIST
In accordance with the Delaware General Corporation Law, the Company will
maintain at its corporate offices in Fort Worth, Texas, a list of the
stockholders entitled to vote at the Annual Meeting. The list will be open to
the examination of any stockholder, for purposes germane to the Annual Meeting,
during ordinary business hours for ten days before the Annual Meeting.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 2001, is being mailed to stockholders concurrently with this Proxy
Statement and does not form part of the proxy solicitation material.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, as filed with the SEC, 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 at the SEC's web site in its EDGAR
database (www.sec.gov).
Only a single copy of this Proxy Statement is being delivered to multiple
stockholders sharing a common address unless the Company receives contrary
instructions from such stockholders. Upon written or oral request to the
Company's Investor Relations department at the address or telephone number
provided above, the Company will deliver promptly a separate copy of the Proxy
Statement to a stockholder at a shared
15
address to which a single copy of this Proxy Statement was delivered. By written
or oral request to the same address, (i) a stockholder may direct a notification
to the Company that the stockholder wishes to receive a separate annual report
or proxy statement in the future, or (ii) stockholders who share an address and
who are receiving delivery of multiple copies of the Company's annual reports or
proxy statements can request delivery of only a single copy of these documents
to their shared address.
INTERNET AND TELEPHONE VOTING
For shares of stock that are registered in your name, you have the
opportunity to vote through the Internet using a program provided by the
Company's transfer agent, Mellon Investor Services. Votes submitted
electronically through the Internet under this program must be received by 4:00
p.m., EST, on Monday, April 22, 2002. The giving of such a proxy will not affect
your right to vote in person should you decide to attend the Annual Meeting. The
Company has been advised by counsel that the Internet voting procedures that
have been made available through Mellon Investor Services are consistent with
the requirements of applicable law.
To vote through the Internet, please access http://www.eproxy.com/eac.
Please have your proxy card in hand when you access the website. You will be
prompted to enter the control number printed on your personalized proxy card.
To vote using the telephone, use any touch-tone telephone to vote your
proxy at 1-800-435-6710. Have your proxy card in hand when you call. You will be
prompted to enter your control number, printed on your personalized proxy card,
and then follow the directions given.
If you vote your proxy by Internet or telephone, you do not need to mail
back your proxy card.
The Internet voting procedures are designed to authenticate stockholder
identities, to allow stockholders to give their voting instructions, and to
confirm that stockholders' instructions have been recorded properly.
Stockholders giving proxies through the Internet are reminded that they must
bear costs associated with electronic access, such as usage charges from
Internet access providers and telephone companies.
******
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.
By Order of the Board of Directors
/s/ JON S. BRUMLEY
Corporate Secretary
Fort Worth, Texas
March 20, 2002
16
APPENDIX A
ENCORE ACQUISITION COMPANY
AUDIT COMMITTEE CHARTER
MISSION
The mission of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of Encore Acquisition Company ("Encore") shall be to:
- Monitor the integrity of Encore's financial reporting process, systems of
internal controls, and legal compliance.
- Advise the Board as to selection and retention of Encore's independent
auditor.
- Serve as the Board's primary liaison with the independent auditor.
- Oversee the independence and performance of the independent auditor.
- Oversee management's responses to audit and examination findings.
COMPOSITION
The Committee shall be comprised of three or more directors, as determined
by the Board. Each Committee member shall at all times be free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his independent judgment as a member of the Committee. In addition,
each member shall meet the independence and financial literacy requirements of
the New York Stock Exchange, and at least one member shall have accounting or
related financial management expertise as determined in the judgment of the
Board.
Members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve until their successors shall
be duly elected and qualified. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
RESPONSIBILITIES
The Committee shall have the following responsibilities:
- Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
- Evaluate the written disclosures and the letter that the independent
auditor submits to the Committee regarding the auditor's independence in
accordance with Independence Standards Board Standard No. 1, discuss such
reports with the auditor and, if so determined by the Committee in
response to such reports, recommend that the Board take appropriate
action to satisfy itself as to the independence of the auditor.
- Discuss with the independent auditor the matters required to be discussed
by SAS 61 -- Communication with Audit Committee.
- Review and discuss the quality of the annual audited financial statements
with management and the independent auditor, including major issues
regarding accounting and auditing principles and practices, as well as
the adequacy of internal controls that could significantly affect
Encore's financial statements. Based on this review, recommend inclusion
of the financial statements in the Annual Report on Form 10-K to the
Board.
- Review and assess all potential conflicts of interest and material
related party transactions of Encore and report findings to the Board.
A-1
- Review with management and the independent auditor any management letter
provided by the auditor and Encore's responses to items in that letter.
- Meet quarterly with management and the independent auditor to review and
discuss the quality of the quarterly financial statements prior to the
filing of Form 10-Q.
- At least once per year, the Committee shall meet with the independent
auditor and the Chief Financial Officer in separate executive sessions to
discuss matters that either believes should be discussed privately with
the Committee.
- Review major changes to Encore's accounting principles and practices as
suggested by the independent auditor or management.
- As the Committee deems appropriate, meet with management to discuss
significant financial risk exposures facing the Company and to discuss
the steps that management has taken to monitor and alleviate these risks.
- As the Committee deems appropriate, retain independent counsel and other
professionals to assist the Committee in carrying out its
responsibilities.
- Provide minutes of Committee meetings to the Board, and report to the
Board on any significant matters arising from the Committee's work.
- Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
- Review and approve the required stock exchange certification as to the
requirements of Committee members.
- Recommend to the Board the selection of the independent auditor, evaluate
the independent auditor and, where appropriate, recommend the replacement
of the independent auditor; with the understanding that the independent
auditor shall be ultimately accountable to the Committee and to the Board
and that the Board and the Committee have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent auditor.
It is not the responsibility of the Committee to plan or conduct audits, or
to determine whether Encore's financial statements are presented fairly in all
material respects in accordance with accounting principles generally accepted in
the United States. This is responsibility of management and the independent
auditor. Nor is it the duty of the Committee to conduct investigations, to
resolve disagreements, if any, between management and the independent auditor or
to assure compliance with laws and regulations and Encore's policies and
procedures.
A-2
Appendix B
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 Morris B.
Smith, 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 April 23,
2002 or any adjournment thereof, with all powers which the undersigned would
possess if present at the Meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION Please mark
IS INDICATED, WILL BE your votes as
VOTED "FOR" THE ELECTION OF DIRECTORS. indicated in [X]
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
1. ELECTION OF DIRECTORS -
<Table>
<Caption>
WITHHELD
Nominees: FOR FOR ALL
01 I. Jon Brumley
02 Jon S. Brumley
03 Arnold L. Chavkin [ ] [ ]
04 Howard H. Newman
05 Ted A. Gardner
06 Ted Collins, Jr.
07 James A. Winne III
</Table>
Withheld for the nominees you list below: (Write that nominee's name in the
space provided below.)
- ------------------------------------
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.
Dated: , 2002
----------------------------
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 4PM 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.
INTERNET
http://www.eproxy.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
TELEPHONE
1-800-435-6710
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
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.