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.     )

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Swift Energy Company

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

to be held May 8, 2007

The annual meeting of shareholders of SWIFT ENERGY COMPANY (the “Company”) will be held at the Wyndham Greenspoint Hotel, 12400 Greenspoint Drive, Houston, Texas, on Tuesday, May 8, 2007, at 4:00 p.m., Houston time, for the following purposes:

A record of shareholders has been taken as of the close of business on March 19, 2007, and only shareholders of record on that date will be entitled to vote at the annual meeting, or any adjournment or postponement thereof. A complete list of shareholders will be available commencing April 28, 2007, and may be inspected during normal business hours prior to the annual meeting at the offices of the Company, 16825 Northchase Drive, Suite 400, Houston, Texas. This list will also be available at the annual meeting.

 

Your Vote Is Important!

Whether or not you plan to attend the annual meeting of shareholders, we urge you to vote and submit your proxy by telephone, Internet, or by mail as promptly as possible to ensure the presence of a quorum for the annual meeting. For additional instructions on voting by telephone or the Internet, please refer to the enclosed instruction sheet. To vote and submit your proxy by mail, please complete, sign, and date the enclosed proxy card and return it in the enclosed postage pre-paid envelope. If you attend the annual meeting, you may revoke the proxy and vote in person. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares.

 

 

 

 

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TABLE OF CONTENTS

Page

PROPOSAL 2 — TO AMEND THE SWIFT ENERGY COMPANY 2005 STOCK COMPENSATION PLAN TO

INCREASE THE NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK AVAILABLE FOR

 

 

 

 

 

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SWIFT ENERGY COMPANY

16825 Northchase Drive, Suite 400

Houston, Texas 77060

(281) 874-2700

 

PROXY STATEMENT

for the

2007 ANNUAL MEETING OF SHAREHOLDERS

Solicitation

This proxy statement, the accompanying proxy card and the Annual Report to Shareholders of Swift Energy Company (“Swift Energy” or the “Company”) are being mailed to Swift Energy’s shareholders beginning on or about April 2, 2007. The Board of Directors (the “Board”) of Swift Energy is soliciting your proxy to vote your shares of Swift Energy common stock at the annual meeting of shareholders (the “Annual Meeting”) to be held at the Wyndham Greenspoint Hotel, 12400 Greenspoint Drive, Houston, Texas, on Tuesday, May 8, 2007, at 4:00 p.m., Houston time. The Board is soliciting proxies to give all shareholders the opportunity to vote on the matters that will be presented at the Annual Meeting. This proxy statement provides you with the information on these matters to assist you in voting your shares.

Voting Information

What is a proxy?

A proxy is your legal designation of another person or persons (the “proxy” or “proxies”) to vote on your behalf. By completing and returning the enclosed proxy card, you are giving the designated proxies appointed by the Board the authority to vote your shares in the manner you indicate on your proxy card.

Who are the proxies appointed by the Board of Directors for the Annual Meeting?

The proxies for the Company appointed by the Board at a meeting held on February 19, 2007, are the following officers and directors of Swift Energy:

 

Can I receive more than one proxy card?

Yes. If you received multiple proxy cards you may hold your shares in different ways (e.g., joint tenancy, trusts or custodial accounts) or in multiple accounts. If your shares are held by a broker, often referred to as being held in “street name,” you will receive your proxy card or cards or other voting information from your broker, and you will return your proxy card or cards to your broker. You should vote on and sign each proxy card you receive.

Who is qualified to vote?

You are qualified to receive notice of and to vote at the Annual Meeting if you own shares of Swift Energy common stock at the close of business on our record date of Monday, March 19, 2007.

How many shares of Swift Energy common stock are entitled to vote at the Annual Meeting?

As of March 19, 2007, there were 29,888,761 shares of Swift Energy common stock issued and outstanding and entitled to vote at the Annual Meeting. Each share of Swift Energy common stock is entitled to one vote on each matter presented.

What is the difference between a “shareholder of record” and a “street name” holder?

These terms describe how your shares are held. If your shares are registered directly in your name with American Stock Transfer & Trust Company, the Company’s transfer agent, you are a “shareholder of record.” If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder.

 

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How do I vote my shares?

If you are a “shareholder of record,” you have several choices. Please refer to the specific instructions set forth on the enclosed proxy card, but in general, you can vote your proxy:

If you hold your shares in “street name,” your broker, bank, trustee or nominee will provide you with materials and instructions for voting your shares.

Can I vote my shares in person at the Annual Meeting?

If you are a “shareholder of record,” you may vote your shares in person at the Annual Meeting. If you hold your shares in “street name,” you must obtain a proxy from your broker, banker, trustee or nominee, giving you the right to vote the shares in person at the Annual Meeting.

What are the Board’s recommendations on how I should vote my shares?

The Board recommends that you vote your shares as follows:

What are my choices when voting?

Proposal 1 — You may cast your vote in favor of electing the nominees as directors or withhold your vote on one or more nominees.

Proposals 2 and 3 — Each proposal requires the affirmative vote of the holders of a majority of the shares entitled to vote on, and that voted for or against or expressly abstained with respect to, each proposal.

How will my shares be voted if I do not specify how they should be voted?

If you sign and return your proxy card without indicating how you want your shares to be voted, the designated proxies appointed by the Board will vote as follows:

 

How are votes withheld, abstentions and broker non-votes treated?

Votes withheld and abstentions are deemed as “present” at the Annual Meeting, are counted for quorum purposes, and other than for Proposal 1, will have the same effect as a vote against the matter. For Proposal 1, votes withheld will have the same effect as not voting. Broker nonvotes, if any, while counted for general quorum purposes, are not deemed to be “present” with respect to any matter for which a broker does not have authority to vote and also have the same effect as not voting.

 

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Can I change my vote after I have mailed in my proxy card?

You may revoke your proxy by one of the following ways:

What vote is required to approve each proposal?

Proposal 1 requires a plurality of the votes cast by shareholders entitled to vote to elect directors.

Proposals 2 and 3 each require the affirmative vote of the holders of a majority of the shares entitled to vote on, and that voted for or against or expressly abstained with respect to, each proposal.

Who pays the cost of this proxy solicitation?

The cost of preparing, printing and mailing this proxy statement and soliciting proxies is paid by Swift Energy. The Company will also request brokerage firms, banks, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares of Swift Energy common stock as of the record date and will reimburse these entities for the cost of forwarding the proxy materials in accordance with customary practice. Your cooperation in promptly voting your shares and submitting your proxy by telephone, Internet or by completing and returning the enclosed proxy card by mail will help to avoid additional expense.

Is this proxy statement the only way the proxies are being solicited?

In addition to this solicitation by the Board, employees of Swift Energy may solicit proxies in person or by mail, delivery service, telephone or facsimile, without additional compensation. The Company has also retained Georgeson Shareholder Communications Inc. to act as a proxy solicitor in conjunction with the Annual Meeting. The Company has agreed to pay this firm $8,000, plus reasonable out of pocket expenses, for proxy solicitation services.

If you have any further questions about voting your shares or attending the Annual Meeting, please contact our Investor Relations Department at (713) 874-2700 or (800) 777-2412.

 

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PROPOSAL 1 — ELECTION OF DIRECTORS

Swift Energy has three classes of directors. Every year, each director of one class is elected to serve a three-year term or until his or her successor has been duly elected and qualified. Messrs. Raymond E. Galvin, Greg Matiuk and Henry C. Montgomery, incumbent Class II directors, have been nominated by the Board to stand for re-election as Class II directors. Directors are elected by a plurality of the votes cast by the holders of shares present and entitled to vote in the election of directors at a meeting of the shareholders at which a quorum is present.

The current composition of the Board is:

Class II Director Nominees

Raymond E. Galvin, 75, has served as Vice Chairman of the Board since June 1, 2006, and as a director of Swift Energy since August 5, 2003. From 1992 until he retired in February 1997, Mr. Galvin was President of Chevron USA Production Company. He also served as a director of Chevron Corporation from 1995 to 1997 and as a Vice President of Chevron Corporation from 1988 to 1997. Mr. Galvin has also served as chairman of the Natural Gas Council and the Natural Gas Supply Association. Mr. Galvin holds the degree of Bachelor of Science in Petroleum Engineering.

Greg Matiuk, 61, has served as a director of Swift Energy since September of 2003. After 36 years of service, Mr. Matiuk retired from ChevronTexaco Corporation in May 2003 having last served as Executive Vice President, Administrative and Corporate Services, a position he had held since 2001. From 1998 until 2001, he was Vice President, Human Resources and Quality, and from 1996 to 1998 he served as Vice President of Strategic Planning and Quality. Mr. Matiuk began his career at ChevronTexaco in 1967 as a production and reservoir engineer. He holds the degree of Bachelor of Science in Geological Engineering and an Executive Master of Business Administration.

Henry C. Montgomery, 71, has served as a director of Swift Energy since 1987. Since 1980, Mr. Montgomery has been Chairman of the Board of Montgomery Professional Services Corporation, a financial management and accounting outsourcing firm. Since 2006, he has been Chairman and Chief Executive Officer of Montgomery Pacific Outsourcing LLC, a financial management and accounting outsourcing firm with subsidiary operations in the Philippines. Mr. Montgomery also currently serves as Chairman of the Board of Catalyst Semiconductor, Inc., which designs, develops and markets programmable integrated circuit products, and Chairman of the Board of ASAT Holdings, Ltd., which packages and tests semiconductor devices. Mr. Montgomery holds the degree of Bachelor of Arts in Economics.

 

The persons named as proxies on the accompanying proxy card, unless authority is withheld by a shareholder on a proxy card, intend to vote “FOR” the election of all of the nominees named in this proxy statement standing for re-election as Class II directors. If any nominee should become unavailable or unable to serve as a director, the persons named as proxies may vote for a substitute selected by them, or the size of the Board may be reduced accordingly; however, the Board is not aware of any circumstances likely to render any nominee unavailable.

 

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BOARD OF DIRECTORS

Class I Directors

Clyde W. Smith, Jr., 58, has served as a director of Swift Energy since 1984. Since January 2002, Mr. Smith has served as President of Ascentron, Inc., an electronics manufacturing services company. From May 1998 until January 2002, Mr. Smith served as General Manager of D.W. Manufacturing, Inc. d/b/a Millennium Technology Services, an electronics manufacturer, which was acquired by Ascentron, Inc. in January of 2002. Mr. Smith is a Certified Public Accountant and holds the degree of Bachelor of Business Administration in Management.

Charles J. Swindells, 64, has served as a director of Swift Energy since February 2006. Ambassador Swindells currently serves as Managing Director of US Trust Company, N.A. and also is a director on the Board of The Greenbrier Companies, Inc., an international supplier of transportation equipment and services to the railroad industry. He served as United States Ambassador to New Zealand and Samoa from 2001 to 2005. Before becoming Ambassador, Mr. Swindells was Vice Chairman of US Trust Company, N.A. from 1993 until 2001. Ambassador Swindells also served as Chairman of the Board of a non-profit board of trustees for Lewis & Clark College in Portland, Oregon from 1998 until 2001. He holds the degree of Bachelor of Science in Political Science.

Terry E. Swift, 51, has served as the Chief Executive Officer of Swift Energy since May 2001, as Chairman of the Board since June 1, 2006, and as a director of the Company since May 2000. He was President of the Company from November 1997 to November 2004, Chief Operating Officer from 1991 to February 2000, and Executive Vice President from 1991 to 1997. Mr. Swift served in other progressive positions of responsibility since joining the Company in 1981. He holds the degrees of Bachelor of Science in Chemical Engineering and Master of Business Administration. He is the son of the late A. Earl Swift, founder of Swift Energy, and the nephew of Virgil N. Swift, Director Emeritus.

Class II Directors

The biographies for the Class II directors are set forth above under “Proposal I—Election of Directors.”

Class III Directors

Deanna L. Cannon, 46, was elected to serve as a member of the Board at the 2004 annual meeting of shareholders. Ms. Cannon is a shareholder and director of Corporate Finance Associates of Northern Michigan (“CFA”), an investment banking firm, and Corporate Finance Associates Worldwide (“CFAW”). She is also President of Cannon & Company CPA’s PLC, a privately held consulting firm. She served Miller Exploration Company as Chief Financial Officer and Secretary from November 2001 to December 2003, as Vice President—Finance and Secretary from June 1999 to November 2001, and as a director of one of its wholly owned subsidiaries from May 2001 to December 2003. Miller Exploration Company was a publicly held independent oil and gas exploration and production company that was acquired by Edge Petroleum Corporation in December 2003. Previously, Ms. Cannon was employed in public accounting for 16 years. Ms. Cannon holds a Bachelor of Science degree in Accounting and is a Certified Public Accountant.

Douglas J. Lanier, 57, has served as a director of Swift Energy since May 2005. Mr. Lanier retired in 2004 as Vice President of ChevronTexaco Exploration & Production Company, Gulf of Mexico Business Unit. He began his career with Gulf Oil Company in 1972 and served in various positions until 1989, when Mr. Lanier was appointed Assistant General Manager–Production for Chevron USA Central Region in Houston. He served in subsequent appointments until he joined Chevron Petroleum Technology Company as President in 1997. In October of 2000, he was appointed Vice President of the Gulf of Mexico Shelf Strategic Business Unit. Mr. Lanier holds the degree of Bachelor of Science in Petroleum Engineering. He is a member of the Society of Petroleum Engineers and is a Texas registered Professional Engineer in Texas (inactive). Mr. Lanier was inducted into the University of Tulsa College of Engineering Hall of Fame in 2003.

Bruce H. Vincent, 59, was elected as a director of Swift Energy in May 2005 and was appointed President of the Company in November 2004. He previously served as President of Swift Energy International, Inc. from February 2004 to May 2005, as Secretary of Swift Energy Company from August 2000 to May 2005, as Executive Vice President—Corporate Development from August 2000 to November 2004, and as Senior Vice President—

 

 

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Funds Management since joining the Company in 1990. Mr. Vincent holds the degrees of Bachelor of Arts and Master of Business Administration.

Affirmative Determinations Regarding Independent Directors and Financial Experts

The Board has determined that each of the following directors is an “independent director” as such term is defined in Section 303A of the Listed Company Manual of the New York Stock Exchange, Inc. (“NYSE”): Deanna L. Cannon, Raymond E. Galvin, Douglas J. Lanier, Greg Matiuk, Henry C. Montgomery, Clyde W. Smith, Jr., and Charles J. Swindells. These independent directors represent a majority of the Company’s Board of Directors. Messrs. Swift and Vincent are not independent directors because they serve Swift Energy as Chief Executive Officer and President, respectively.

The Board has also determined that each member of the three committees of the Board meets the independence requirements applicable to those committees prescribed by the NYSE and the Securities and Exchange Commission (“SEC”). Further, the Board has determined that Henry C. Montgomery, Chairman of the Audit Committee, Clyde W. Smith, Jr. and Deanna L. Cannon, members of the Audit Committee, are each an “audit committee financial expert” as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC.

The Board reviewed the applicable standards for Board member and Board committee independence and the criteria applied to determine “audit committee financial expert” status, as well as the answers to annual questionnaires completed by each of the independent directors. On the basis of this review, the Board made its independence and “audit committee financial expert” determinations.

Meetings of Independent Directors

At each executive session of the independent directors, the Lead Director presides. Mr. Galvin was elected as Lead Director by the independent directors. For purposes of Rule 303A.03 of the NYSE Listed Company Manual, the term “independent directors” is equivalent to “non-management directors.”

Meetings and Committees of the Board

The Board has established the following standing committees: Audit, Compensation, Corporate Governance and Executive Committees. Descriptions of the membership and functions of these committees are set forth below. The following chart identifies the committees upon which each member of the Board serves, the Chairmen of the committees, and the number of meetings and actions by consent by the Board and the committees during 2006:

 

 

During 2006, each director attended at least 75% of the aggregate of (i) the total number of meetings of the Board and (ii) the total number of meetings of all committees of the Board on which he or she served.

 

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Audit Committee. The Audit Committee assists the Board in fulfilling its responsibilities with respect to oversight in monitoring (i) the integrity of the financial statements of the Company; (ii) Swift Energy’s compliance with legal and regulatory requirements; (iii) the independent auditor’s selection, qualifications and independence; and (iv) the performance of Swift Energy’s internal audit function and independent auditors. The committee is required to be comprised of three or more non-employee directors, each of whom is determined by the Board to be “independent” under the rules promulgated by the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”), and meets the financial literacy and experience requirements under the rules or listing standards established by the NYSE, all as may be amended from time to time. In addition, at least one member of the committee must satisfy the definition of audit committee financial expert as such term may be defined from time to time under the rules promulgated by the SEC. The Board has determined that Messrs. Montgomery and Smith and Ms. Cannon qualify as audit committee financial experts and that each member of the Audit Committee is independent as defined in the NYSE Listed Company Manual and the rules of the SEC. A report of the Audit Committee appears later in this proxy statement. Messrs. Montgomery (Chairman) and Smith and Ms. Cannon are members of the Audit Committee.

Compensation Committee. The Compensation Committee discharges the responsibilities of the Board relating to compensation of the Company’s executive officers. This includes evaluating the compensation of the executive officers of the Company and its affiliates and their performance relative to their compensation to assure that such executive officers are compensated effectively in a manner consistent with the strategy of Swift Energy, competitive practices, and the requirements of the appropriate regulatory bodies. In addition, this committee evaluates and makes recommendations to the Board regarding the compensation of the directors. The Compensation Committee also evaluates and approves any amendment, subject to shareholder approval, to the Company’s existing equity-related plans and approves the adoption of any new equity-related plans, subject to shareholder and Board approval. The Compensation Committee is required to be comprised of at least three directors who are non-employee directors and determined by the Board to be independent under the SEC rules and NYSE’s listing standards. The Board has determined that all members are independent as defined by the NYSE listing standards or rules of the SEC and NYSE. The report of the Compensation Committee is included below. Messrs. Smith (Chairman), Lanier, Matiuk, Montgomery and Swindells are members of the Compensation Committee.

Corporate Governance Committee. The Corporate Governance Committee identifies individuals qualified to become directors and nominates candidates for directorships and also recommends to the Board the membership for each of the Board’s committees. This committee may consider nominees recommended by shareholders upon written request by a shareholder in accordance with the procedures for submitting shareholder proposals. The Corporate Governance Committee also develops, monitors and recommends to the Board corporate governance principles and practices applicable to Swift Energy. The committee also assists management of the Company in identifying, screening, and recommending to the Board individuals qualified to become executive officers of the Company. In addition, this committee administers the Company’s conflicts of interest policy. The Corporate Governance Committee is required to be comprised of at least three directors who are non-employee directors and determined by the Board to be independent under the NYSE listing standards and the rules of the SEC. Messrs. Matiuk (Chairman), Galvin and Swindells and Ms. Cannon are members of the Corporate Governance Committee and, as determined by the Board, all are independent as defined in the NYSE listing standards and rules of the SEC.

Executive Committee. The Executive Committee is authorized to act for the Board at times when it is not convenient for the full Board to act as an assembled board, except where full Board action is required by applicable law. Any action taken by the Executive Committee is required to be reported at the next full Board meeting. Messrs. Swift, Galvin and Lanier are members of the Executive Committee.

 

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Compensation of Directors

In accordance with its charter, the Compensation Committee periodically evaluates the compensation of non-employee directors, including for service on Board committees, and recommends annual retainer and meeting fees for non-employee directors and for service on Board committees and sets the terms and awards of any stock based compensation and submits these recommendations to the Board of Directors for approval subject to shareholder approval if required. Directors who are also employees of the Company receive no additional compensation for service as directors. The following table shows compensation for non-employee directors for 2006:

 

 

 

The following table sets forth certain summary information regarding compensation paid or accrued by the Company to or on behalf of the Company’s non-employee directors for the fiscal year ended December 31, 2006:

 

 

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Payments to Former Directors

The Board of Directors maintains a policy that the Board reviews from time to time relating to post-retirement director compensatory agreements. The policy provides for agreements or arrangements with former directors, including consulting services, in instances in which a majority of the independent directors of the Board agree that an individual former director has specific expertise that the Board and management agree is of material benefit to the Company. Any agreements with former directors currently in effect or about to expire will be reviewed in accordance with this policy. The full Board concluded that the services of Messrs. A. Earl Swift and Virgil Swift, due to their extensive experience with Swift Energy and the oil and gas industry, were invaluable assets to the Company, and thus new consulting agreements were entered into with these former directors.

Mr. A. Earl Swift served as Chairman of the Board of Swift Energy from the date he founded Swift Energy in October 1979 until his passing on May 30, 2006. He also served as the Company’s Chief Executive Officer until May 2001. Mr. A. E. Swift’s employment agreement with the Company provided for its termination on June 30, 2006, and as approved by the Company’s Compensation Committee was to be replaced by a consulting agreement he entered into with the Company that was to become effective on July 1, 2006. The Compensation Committee of the Board approved the terms of the consulting agreement in March 2006, which governed payments to Mr. A. E. Swift’s estate.

Per Mr. A. E. Swift’s agreements, 10,000 unvested stock options he held on the date of his death immediately became exercisable. Pursuant to Mr. A. E. Swift’s agreements, a cash payment of $451,493 was paid to Mr. A. E. Swift’s spouse. Under the contractual provisions, the cash payment to his spouse was calculated using base compensation of $150,000 per year for three years, discounted to present value at a rate of 8% per annum, plus an annual inflation adjustment of 4% per annum.

Mr. Virgil Swift served as a director during 2005 until the annual meeting of shareholders on May 10, 2005, at which time he was given the honorary title of Director Emeritus. Mr. V. Swift received compensation during 2006 pursuant to a consulting agreement, which has been in effect since July 2000 and was renewed on similar terms effective July 1, 2006. Pursuant to such agreement, Mr. V. Swift is paid $5,000 per month for providing advisory services to key employees, officers, and directors, especially in the area of the Company’s New Zealand oil and gas exploration and production operations and as otherwise requested by the Chairman of the Board and Chief Executive Officer, or by the President. The consulting agreement is terminable by either party without cause upon two weeks’ written notice. Upon a change of control during the term of the consulting agreement, all outstanding stock options held by Mr. V. Swift will become 100% vested.

Board Succession Plan

The Board formally considered, addressed and approved a Board succession plan during 2004, as recommended to the Board by the Corporate Governance Committee. In adopting such plan, the Board took into consideration the Company’s Principles of Corporate Governance that present members of the Board will notify the Board when they reach the age of 75 and the Board, after receiving the recommendation of the Corporate Governance Committee, will determine whether or not such director will continue as a member of the Board. In accordance with the Board succession plan, Mr. Galvin would have been scheduled for such consideration at the 2006 annual meeting. The Corporate Governance Committee recommended, and the Board approved, the nomination of Mr. Galvin to stand for election, and Mr. Galvin was re-elected as a Class II director with a term to expire at the 2007 Annual Meeting. Mr. Galvin was again scheduled for such consideration at the 2007 Annual Meeting. The Corporate Governance Committee considered Mr. Galvin’s industry experience and wide-ranging management background and determined that especially with the passing of A. Earl Swift, the Board and the Company would benefit from Mr. Galvin’s depth of experience and his continuing to serve as Lead Director, Vice Chairman and a member of the Executive Committee. The Corporate Governance Committee recommended, and the Board approved, with Mr. Galvin’s abstention, that Mr. Galvin be nominated to stand for re-election for a full three year term as a Class II director.

 

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Nominations for Directors

Identifying Candidates

The Corporate Governance Committee, in consultation with the Chairman of the Board, is responsible for identifying and screening potential director candidates and recommending qualified candidates to the Board for nomination. The Committee considers recommendations of potential candidates from current directors and shareholders. Shareholders’ nominations for directors must be made in writing and include the name, age, business and residence address of the recommended nominee, the class and number of shares, if any, of Swift Energy which are beneficially owned by the recommended nominee, and any other information required to be disclosed in the Company’s proxy statement by rules promulgated by the SEC. Additionally, the recommendation must include the name and address of the shareholder, the number of shares of the Company’s securities that the shareholder beneficially owns, and the period for which the shareholder has held such shares. Nominations must be addressed as follows and received by no later than March 9, 2008, and no earlier than February 8, 2008, in order to be considered for the next annual election of directors:

 

Qualifications

The Corporate Governance Committee has not established a specific minimum or maximum age, education, years of business experience or specific types of skills for potential director candidates, but, in general, consideration is given to each candidate’s reputation, mature judgment, career specialization, relevant technical skills, diversity and the extent to which the candidate would fill a present need on the Board.

The Company’s Principles for Corporate Governance require that each director:

Nomination of Candidates

In determining whether to nominate a candidate, either from an internally generated or shareholder recommendation, the Corporate Governance Committee will consider the current composition and capabilities of serving board members, as well as additional capabilities considered necessary or desirable in light of existing and future Company needs. The Corporate Governance Committee also exercises its independent business judgment and discretion in evaluating the suitability of any recommended candidate for nomination.

 

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Compensation Committee Interlocks and Insider Participation

During 2006, the Compensation Committee of the Board consisted of Messrs. Smith, Lanier, Matiuk, Montgomery and Swindells, who are all independent directors. To the Company’s knowledge, there are no compensation committee interlocks involving members of the Compensation Committee or other directors of the Company.

Corporate Governance

Part of the Company’s historical and on-going corporate governance practices is the Company’s policy that requires officers, directors, employees, and certain consultants of the Company to submit annual disclosure statements regarding their compliance with the Company’s conflict of interest policy. A management representation letter is provided to the Corporate Governance Committee of the Board regarding the results of the annual disclosure statements and management’s assessment of any potential or actual conflicts of interest. Based on this assessment and further discussion with management, the Corporate Governance Committee then directs management on what additional action, if any, the Committee determines is necessary to be undertaken with regard to any potential or actual conflict of interest or related party transaction.

The Company also requires that officers, directors, employees, and certain consultants of the Company provide an annual re-affirmation of the Company’s Code of Ethics and Business Conduct. A copy of the Code of Ethics and Business Conduct is re-distributed in connection with this requirement and each such person is asked to re-affirm and re-acknowledge that they have reviewed and refreshed their knowledge of the provisions of the Code of Ethics and Business Conduct and will comply with such Code. They also re-affirm their understanding that their continued service to the Company is dependent upon compliance with the Company’s Code of Ethics and Business Conduct. In addition, all officers, directors, employees, and consultants are required to annually re-certify their understanding of, and adherence to, the Company’s Insider Trading Policy. A copy of the Insider Trading Policy is also re-distributed in connection with this requirement.

The charters for each the Audit, Corporate Governance and Compensation Committees are reviewed annually by each committee and by the Corporate Governance Committee. The Board-adopted Principles of Corporate Governance for the Company and the Code of Ethics and Business Conduct are applicable to all employees, directors and consultants and are posted on the Company’s website at www.swiftenergy.com. The committee charters, Principals of Corporate Governance and Code of Ethics and Business Conduct are also available in print, without charge, to any shareholder who requests a copy. Requests should be directed to the Company’s Investor Relations Department at 16825 Northchase Drive, Suite 400, Houston, Texas 77060; by telephone at (713) 874-2700 or (800) 777-2412; or by email to info@swiftenergy.com.

In addition, the Code of Ethics for Senior Financial Officers and Principal Executive Officers, as adopted by the Board, is posted on Swift Energy’s website, where the Company also intends to post any waivers from or amendments to this Code of Ethics.

Related Party Transactions

During 2006, the Company received research, technical writing, publishing, and website-related services from Tec-Com Inc., a corporation located in Knoxville, Tennessee, and controlled and majority owned by the aunt of the Company’s Chairman of the Board and Chief Executive Officer. For the fiscal year ended December 31, 2006, the Company paid approximately $0.5 million to Tec-Com for such services pursuant to the terms of the contract between the parties. The contract expires June 30, 2007. The Company believes that the terms of this contract are consistent with comparable arrangements with third parties that provide similar services.

The Company has not adopted a formal related party transaction policy. As a matter of corporate governance policy and practice, related party transactions are annually presented and considered by the Corporate Governance Committee of the Company’s Board of Directors in accordance with such committee’s charter. See discussion set forth above under “Board of Directors—Corporate Governance.”

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The following table sets forth information concerning the shareholdings, as of March 1, 2007 (unless otherwise indicated), with respect to each person, to the Company’s knowledge, who beneficially owned more than five percent of the Company’s outstanding common stock:

 

 

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Security Ownership of Management

The following table sets forth information concerning the shareholdings, as of March 1, 2007 (unless otherwise indicated), of the members of the Board, the Chief Executive Officer, the Chief Financial Officer, the three most highly compensated executive officers other than the CEO and CFO, and all executive officers and directors as a group:

 

 

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EXECUTIVE OFFICERS

The Board appoints the executive officers of the Company annually. Information regarding Terry E. Swift, Chief Executive Officer, and Bruce H. Vincent, President, is set forth previously in this proxy statement under “Board of Directors.” Set forth below is certain information, as of the date of this proxy statement, concerning the other executive officers of the Company.

Joseph A. D’Amico, 58, was appointed Executive Vice President of Swift Energy in August 2000 and was appointed Chief Operating Officer in February 1999. He served in other progressive positions of responsibility since joining the Company in 1988. Mr. D’Amico holds the degrees of Bachelor and Master of Science in Petroleum Engineering and the degree of Master of Business Administration.

Alton D. Heckaman, Jr., 50, was appointed Executive Vice President of Swift Energy in November 2004 and Chief Financial Officer in August 2000. He previously served as Senior Vice President—Finance from August 2000 until November 2004. He served in other progressive positions of responsibility since joining the Company in 1982. He is a Certified Public Accountant and holds the degrees of Bachelor of Business Administration in Accounting and Master of Business Administration.

James M. Kitterman, 62, was appointed Senior Vice President—Operations of Swift Energy in May 1993. He had previously served as Vice President—Operations since joining the Company in 1983. Mr. Kitterman holds the degrees of Bachelor of Science in Petroleum Engineering and Master of Business Administration.

James P. Mitchell, 52, was appointed Senior Vice President—Commercial Transactions and Land in February 2003. He previously served as Vice President—Land and Property Transactions from December 2001 to February 2003, and Vice President—Land from 1996 to 2001. He served in other progressive positions of responsibility since joining the Company in 1987. Mr. Mitchell holds the degree of Bachelor of Arts in History and Business Law.

Victor R. Moran, 51, was appointed Senior Vice President and Chief Compliance Officer of Swift Energy in November 2004, having previously served as Senior Vice President—Energy Marketing and Business Development from August 2000. He served in other progressive positions of responsibility since 1992, when he joined the Company. Mr. Moran was elected to the Board of Trustees of Spring Independent School District in May 2005. Mr. Moran holds the degrees of Bachelor of Arts in Government and History, Master of Business Administration, and a Doctor of Jurisprudence.

David W. Wesson, 48, was appointed Controller of Swift Energy in January 2001. He previously served as Assistant Controller—Reporting from April 1999 to January 2001, and in other progressive positions of responsibility since joining the Company in 1988. Mr. Wesson is a Certified Public Accountant and holds the degree of Bachelor of Business Administration in Accounting.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This compensation discussion and analysis describes the material elements of compensation paid to our officers, including our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers, each as named in the tables set forth in this proxy statement and which we refer to as our “named executive officers.” All officers of Swift Energy and its affiliates are collectively referred to as “Officers.”

Swift Energy’s executive compensation programs are recommended by senior management of the Company and reviewed, adjusted as deemed appropriate and approved on an annual basis by the Compensation Committee of the Board of Directors based on an analysis of Swift Energy’s historical compensation practices in relation to various competitive market and industry data, surveys and benchmarks, with adjustments made by the Compensation Committee as the Committee deems appropriate.

Compensation Philosophy and Objectives

The Company’s policy is to establish competitive compensation programs that promote and advance the interests of the Company by aiding in the recruiting, hiring, retaining and rewarding of qualified employees, and aligning the financial interest of managerial and key employees with the growth and financial success of the Company by offering stock based incentives. The Compensation Committee evaluates the performance of the Officers of Swift Energy relative to their compensation to assure that such Officers are compensated in a manner consistent with the mission and strategy of Swift Energy and with competitive practices within the oil and gas industry. The Company believes that its compensation program provides an excellent link between the value created for shareholders and the compensation paid to its Officers. The same value linkage is applied in considering the compensation of non-employee directors.

Our Compensation Committee

The Compensation Committee was established by the Board of Directors in 1982 and the Committee has been composed solely of non-employee directors since inception. The members of the Compensation Committee are all “independent” as defined by the rules and regulations of the Securities and Exchange Commission and the rules of the New York Stock Exchange. In addition, all members of the Committee are “disinterested directors” under SEC Rule 16b-3 and qualified “outside directors” under Section 162(m) of the Internal Revenue Code.

Discharging the responsibilities of the Board of Directors of Swift Energy relating to compensation of the Company’s Officers is the primary function of the Compensation Committee. In addition, the Compensation Committee evaluates and makes recommendations to the Board regarding the compensation of the non-employee directors. The Committee also has the sole authority to retain outside compensation consultants to assist it in the performance of its duties, as the Committee deems necessary or advisable in its sole discretion. Although consultants have been used in recent history, no consultants were retained specifically by the Compensation Committee for 2006 compensation determinations. The format of the annual compensation analysis, which was originally established by outside compensation consultants a few years ago, is still utilized.

On an annual basis, the Compensation Committee reviews and considers corporate goals and objectives relevant to the Chief Executive Officer’s compensation and evaluates the Chief Executive Officer’s performance in light of those goals and objectives, and has the authority to determine the amounts and individual elements of total compensation for the Chief Executive Officer. The Compensation Committee determines the criteria used to evaluate the Chief Executive Officer and submits such criteria to the Board for approval. In determining the Chief Executive Officer’s long-term compensation, the Compensation Committee considers the Company’s performance and shareholder return, the value of similar incentive awards to chief executive officers at comparable companies, and the awards given to the Company’s Chief Executive Officer in prior years, and any other factors the Committee deems appropriate or applicable.

Annually, the Committee also reviews and considers the Company’s corporate goals and objectives relevant to Officer compensation other than that of the Chief Executive Officer. Additionally, the Committee reviews, modifies (if the Committee deems necessary) and approves management’s recommendations as to a salary

 

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program for the Company’s Officers. This involves the review and approval of management’s recommendations for annual salary adjustments for all individual Officers, except for the Chief Executive Officer. The Committee also reviews and approves management’s recommendations for an incentive compensation program to reward Officers. This involves the review and approval of management’s recommendations for incentive compensation awards for all Officers, except for the Chief Executive Officer, according to the Company’s incentive compensation plans and programs. Further, the Committee periodically evaluates (i) the terms and administration of (and approves, subject to shareholder approval if required, any proposed amendments to) the Company’s annual and long-term incentive plans to assure that they are structured and administered in a manner consistent with the Company’s goals and objectives as to participation in such plans, annual incentive award targets, corporate financial goals, actual awards paid to the Company’s Officers, and total funds reserved for payment under the compensation plans; and (ii) existing equity-related plans, and evaluates and approves the adoption of any new equity-related plans and determines when it is necessary or otherwise desirable: (a) to modify, discontinue or supplement any such plans; or (b) to submit amendments or adoption to a vote of the Board and/or the Company’s shareholders.

Swift Energy’s Officer compensation consists of three primary components: base salary, annual incentive bonuses, and long term stock-based incentives. For 2006, the annual base salary review for Officers utilized the base salary information from historical and competitive market reviews to compare the recommended salary adjustments to those for similar oil and gas industry peer positions. The actual recommended salary adjustments are based on individual performance, individual experience, individual roles and responsibilities and competitive market data for each of the various Officers. Outstanding performance by a particular Officer is generally recognized through annual and long-term incentives rather than base salary.

Executive Compensation Criteria and Performance Measurement

Swift Energy’s senior management utilizes more than one method to analyze and make its annual compensation recommendations. The three primary components of Swift Energy’s officer compensation (base salary, annual incentive bonuses and long-term stock-based incentives) have been and continue to be compared with the average and the median of the third quartile, the 66th percentile, of the competitive market data. The Compensation Committee reviews competitive market data for several peer groups. For the 2006 competitive market review, the Committee reviewed competitive market data for a 15 company peer group and a broader 26 company peer group. Officer incentive compensation is not set to any particular statistical result obtained from the peer group analysis of the competitive market data.

The three elements of Swift Energy’s officer compensation are compared with historical public information utilizing several different peer groups with similar characteristics, business strategies and operations. For the 2006 incentive program, Swift Energy’s Officer compensation program was compared against a peer group of approximately 15 independent oil and gas companies. For the named Officers, these comparisons are made by position or rank (such as second highest paid named executive officer) and by title. These comparisons are then repeated with a peer group of 26 oil and gas companies, some with smaller and some with larger market capitalization. This is done to help ensure that the quality and caliber of officers that Swift Energy can recruit as well as retain is competitive with a broad base of companies in the oil and gas industry.

Base Salary for a particular year is based upon (i) the Officer’s role and scope of responsibility, (ii) an evaluation of each Officer’s individual performance during the year, (iii) the range paid by oil and gas exploration and production companies, based in part upon annual surveys provided by various outside sources and public information on oil and gas exploration and production companies (the “Compensation Surveys”), (iv) the Officer’s direct or related industry experience and (v) an evaluation of the Company’s performance during the preceding year, which includes, among other things, the Company’s earnings, reserves growth and cash flow. Annual Officer individual performance evaluations include each Officer’s review of his or her own performance throughout the year, consideration of each Officer’s accomplishment of his or her established goals during the year, and a performance review and compensation recommendation by the Company’s Chief Executive Officer, all of which are then reviewed, adjusted if deemed appropriate, and acted upon by the Compensation Committee.

The Company participates in confidential Compensation Surveys, which include oil and gas exploration and production companies in common with the Dow Jones Oil U.S. Exploration & Production Index (the “Index”) used in the “Five Year Shareholder Return Comparison” set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, as well as other oil and gas exploration and production companies that may not be included in the Index. The Compensation Surveys are used by management and the Compensation

 

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Committee for purposes of Officer compensation comparison because they constitute a broader group than the group of companies included in the Index.

Annual Incentive Bonuses for 2006 were awarded in the first quarter of 2007, in cash, based on both individual and Company performances during 2006. The bonus formula for 2006 for the Officers was based upon at least four of ten operating and financial metrics, each given a varying percentage weighting and collectively weighed at two-thirds of each Officer’s 2006 bonus. The bonus formula for the Chief Executive Officer, President, and Chief Financial Officer was based on all ten metrics. The metrics used were earnings per share, cash flow per share, net margin, growth in proven reserves, production targets, controllable LOE per unit of production, and finding and development costs per Mcfe, with domestic and international operations considered separately for the last three metrics. At the beginning of 2006, target levels for each metric were determined and individual Officers were assigned a specific percentage for each metric for which his or her performance was weighted. For 2006 performance, each officer was assigned a specific percentage for each metric that ranged from 0% to 35%, with all metrics totaling 100%. The target levels were separated into three tiers: qualifying level, baseline target and target maximum. If the qualifying level was not reached, no bonus was awarded for such metric. Upon meeting the qualifying level, incentives incrementally reach 100% as the metric approaches the baseline target. The baseline target is that level that was expected to be reached. Reaching or exceeding the target maximum resulted in excess of a 100% incentive. Successes in these metrics were then measured against target bonus ranges as percentages of base salaries. The remaining factor, with a one-third weighting, was subjective and measured individual performance of that Officer in contributing to the Company’s overall achievement of its strategic objectives and the achievement of the objectives of the Officer’s department or group within the Company.

The annual incentive bonus target levels are generally set at a progressive range of 30% to 100% of base salary for Officers, based on roles and responsibilities. The Compensation Committee reserves the discretion to increase or decrease the targeted levels based on actual Company financial or operating performance, as well as, competitive market practices.

An Officer must also meet the following requirements in order to receive an annual incentive bonus: (i) must be a full-time Officer of Swift Energy or one of its subsidiaries on the date of the award; (ii) must have no violations of the Company’s Code of Ethics and Business Conduct; (iii) must meet or exceed 50% of the Officer’s personal goals based on the CEO’s assessment; and (iv) the bonus must be approved by the CEO and the Compensation Committee of the Board.

Long-Term Stock-Based Incentives are provided through a combination of grants of stock options and restricted stock, usually on an annual basis during February, to Officers and others under the Swift Energy 2005 Stock Compensation Plan (the “2005 Plan”). This component is intended to retain and motivate Officers to improve long-term shareholder value. Stock options and restricted stock awards are granted at the prevailing market price of the Company’s common stock on the date of grant. Grants of stock options have always vested in equal amounts over five years. Any shares of restricted stock granted to Officers will typically vest in equal amounts over three years.

The Compensation Committee determines an appropriate number of options and/or shares of restricted stock to be granted in any year based on the current total number of outstanding options, so as to avoid excessive dilution of the shareholders’ value in the Company through option exercises or restricted stock grants. Out of the number so determined, options and/or shares of restricted stock are apportioned and granted to Officers in progressive amounts, generally related to their roles and responsibilities. Additionally, the metrics described under “Executive Compensation Criteria and Performance Measurement—Annual Incentive Bonuses” above are also used to determine an officer’s long-term stock based incentive award. Long-term stock-based incentive target levels are generally set at a progressive range of 100% to 250% of base salary, again based on roles and responsibilities.

Officers who paid the exercise price when exercising options by using shares of the Company’s common stock, owned by such officers for at least six months, received reload stock options during 2006 in accordance with the terms and conditions of the Company’s stock compensation plans. Reload stock options are available to all plan participants.

Executive Perquisites and Other Business-Related Benefits  

Swift Energy offers a limited number of perquisites to its executives. From time to time, our Officers are provided with financial planning services, which may include tax and estate planning. During 2006, certain officers

 

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were reimbursed by the Company for income tax preparation services by independent third parties. In addition, we provide our Officers with certain “whole” life insurance benefits in addition to the supplemental life, voluntary life and accidental death and dismemberment insurance coverage available to all employees. Officers are provided with a club membership (or memberships in the case of a few Officers). The named executive officers are also occasionally provided with tickets to local sporting events, which are primarily used for business entertainment or provided to other officers or key employees. Officers are taxed on all applicable perquisites, as required. With respect to taxes paid by officers on whole life insurance benefits, Officers are reimbursed for the taxable amount for such insurance coverage after the amount is reported to the Internal Revenue Service.

Officers and employees also have access to Company vehicles on a limited, as needed and approved basis in connection with business-related matters. In general, spousal travel for invited officers and directors is provided in connection with one Board meeting annually and special oil and gas industry functions, which specifically promote or advance the business purposes of the Company.

Post-Termination Compensation and Change of Control Benefits

All of the employment agreements with Officers provide for an initial three-year term, which is automatically extended for one year on the anniversary date of the agreement (such period, as so extended at any time, the “Contract Term”). These agreements provide for payment of certain amounts and continuation of medical benefits for one-half of the remainder of the Contract Term upon termination of employment other than for cause. The payment shall be equal to the executive’s base salary in effect immediately prior to the termination date, plus one week’s salary for every year of service to Swift Energy, plus in the case of Messrs. T. Swift, Heckaman, and Kitterman, certain amounts compounded at a rate of 8% per annum, representing amounts in lieu of company contributions to its 401(k) plan for those periods of employment prior to adoption of such a plan by Swift Energy. The agreements also provide for the continuation of medical benefits for one-half of the remainder of the Contract Term upon termination of employment other than for cause. The agreements can be terminated by Swift Energy other than for cause only by a majority of the continuing directors who have been directors for two years or nominated for election by a majority of continuing directors. Upon employment termination in connection with or following a change of control, the executives are entitled to receive their salary that would have been paid for the remainder of the Contract Term, plus two weeks’ salary for every year of service to Swift Energy, plus in the case of Messrs. T. Swift, Heckaman and Kitterman, the aforementioned in lieu of 401(k) plan payments, and continuation of medical and dental insurance and universal life coverage for certain periods. Immediately prior to termination of employment, all outstanding stock options vest, except as to four officers for whom the only outstanding options that vest are those granted after the date of their respective employment agreement.

Indemnification Agreements

During 2006, we have entered into a new form of indemnification agreement with each of our Officers and directors. Previously, only a few officers who had been with the Company for a long period of time had such agreements. These new indemnification agreements provide for the Company to, among other things, indemnify such persons against certain liabilities that may arise by reason of their status or service as Officers or directors, to advance their expenses incurred as a result of a proceeding as to which they may be indemnified and to cover such person under any officers and directors liability insurance policy we choose, in our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted under Texas law and shall be in addition to any other rights the indemnitee may have under the Company’s Restated Articles of Incorporation, Bylaws and applicable law. We believe these indemnification agreements enhance our ability to attract and retain knowledgeable and experienced Officers and directors.

Section 162(m) of the Internal Revenue Code

Section 162(m) generally limits deductions for compensation paid to any employee in excess of $1.0 million per year. The Compensation Committee addressed this issue in the Swift Energy Company 2005 Stock Compensation Plan. Because amounts of compensation paid to certain officers may be subject to the limitations on deductibility by the Company under Section 162(m) of the Internal Revenue Code, the 2005 Plan provides that any such officer may not receive a grant in any given calendar year of awards covering or measured by more than 100,000 shares of the Company’s common stock. Further, acceleration of vesting or exercisability of awards held by those officers can only be related to their death, disability, termination of employment upon retirement, or a change of control, as defined in the 2005 Plan.

 

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Compensation Committee Report

The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based upon this review, the related discussions and other matters deemed relevant and appropriate by the Compensation Committee, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement to be delivered to stockholders of Swift Energy.

 

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Summary Compensation Table

The following table sets forth certain summary information regarding compensation paid or accrued by the Company to or on behalf of the Company’s Chief Executive Officer, Chief Financial Officer, and each of the three most highly compensated executive officers of the Company other than the CEO and CFO for the fiscal year ended December 31, 2006:

 

 

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Grants of Plan-Based Awards

The following table sets forth certain information with respect to the options granted during the year ended December 31, 2006 to each executive officer listed in the Summary Compensation Table:

 

 

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Outstanding Equity Awards at Fiscal Year-End

The following table includes certain information about stock options and restricted stock outstanding at December 31, 2006, for each executive officer listed in the Summary Compensation Table:

 

 

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Option Exercises and Stock Vested

The following table includes information regarding stock options exercised and restricted stock vested for the executive officers named in the Summary Compensation Table during the fiscal year ended December 31, 2006:

 

 

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Potential Payments Upon Termination or Change-in-Control

The table below and the discussion that follows reflect the amount of compensation payable to each named executive officer upon death, permanent disability, change of control, or other termination under employment agreements and the Company’s compensation plans. The amounts shown assume that such termination was effective December 31, 2006. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.

 

 

 

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Computation of Payments

In the event of the death or permanent disability of a named executive officer, change of control of the Company or other termination (each, an “Event”), named executive officers are entitled to receive a cash lump sum payment equal to:

In addition to the lump sum payment described above, in each Event named executive officers will receive accelerated vesting on all outstanding unvested stock options, making them immediately exercisable (except in the event of other termination, in which case the date such options become first exercisable will remain unchanged).

In the event of death, spouses and dependents of named executive officers will also be provided with medical and dental coverage for one year from the date of death.

In the event of permanent disability, named executive officers will also receive universal life premiums paid by the Company for one-year following the date of permanent disability.

In the event of a change of control, named executive officers will additionally receive accelerated vesting on all unvested restricted stock outstanding for more than one year and medical and dental coverage to be provided to the named executive officer, their spouse, and their dependents for the remainder of the contract term.

In the event of other termination not caused by death, permanent disability or change of control, named executive officers will additionally receive medical and dental coverage to be provided to the named executive officer, their spouse, and their dependents for one year following the termination date.

Conditions and Covenants

Each named executive officer must also observe a limited non-compete provision of his employment agreement. Based on the terms of the employment agreement, the covenant not to compete provision would in no event be effective for longer than three years following the termination of a named executive officer.

A named executive officer will not receive compensation under his employment agreement if the Company terminates the named executive officer for Cause. Cause is defined in the employment agreement as commission of fraud against the Company, willful refusal, after a Change in Control, without proper legal cause to faithfully and diligently perform the named executive officer’s duties as directed, or breach of the confidentiality provision of the employment agreement.

 

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PROPOSAL 2 — TO AMEND THE SWIFT ENERGY COMPANY 2005 STOCK COMPENSATION PLAN TO INCREASE THE NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK AVAILABLE FOR AWARDS UNDER THE PLAN BY UP TO 300,000 ADDITIONAL SHARES

The purpose of the 2005 Stock Compensation Plan is to promote and advance the interest of the Company by aiding in hiring, retaining, and rewarding qualified employees, and increasing managerial and key employees’ interest in the growth and financial success of the Company by offering stock-based incentives tied to performance. Copies of the 2005 Plan as filed with the SEC may be obtained by going to the Company’s website at www.swiftenergy.com or the SEC’s website at www.sec.gov. The 2005 Plan appears as an exhibit to the Company’s Form 8-K filed with the SEC on May 12, 2005, and Amendment No. 1 to the 2005 Plan is appended as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on May 12, 2006. It may also be obtained without charge by writing to the Company at 16825 Northchase Drive, Suite 400, Houston, Texas 77060, Attention: Corporate Secretary, or calling (281) 874-2700 or (800) 777-2412.

An aggregate of 900,000 shares of the Company’s common stock were reserved for awards under the 2005 Plan when the plan was approved by shareholders at the May 10, 2005 annual meeting. At the 2006 Annual Meeting, the Company’s shareholders approved increasing the shares available under the 2005 Plan by 850,000 shares. As of December 31, 2006, an aggregate of up to 959,063 shares were still available for awards under the 2005 Plan, which represents approximately 3.22% of the Company’s issued and outstanding shares as of such date. During 2005 and 2006, the price of the Company’s common stock reached all time highs. As a result, a number of stock options previously granted over the years were exercised. Additionally, because of the record year for the Company in terms of revenues, net income, cash flow, and the competition in the industry for qualified oil and gas personnel, the Company granted shares of restricted stock across the board to all of the Company’s non-officer employees during 2005, 2006 and 2007. In February 2006 and 2007, officers were granted options and restricted stock for their services during 2005 and 2006, respectively. The Company and the Compensation Committee believe that competition for qualified employees will continue for the foreseeable future, and may even intensify. In order to continue to attract and retain quality employees with oil and gas experience, additional shares need to be made available under the 2005 Plan. The Board of Directors has authorized an amendment to the 2005 Plan, subject to shareholder approval, to increase the number of shares of the Company’s common stock available for award under the 2005 Plan by up to an additional 300,000 shares.

The Company currently anticipates that it will, as a general matter, grant restricted stock and/or options on an annual basis, although future grant awards and grant recipients have not been determined. Therefore, the number, amount, and type of awards to be received by or allocated to eligible persons in the future under the 2005 Plan cannot be determined at this time. The Company has not approved any awards under the 2005 Plan that are conditioned upon shareholder approval of the proposed plan amendment. On February 28, 2007, the closing price of the Company’s common stock was $38.86. On that date, 430 individuals were eligible to participate in the 2005 Plan.

Summary of the 2005 Plan

The 2005 Plan authorizes the Company to grant various awards (“Awards”) to directors, officers, and other key employees of the Company or its subsidiaries, including incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), “reload” options (“Reload Options”), stock appreciation rights (“SARs”), restricted stock grants (“Restricted Stock Grants”), restricted unit grants (“Restricted Unit Grants”) and performance bonus awards (“Performance Bonus Awards”). Terms used but not defined in this summary, have the same meanings as defined in the 2005 Plan.

Administration. The Compensation Committee of the Board will have sole authority to construe and interpret the 2005 Plan, to select participants (“Participants”), to grant Awards and to establish the terms and conditions of Awards. The Compensation Committee is allowed to give the Company’s Chief Executive Officer specifically limited written authority to grant Awards to new employees.

Eligibility. Any employee of the Company or its subsidiaries, including any officer or employee-director, any consultant, and the non-employee directors of the Company, are eligible to receive various Awards under the 2005 Plan.

Shares Subject to 2005 Plan. As of May 9, 2006, the maximum number of shares of common stock in respect of which Awards could be granted under the 2005 Plan (the “Plan Maximum”) was 1,750,000 shares in a

 

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“fungible pool” of shares, plus shares covered by previous awards granted prior to May 10, 2005 under any prior long-term incentive plan which awards are forfeited or cancelled. That pool of shares is reduced by one share for every stock option that is granted and is reduced by 1.44 shares for every “full-value” Award that is granted. “Full-value” Awards consist of Restricted Stock Grants, Restricted Unit Grants, and SARs. Thus, if only stock options are granted, options covering up to 1,750,000 shares may be granted; if only “full-value” Awards are granted, Awards covering only 1,215,277 shares may be granted. If both stock options and “full-value” Awards are granted under the 2005 Plan, the number of shares which can be covered by Awards will fall somewhere between 1,215,277 shares and 1,750,000 shares, depending upon the ultimate mix of stock options and “full-value” Awards that are granted under the 2005 Plan. ISOs cannot be granted under the 2005 Plan covering more than 875,000 shares (“ISO Limit”). The reserved share numbers (and the share numbers constituting the Plan Maximum, ISO Limit, and named executive officer limits) are subject to appropriate adjustment in the event of a reorganization, stock split, stock dividend, merger, consolidation, or other change in capitalization of the Company affecting its common stock.

As of December 31, 2006, there remained 959,063 shares of common stock in respect of which Awards may be granted under the 2005 Plan (959,063 shares available if only stock options Awards are granted, 666,015 shares available if only “full-value” Awards are granted). At such date, options to purchase 141,151 shares have been granted and 483,140 shares of restricted stock have been awarded under the 2005 Plan.

If the proposal to make additional shares available under the 2005 Plan is approved by shareholders, the same counting rules described above will apply. Therefore, in addition to those currently available under the 2005 Plan, if only stock options are granted, options covering up to 300,000 shares may be granted; if only “full-value” Awards are granted, Awards covering only 208,333 shares may be granted. During January and February 2007, the Company granted 182,500 stock options and 282,250 restricted stock awards to officers and employees of the Company. These grants reduced the available shares by 588,940 shares. Taking this into consideration, if the proposed additional shares are made available under the 2005 Plan, the number of shares that can be covered by Awards will fall somewhere between 465,363 and 670,123 shares if a combination of both stock options and “full-value” Awards are granted.

Term. The 2005 Plan will terminate on May 10, 2015, unless sooner terminated by the Board, except with respect to Awards then outstanding.

Amendment. The Board may amend the 2005 Plan at any time, except that (1) the Board must obtain shareholder approval to make any amendment that would increase the total number of shares reserved for issuance (except for adjustments necessary to reflect changes in capitalization), materially modify eligibility requirements, materially increase the benefits accruing to Participants resulting in the repricing of Awards already issued, materially extend the term of the plan, or increase the maximum number of shares covered by Awards to named executive officers, and (2) certain amendments are altogether prohibited (e.g., any amendment that would impair a Participant’s vested rights).

Incentive Stock Options. Options designated as ISOs within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), together with the regulations promulgated thereunder, may be granted under the 2005 Plan up to the ISO Limit. To the extent that any portion of an ISO that first becomes exercisable by any Participant during any calendar year exceeds the $100,000 aggregate fair market value limitation of Section 422(d) of the Code, or such other limit as may be imposed by the Code, such excess portion shall be treated as a validly granted NSO. ISOs shall be exercisable for such periods as the Compensation Committee shall determine, but in no event for a period exceeding ten years or, for Participants who own more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (“10% Shareholders”), five years.

Non-Qualified Stock Options. NSOs may be granted for a stated number of shares of common stock and will be exercisable for such period or periods, as the Compensation Committee shall determine. Holders of NSOs may elect to have the Company withhold from shares to be delivered upon exercise of an NSO, shares whose fair market value satisfies withholding taxes attributable to the exercise of the NSOs. If shares are delivered for this purpose, the Compensation Committee, in its sole discretion, may grant replacement NSOs in the form of Reload Options (see below) in the amount of some or all of the shares delivered to satisfy the withholding tax obligation.

Exercisability. ISOs and NSOs will become exercisable in installments as determined in its sole discretion by the Compensation Committee, although it is generally anticipated in keeping with past Company practice that such options may be exercised as to 20% installments on each of the first five anniversary dates of the date of grant or such other period as may be designated by the Compensation Committee. The exercise price for options may be

 

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paid in cash or by delivery of shares of common stock already owned for more than six months by the Participant and having a market value equal to the exercise price.

Option Exercise Prices. Stock options may only be issued at an exercise price that is at least one hundred percent (100%) of the Fair Market Value of the common stock on the date of grant, and ISOs granted to 10% Shareholders must have an exercise price of at least one hundred ten percent (110%) of the Fair Market Value of the common stock on the date of grant. The 2005 Plan provides that the option exercise price may be paid in cash, by check, by cash equivalent, by a broker-assisted exercise, with shares of common stock (but only where acceptable to the Compensation Committee and only with shares owned for six months), or a combination of the above.

Termination of Awards. Unless otherwise provided in an Award or the 2005 Plan, Awards will terminate (i) three months following the holder’s termination of employment by the Company except for death, disability, retirement, or upon a Change of Control, (ii) on the first-year anniversary of a Participant’s death or disability, or (iii) on the tenth-year anniversary of the date of grant.

Reload Options. Under the 2005 Plan, unless otherwise provided in a Participant’s stock option agreement, whenever a Participant holding an ISO or NSO exercises an option (the “Original Option”) and pays part or all of the exercise price by tendering shares of common stock (a “stock-for-stock exercise”), the Participant will automatically receive a “Reload Option” giving that Participant an option to purchase the exact number of shares tendered in the stock-for-stock exercise at an exercise price equal to the Fair Market Value of such shares at the date of grant of such Reload Options, which date of grant will be the date of the notice of exercise of the Original Option. Reload Options are not exercisable after the later of the expiration of the option term of the Original Option or two years following the date of grant of the Reload Option. Except as described above, the terms and conditions of Reload Options will be identical to the terms and conditions of the related Original Options. Reload Options are designed to encourage stock-for-stock exercises by Participants, without necessarily diluting a Participant’s percentage ownership of the Company’s common stock or the Company’s outstanding common stock.

Limitation on Options and Awards to Named Executive Officers. Because amounts of compensation paid to named executive officers are subject to the limitations on deductibility by the Company under Section 162(m) of the Code, to insure deductibility the 2005 Plan provides that such named executive officers may not receive a grant in any given calendar year of Awards covering or measured by more than 100,000 shares of the Company’s common stock. Further, acceleration of vesting or exercisability of Awards held by named executive officers can only be related to their death, disability, termination of employment upon retirement, or a Change of Control.

Transferability. The Compensation Committee may allow transfer of Awards to family members, trusts and partnerships for their benefit or owned by them, or to charitable trusts. Awards held by transferees are subject to the same restrictions and forfeiture upon termination of employment applicable to the original holder of the Award. ISOs are not transferable except by will or the laws of descent and distribution.

Change of Control. In the event of a change of control of the Company as described in the 2005 Plan, all stock options and SARs outstanding shall become fully vested and fully exercisable (other than certain options granted within a year prior to the change of control), and all restrictions and conditions of Restricted Stock Grants and Restricted Unit Grants outstanding shall be deemed to be satisfied, unless the Board expressly provides otherwise. A “change of control” occurs upon: (i) any person or group becoming the beneficial owner of shares with 40% or more of the votes that may be cast for the election of directors; (ii) persons who were directors of the Company immediately prior to a cash tender offer, exchange offer, merger, sale of assets, or contested election cease to constitute a majority of the Board; (iii) the shareholders of the Company approve a transaction in which the Company ceases to be an independent publicly owned corporation or approve the sale of all or substantially all the assets of the Company; or (iv) a tender offer or exchange offer is made for shares of the Company’s common stock (other than by the Company) and shares are acquired thereunder.

In connection with a Change in Control, the Compensation Committee may also cash out Awards at the higher of the highest price for shares of the Company’s common stock in reported NYSE trading or the highest price paid in any bona fide transaction related to a Change in Control. The 2005 Plan also contains provisions that create a mechanism for a conditional exercise in certain Change of Control transactions pending a cancellation of vested unexercised options.

Stock Appreciation Rights. Under the 2005 Plan, the Compensation Committee may grant an Award of SARs that entitle a Participant to receive the excess (if any) of the Fair Market Value of a share of common stock on

 

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the date of exercise of the SAR, over the Fair Market Value of a share of common stock on the date of grant of the SAR (“Spread”). The Spread may only be paid in shares having a Fair Market Value on the date of payment equal to the Spread. The Compensation Committee may establish procedures for exercise and restrictions regarding the dates on which SARs may be exercised, and subject to the other provisions of the 2005 Plan, a SAR shall not be exercisable before the first anniversary date of the date of grant.

Stock Grants, Restricted Stock Grants, and Restricted Unit Grants. The Compensation Committee may in its discretion grant shares of common stock to a Participant with or without restrictions, vesting requirements, or other conditions. A Restricted Stock Grant is an Award of shares of the Company’s common stock that does not vest until certain conditions established by the Compensation Committee have been satisfied. Restricted Awards must provide for vesting of such Awards over at least a three-year period, unless specifically determined otherwise by the Compensation Committee, or a one-year period if the Restricted Award is performance based (“Restriction Period”). A Restricted Unit Grant is an Award of “units” subject to similar vesting conditions, each unit having a value equal either to a share of common stock or the amount by which a share of common stock appreciates in value between the date of grant and the date at which any restrictions lapse. During the Restriction Period, a Participant may vote and receive dividends on the shares of common stock awarded pursuant to a Restricted Stock Grant, but may not sell, assign, transfer, pledge or otherwise encumber such shares. During the restricted period, the certificates representing Restricted Awards will bear a restrictive legend and will be held by the Company, or will be recorded on the books of the Company’s stock transfer agent, but not issued to the Participant until the restrictions on the shares covered by the Restricted Award lapse. When the Restriction Period expires or the restriction with respect to installments of shares lapses, provided that federal income tax withholding is provided for, the Participant is entitled to receive (i) with respect to a Restricted Stock Grant, shares of common stock free and clear of restrictions on sale, assignment, transfer, pledge, or other encumbrances, or (ii) with respect to a Restricted Unit Grant, payment for the value of the units.

Restricted Awards for Non-Employee Directors. Under the 2005 Plan, non-employee directors cannot receive any Award except the Restricted Awards described in this paragraph. Under the 2005 Plan, commencing May 11, 2005 and in subsequent years on the date of each annual meeting of shareholders, each non-employee director will receive a Restricted Award consisting of that number of shares of Company common stock determined by dividing $100,000 by the closing price of a share of common stock on the date of the Award, payable only in installments as described below. At the February 2007 Board of Directors meeting, the Board approved the annual amount of the Restricted Award for non-employee directors to increase to $120,000. The service restrictions on non-employee directors’ Restricted Awards shall lapse on the date of the next annual meeting of shareholders following the grant date, and each Restricted Award shall vest ratably in three equal installments, one-third on the date of each of the three successive annual meetings of shareholders following the grant date; provided that following the date of such initial lapse of restrictions, if a non-employee director’s service as a director terminates and the non-employee director is in good standing as determined in the sole discretion of the Board of Directors, then the Restricted Award of that non-employee director shall vest immediately. Prior to the date of such initial lapse of restrictions, no vesting shall occur upon a non-employee director’s termination of service (other than by death or disability, in which cases all Restricted Awards shall vest immediately).

Performance Bonus Awards. The Compensation Committee in its sole discretion may award Participants a Performance Bonus Award in the form of cash or shares of common stock, or a combination thereof, on such terms and conditions as the Compensation Committee designates. Performance Bonus Awards will be based upon evaluation of a variety of performance factors. Performance factors are to be determined prior to the period of performance, which shall be not less than one year, and may include (i) increases in earnings, earnings per share, EBITDA, revenues, cash flow, return on equity, or total shareholder return, (ii) year-end volumes of proved oil and gas reserves and/or year-end probable reserves, (iii) yearly oil and gas production, (iv) share price performance, (v) relative technical, commercial and leadership attributes, or (vi) similar performance factors. If a Performance Bonus Award is paid in whole or in part in shares of common stock, the number of shares shall be determined based upon the NYSE closing price-based Fair Market Value of such shares. Performance Bonus Awards are subject to terms and conditions set by the Committee in its sole discretion.

Federal Income Tax Considerations

Under current U.S. federal tax law, the following are the U.S. federal income tax consequences generally arising with respect to Awards made under the 2005 Plan.

 

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Exercise of Incentive Stock Option and Subsequent Sale of Shares

A Participant who is granted an ISO does not realize taxable income at the time of the grant or at the time of exercise. If the Participant makes no disposition of shares acquired pursuant to the exercise of an ISO before the later of two years from the date of grant or one year from such date of exercise (“statutory holding period”), any gain (or loss) realized on such disposition will be recognized as a long-term capital gain (or loss). Under such circumstances, the Company will not be entitled to any deduction for federal income tax purposes.

However, if the Participant disposes of the shares during the statutory holding period, that will be considered a disqualifying disposition. Provided the amount realized in the disqualifying disposition exceeds the exercise price, the ordinary income a Participant shall recognize in the year of a disqualifying disposition will be the lesser of (i) the excess of the amount realized over the exercise price, or (ii) the excess of the fair market value of the shares at the time of the exercise over the exercise price; and the Company generally will be entitled to a deduction for the amount of ordinary income recognized by such Participant. The ordinary income recognized by the Participant is not considered wages and the Company is not required to withhold, or pay employment taxes, on such ordinary income. Finally, in addition to the ordinary income described above, the Participant shall recognize capital gain on the disqualifying disposition in the amount, if any, by which the amount realized in the disqualifying disposition exceeds the fair market value of the shares at the time of the exercise, which shall be long-term or short-term capital gain depending on the Participant’s post-exercise holding period for such shares.

To the extent a Participant pays all or part of the exercise price of an ISO by tendering previously acquired common stock owned by such Participant, the tax consequences described above generally will apply to such exchange. However, if a Participant exercises an ISO by tendering shares previously acquired on the exercise of an ISO, a disqualifying disposition will occur if the applicable holding period requirements described above have not been satisfied with respect to the surrendered stock. The consequence of such a disqualifying disposition is that the Participant may recognize ordinary income at that time.

Notwithstanding the favorable tax treatment of ISOs for regular tax purposes, as described above, for alternative minimum tax purposes, an ISO is generally treated in the same manner as an NSO. Accordingly, a Participant must generally include as alternative minimum taxable income for the year in which an ISO is exercised, the excess of the fair market value of the shares acquired on the date of exercise over the exercise price of such shares. However, to the extent a Participant disposes of such shares in the same calendar year as the exercise, only an amount equal to the Participant’s ordinary income for regular tax purposes with respect to such disqualifying disposition will be recognized for the Participant's calculation of alternative minimum taxable income in such calendar year.

Exercise of Non-Qualified Stock Option and Subsequent Sale of Shares

A Participant who is granted an NSO does not realize taxable income at the time of the grant, but does recognize ordinary income at the time of exercise in an amount equal to the excess of the fair market value of the shares acquired on the date of exercise over the exercise price of such shares; and the Company generally will be entitled to a deduction for the amount of ordinary income recognized by such Participant. The ordinary income recognized by the Participant is considered supplemental wages and the Company is required to withhold, and the Company and the Participant are required to pay, applicable employment taxes on such ordinary income.

Upon the subsequent disposition of shares acquired through the exercise of an NSO, any gain (or loss) realized on such disposition will be recognized as a long-term or short-term capital gain (or loss) depending on the Participant’s post-exercise holding period for such shares.

To the extent a Participant pays all or part of the exercise price of an NSO by tendering shares of common stock previously owned by the Participant, the tax consequences described above generally would apply. However, the number of shares received upon exercise of such option equal to the number of shares surrendered in payment of the exercise price will have the same basis and tax holding period as the shares surrendered. The additional shares received upon such exercise will have a tax basis equal to the amount of ordinary income recognized on such exercise and a holding period, which commences on the date of the exercise.

Lapse of Restrictions on Restricted Stock and Subsequent Sale of Shares

When the restrictions on a restricted Award lapse, the Participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such

 

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shares; and the Company generally will be entitled to a deduction for the amount of ordinary income recognized by such Participant. The ordinary income recognized by the Participant is considered supplemental wages and the Company is required to withhold, and the Company and the Participant are required to pay, applicable employment taxes on such ordinary income. Upon the subsequent disposition of the formerly restricted shares, any gain (or loss) realized on such disposition will be recognized as a long-term or short-term capital gain (or loss) depending on the Participant’s holding period for such shares after their restrictions lapse.

Under Section 83(b) of the Code, a Participant who receives an award of restricted stock may elect to recognize ordinary income for the taxable year in which the restricted stock was received equal to the excess of the fair market value of the restricted stock on the date of the grant, determined without regard to the restrictions, over the amount (if any) paid for the restricted stock. Any gain (or loss) recognized upon a subsequent disposition of the shares will be capital gain (or loss) and will be long-term or short-term depending on the post-grant holding period of such shares. If, after making the election, a Participant forfeits any shares of restricted stock, or sells restricted stock at a price below its fair market value on the date of grant, such Participant is only entitled to a tax deduction with respect to the consideration (if any) paid for the restricted stock, not the amount elected to be included as income at the time of grant.

Stock Appreciation Rights and Performance Awards

A Participant who is granted a SAR does not realize taxable income at the time of the grant, but does recognize ordinary income at the time of exercise of the SAR in an amount equal to the excess of the fair market value of the shares (on the date of exercise) with respect to which the SAR is exercised, over the grant price of such shares; and the Company generally will be entitled to a deduction for the amount of ordinary income recognized by the such Participant.

A named executive officer who has been awarded a Performance Bonus Award does not realize taxable income at the time of the grant, but does recognize ordinary income at the time the Award is paid equal to the amount of cash (if any) paid and the fair market value of shares (if any) delivered; and the Company generally will be entitled to a deduction for the amount of ordinary income recognized by the such Participant.

The ordinary income recognized by a Participant in connection with a SAR or Performance Bonus Award is considered supplemental wages and the Company is required to withhold, and the Company and the Participant are required to pay, applicable employment taxes on such ordinary income.

To the extent, if any, that shares are delivered to a Participant in satisfaction of either the exercise of a SAR, or the payment of a Performance Bonus Award, upon the subsequent disposition of such shares any gain (or loss) realized will be recognized as a long-term, or short-term, capital gain (or loss) depending on the participant’s post-delivery holding period for such shares.

SARs, Performance Bonus Awards and Restricted Unit Grants are subject to the requirements of new Section 409A of the Code in order for the recipient to avoid immediate taxability of compensation deferred under those awards and a 20% excise tax on the amount includible in income related to those awards. To date, no SARs, Performance Bonus Awards or Restricted Unit Grants have been awarded under 2005 Plan. The IRS is generally expected to issue final regulations, the Compensation Committee may be required to amend the provisions of the 2005 Plan pertaining to such awards in order to comply with Section 409A requirements, all as specifically authorized in the 2005 Plan.

 

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Equity Compensation Plan Information

The following table provides information as of December 31, 2006, regarding shares outstanding and available for issuance under the Company’s existing stock compensation and employee stock purchase plans:

 

 

Board Recommendation

The affirmative vote of the holders of a majority of the shares entitled to vote on, and that voted for or against or expressly abstained with respect to Proposal 2, is required to approve the amendment of the 2005 Plan to make additional shares available for Awards under the 2005 Plan. Unless otherwise directed by a proxy marked to the contrary, it is the intention of the persons designated on the proxy card to vote the proxies “FOR” the proposed amendment of the 2005 Plan. The Board believes that such approval is essential to enable the Company to continue to attract and retain qualified employees and directors. The Board supports management’s belief that the approval of the proposed amendment to make up to an additional 300,000 shares of the Company’s common stock available for Awards under the 2005 Plan will contribute to the continuation of the Company’s history of employee and director longevity, as the Company’s stock compensation plans have done in the past.

 

 

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PROPOSAL 3 — RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the independent registered public accounting firm for the Company to audit its consolidated financial statements and internal control over financial reporting for 2007. See “Audit Committee Disclosure” above for more information related to Ernst & Young LLP.

Stockholder approval or ratification is not required for the selection of Ernst & Young LLP, since the Audit Committee of the Board of Directors has the responsibility for selecting the Company’s independent auditors. However, the selection is being submitted for ratification at the Annual Meeting as a matter of good corporate practice. No determination has been made as to what action the Board of Directors would take if stockholders do not approve the appointment, but the Audit Committee may reconsider whether or not to retain the firm. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the selection of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the Company’s and its stockholders’ best interests.

 

 

AUDIT COMMITTEE DISCLOSURE

The Audit Committee assists the Board in fulfilling its responsibilities with respect to oversight in monitoring (i) the integrity of the financial statements of the Company; (ii) Swift Energy’s compliance with legal and regulatory requirements; (iii) the independent auditor’s selection, qualifications and independence; and (iv) the performance of Swift Energy’s internal audit function and independent auditors. The committee is required to be comprised of three or more non-employee directors, each of whom is determined by the Board to be “independent” under the rules promulgated by the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”), and meets the financial literacy and experience requirements under the rules or listing standards established by the NYSE, all as may be amended from time to time. In addition, at least one member of the committee must satisfy the definition of audit committee financial expert as such term may be defined from time to time under the rules promulgated by the SEC. The Board has determined that Messrs. Montgomery and Smith and Ms. Cannon qualify as audit committee financial experts and that each member of the Audit Committee is independent as defined in the NYSE listing standards and the rules of the SEC. A report of the Audit Committee appears later in this proxy statement. The Audit Committee is comprised of Messrs. Montgomery (Chairman) and Smith and Ms. Cannon.

Pre-approval Policies and Procedures

The charter of the Audit Committee provides that the Audit Committee shall approve, in its sole discretion, any professional services to be provided by the Company’s independent auditors, including audit services and significant non-audit services (significant being defined for these purposes as non-audit services for which fees in the aggregate equal 5% or more of the base annual audit fee paid by the Company to its independent auditors), before such services are rendered, and consider the possible effect of the performance of such latter services on the independence of the auditors. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any Audit Committee member to whom pre-approval authority is delegated must be presented to the full Audit Committee at its next scheduled meeting. All of the services described above for 2006 and 2005 were pre-approved by the Audit Committee before Ernst & Young LLP was engaged to render the services.

Services Fees Paid to Independent Public Accounting Firm

Ernst & Young LLP, certified public accountants, began serving as the Company’s independent auditors in 2002. The Audit Committee, with ratification of the shareholder, engaged Ernst & Young LLP to perform an annual audit of the Company’s financial statements for the fiscal year ended December 31, 2006. A representative from Ernst & Young LLP will be present at this year’s Annual Meeting. Such representative will have the opportunity to make a statement if he or she desires to do so and is expected to be available to respond to appropriate questions.

 

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The following table presents fees and expenses billed by Ernst & Young LLP for its audit of the Company’s annual consolidated financial statements and for its review of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for 2006 and 2005, and for its audit of internal control over financial reporting for 2006 and 2005, and for other services provided by Ernst & Young LLP. The amount provided for 2006 Audit Fees is an estimate.

 

The audit-related assistance and services in 2005 generally consisted of limited scope audits performed in connection with the Company’s Employee Savings Plan and Employee Stock Option Plan for both years. The tax services provided in 2005 and 2006 generally consisted of compliance, tax advice, and tax planning services. The tax planning services generally consisted of U.S., federal, state, local, and international tax planning, compliance and advice, and expatriate and executive tax services.

Report of the Audit Committee

In connection with the financial statements for the fiscal year ended December 31, 2006, the Audit Committee has:

Based on the reviews and discussion referred to above, we have recommended to the Board of Directors that the Company’s audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission.

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and persons who own more than 10% of the Company’s common stock to file reports with the SEC regarding their ownership of, and transactions in, the Company’s common stock. SEC regulations require Swift Energy to identify anyone who filed a required report late during the most recent fiscal year. Based on a review of the Forms 3 and 4 filed during the 2006 fiscal year and written certifications provided to the Company, the Company believes that all of these reporting persons timely complied with their filing requirements during 2006, with the exceptions of Messrs. Heckaman, Moran, and Montgomery.

On June 30, 2006, Mr. Heckaman sold 1,180 shares of Swift Energy common stock. Due to administrative error, the Form 4 for this transaction was filed on November 28, 2006, past the appropriate filing date.

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During August 2005, Mr. Moran donated 1,587 shares of Swift Energy common stock to a university foundation. The Form 5 for this transaction was filed in May 2006, past the reporting deadline.

During November 2006, Mr. Montgomery donated 200 shares of Swift Energy common stock to a university foundation. The Form 5 for this transaction was filed in March 2007, past the reporting deadline.

 

SHAREHOLDER PROPOSALS

Pursuant to various rules promulgated by the SEC, a shareholder that seeks to include a proposal in the Company’s proxy materials for the annual meeting of the shareholders of the Company to be held in 2008 must timely submit such proposal in accordance with SEC Rule 14a-8 to the Company, addressed to the Secretary, Swift Energy Company, 16825 Northchase Drive, Suite 400, Houston, Texas 77060 no later than December 4, 2007. Further, a shareholder may not submit a matter for consideration at the 2008 Annual Meeting, unless the shareholder shall have timely complied with the requirements in the Company’s Bylaws. The Bylaws state that in order for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the Company not less than 60 days or more than 90 days prior to the first anniversary of the preceding year’s annual meeting. A notice given pursuant to this advance notice Bylaw will not be timely with respect to the Company’s 2008 annual meeting unless duly given by no later than March 9, 2008, and no earlier than February 8, 2008.

The Corporate Governance Committee will consider shareholder recommendations of individuals for membership on the Board upon written request by a shareholder in accordance with the procedures for submitting shareholder proposals. For more information on shareholders’ nomination of directors refer to “Board of Directors—Nomination of Directors” in this proxy statement.

With respect to business to be brought before the 2007 Annual Meeting, the Company has not received any notices, proposals, or nominees from shareholders that the Company is required to include in this proxy statement.

 

COMMUNICATIONS WITH THE BOARD OF DIRECTORS

Typically the Lead Director presides at executive sessions of the independent directors of the Board of Directors. Any communications that shareholders or other interested parties may wish to send to the Board of Directors may be directly sent to the Lead Director at the following address:

 

Historically, the Company’s annual meeting of its Board of Directors was held to coincide with the annual meeting of its shareholders and a majority of the directors would attend the annual meeting of shareholders. However, with the increased responsibilities and time requirements in connection with the Board meeting, the Board’s annual meeting is now held one week before the shareholders’ annual meeting. Therefore, the Company does not have a policy with regard to Board members’ attendance at its annual meetings of shareholders. Although a number of the members of the Board will attend the 2007 Annual Meeting, it is not expected that a majority will be in attendance. Those in attendance will be available to address shareholder questions. Three directors attended the 2006 Annual Meeting.

 

FORWARD LOOKING STATEMENTS

The statements contained in this proxy statement that are not historical are “forward-looking statements,” as that term is defined in Section 21E of the Exchange Act, that involve a number of risks and uncertainties. Forward-looking statements use forward-looking terms such as “believe,” “expect,” “may,” “intend,” “will,” “project,” “budget,” “should,” or “anticipate” or other similar words. These statements discuss “forward-looking”

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information such as future net revenues from production and estimates of oil and gas reserves. These forward-looking statements are based on assumptions that the Company believes are reasonable, but they are open to a wide range of uncertainties and business risks, including the following:

Other factors that could cause actual results to differ materially from those anticipated are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The Company will not update these forward-looking statements unless required to do so by applicable law.

ANNUAL REPORT ON FORM 10-K

Upon written request, Swift Energy will provide any shareholder of the Company at no charge a copy of the Company’s Annual Report on Form 10-K for 2006 as filed with the SEC, including the financial statements and schedules, but without exhibits. Direct requests should be made by mail to Swift Energy Company, Director of Corporate Development and Investor Relations, 16825 Northchase Drive, Suite 400, Houston, Texas 77060; by telephone at (713) 874-2700 or (800) 777-2412; or by email to info@swiftenergy.com.

GENERAL

The information contained in this proxy statement in the sections entitled “Proposal 1—Election of Directors,” “Proposal 2—To Amend the Swift Energy Company 2005 Stock Compensation Plan to Increase the Number of Shares of the Company’s Common Stock Available for Awards under the Plan by up to an Additional 300,000 Shares,” “Proposal 3—Ratification of Selection of Independent Auditor,” “Compensation Committee Report,” and “Audit Committee Report” shall not be deemed incorporated by reference by any general statement incorporating by reference any information contained in this proxy statement into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates by reference the information contained in such sections, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act.

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SWIFT ENERGY COMPANY

 

The Board of Directors Solicits This Proxy for the

Annual Meeting of Shareholders to be held on May 8, 2007

 

The undersigned hereby constitutes and appoints Terry E. Swift, Bruce H. Vincent, and Alton D. Heckaman, Jr., or any one of them, with full power of substitution and revocation of each, the true and lawful attorneys and proxies of the undersigned at the Annual Meeting of Shareholders (the “Meeting”) of SWIFT ENERGY COMPANY (the “Company”) to be held on Tuesday, May 8, 2007, at 4:00 p.m. Houston time, at the Wyndham Greenspoint Hotel, 12400 Greenspoint Drive, Houston, Texas, or any adjournments or postponements thereof, and to vote the shares of common stock of the Company standing in the name of the undersigned on the books of the Company (or which the undersigned may be entitled to vote) on the record date for the Meeting with all powers the undersigned would possess if personally present at the Meeting.

 

(Continued and to be SIGNED on REVERSE side)

 

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ANNUAL MEETING OF SHAREHOLDERS OF

 

SWIFT ENERGY COMPANY

 

May 8, 2007

 

 

 

 

 

Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet.

 

 

The Board of Directors recommends a vote FOR’ Proposals 1, 2 and 3.

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE