-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UEKB6v+/TO7ecj4kbH9pLrSYyomSd6J/BUawKipcYDCVLjl+LFL8aO8iylraIQF8 0rV1KVbbqdH/vDwHVGQU6Q== 0000950134-96-004801.txt : 19960913 0000950134-96-004801.hdr.sgml : 19960913 ACCESSION NUMBER: 0000950134-96-004801 CONFORMED SUBMISSION TYPE: PRE 14C PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960730 FILED AS OF DATE: 19960912 SROS: NASD SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOX ENERGY CORP CENTRAL INDEX KEY: 0000874992 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752369148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14C SEC ACT: 1934 Act SEC FILE NUMBER: 001-11516 FILM NUMBER: 96628972 BUSINESS ADDRESS: STREET 1: 8201 PRESTON RD STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2148908000 MAIL ADDRESS: STREET 1: 8201 PRESTON RD STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75225-6211 PRE 14C 1 PRELIMINARY INFORMATION STATEMENT 1 SCHEDULE 14C (RULE 14C-101) INFORMATION REQUIRED IN INFORMATION STATEMENT SCHEDULE 14C INFORMATION INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Check the appropriate box: /x/ Preliminary Information Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) / / Definitive Information Statement Box Energy Corporation - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) Payment of filing fee (Check the appropriate box): /x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g). / / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. (1) Title of each class of securities to which transaction applies: N/A - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transactions applies: N/A - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): N/A - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: N/A - -------------------------------------------------------------------------------- (5) Total fee paid: N/A - -------------------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: N/A - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: N/A - -------------------------------------------------------------------------------- (3) Filing Party: N/A - -------------------------------------------------------------------------------- (4) Date Filed: N/A - -------------------------------------------------------------------------------- 2 [BOX ENERGY CORP. LOGO] September , 1996 Dear Box Energy Investor, On August 20, I wrote to you regarding the recent changes that had occurred at Box Energy Corporation. The attached notice and information statement describe these changes in greater detail. I would like to reaffirm the one over-arching goal of management and the Board -- maximization of stockholder value. Consistent with this, the Company has two operational objectives. First, management intends to re-evaluate the Company's exploration and production efforts. In particular, it is the Company's goal to be more selective in its exploration activities. In furtherance of this, the Company has retained a consultant to assist in hiring an exploration and production manager with a proven track record. Second, the Company's staffing and overhead will be closely reviewed on a continuing basis with the goal of reducing the Company's general and administrative costs. I have promised that my compensation will not exceed one-half of the previous CEO's pay. Further, the Company is looking for less expensive offices and a reduction of its litigation expenses. I will continue to communicate to you how we are doing. Sincerely, Don D. Box, Chairman of the Board, Chief Executive Officer and President 3 BOX ENERGY CORPORATION 8201 PRESTON ROAD, SUITE 600 DALLAS, TEXAS 75225-6211 --------------------- NOTICE OF ACTION BY WRITTEN CONSENTS OF CERTAIN STOCKHOLDERS EFFECTIVE JULY 30, 1996 --------------------- September , 1996 To the holders of the Class A (Voting) Common Stock of BOX ENERGY CORPORATION: Effective July 30, 1996, the following actions were taken by written consent of Box Brothers Holding Company, the holder of 56.6% of the outstanding voting stock of Box Energy Corporation (the "Company"), and Basil Georges and Pat Rutherford, Jr., the holders of 13.6% and 9.0%, respectively, of the Company's outstanding voting stock: 1. The Bylaws of the Company were amended to permit the removal of directors, with or without cause, by the vote of the holders of a majority of the shares then entitled to vote in the election of directors. 2. The following directors of the Company were removed: John F. Arning, Thomas D. Box, John L. Kelsey, Norman W. Smith and Ewell Doak Walker. 3. The Bylaws of the Company were amended to fix the number of directors of the Company at seven. 4. The following persons were elected to serve as directors of the Company with Don D. Box and Alan C. Shapiro: Glen Adams, Bernay C. Box, Daryl L. Buchanan, Thomas W. Rollins and Richard D. Squires. UNDER SECTION 228 OF THE DELAWARE GENERAL CORPORATION LAW, THE FOREGOING ACTIONS BY WRITTEN CONSENTS HAVE BEEN TAKEN WITHOUT THE NECESSITY OF A STOCKHOLDERS' MEETING. ACCORDINGLY, WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. By order of the Board of Directors Don D. Box, Chairman of the Board, Chief Executive Officer and President Dallas, Texas 4 BOX ENERGY CORPORATION 8201 PRESTON ROAD, SUITE 600 DALLAS, TEXAS 75225-6211 --------------------- INFORMATION STATEMENT --------------------- This Information Statement is being furnished to the holders of the Class A (Voting) Common Stock of Box Energy Corporation, a Delaware corporation (the "Company"), in connection with certain action that was taken by written consents of Box Brothers Holding Company, a Delaware corporation ("Box Brothers"), as the holder of 1,840,525 shares (56.6%) of the Company's Class A (Voting) Common Stock, Basil Georges, holder of 442,500 shares (13.6%) of the Class A (Voting) Common Stock, and Pat Rutherford, Jr., holder of 292,500 shares (9.0%) of the Class A (Voting) Common Stock. By means of this written consent, the following actions were taken effective July 30, 1996: 1. The Bylaws of the Company were amended to permit the removal of directors (the "Directors"), with or without cause, by the vote of the holders of a majority of the shares then entitled to vote in the election of Directors. 2. The following Directors of the Company were removed: John F. Arning, Thomas D. Box, John L. Kelsey, Norman W. Smith and Ewell Doak Walker. 3. The Bylaws of the Company were amended to fix the number of Directors of the Company at seven. 4. The following persons were elected to serve as Directors of the Company with Don D. Box and Alan C. Shapiro: Glen Adams, Bernay C. Box, Daryl L. Buchanan, Thomas W. Rollins and Richard D. Squires. UNDER SECTION 228 OF THE DELAWARE GENERAL CORPORATION LAW, THE FOREGOING ACTIONS BY WRITTEN CONSENTS HAVE BEEN TAKEN WITHOUT THE NECESSITY OF A STOCKHOLDERS' MEETING. ACCORDINGLY, WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. --------------------- THE DATE OF THIS INFORMATION STATEMENT IS SEPTEMBER , 1996. 5 BACKGROUND Box Brothers is the holder of 1,840,525 shares of the Class A (Voting) Common Stock of the Company. These shares were held by Cloyce K. Box at the time of his death on October 25, 1993. The shares were acquired by Box Brothers from the Estate of Cloyce K. Box on February 17, 1994, as the result of the enforcement of a security interest created by Cloyce K. Box prior to his death to secure indebtedness owed to Box Brothers. As a consequence of the entering of an adverse judgment against Box Brothers in a lawsuit not related to the Company, on August 1, 1994, Box Brothers filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the Bankruptcy Court in Wilmington, Delaware. As part of the bankruptcy proceedings, an action was brought by certain stockholders of the Company seeking return of the Class A (Voting) Common Stock held by Box Brothers to the Estate of Cloyce K. Box. This action was dismissed by the Bankruptcy Court with prejudice. This dismissal was affirmed by the U.S. District Court for Delaware, and the plaintiffs in that proceeding have appealed the judgment to the U.S. Court of Appeals for the Third Circuit, where the appeal is currently pending. In April 1995, the Box Brothers plan of reorganization was approved by the Bankruptcy Court, and that entity's reorganization under the Bankruptcy Code was completed. See "Litigation Involving Directors and Executive Officers -- The Griffin Litigation." In April 1995, Thomas D. Box filed a lawsuit in the Delaware Chancery Court (Thomas D. Box v. Douglas D. Box and Box Brothers Holding Company, No. 14238) alleging that he was the holder of the only outstanding voting stock of Box Brothers and seeking confirmation of action taken by him by written consent in removing and electing directors of Box Brothers. On February 18, 1996, the court ruled that Box Brothers had no outstanding voting stock and that the directors of Box Brothers were Don D. Box, Douglas D. Box, Gary D. Box and Thomas D. Box. On February 23, 1996, Box Brothers issued equal numbers of shares of its voting stock to three irrevocable trusts (the "Trusts") established by three sons of Cloyce K. Box -- Don D. Box, Gary D. Box and Douglas D. Box. These three individuals serve as trustees for each of the trusts, and they currently are the only directors and executive officers of Box Brothers. In addition to the investment in the Company by Box Brothers, Douglas D. Box holds 3,325 shares of the Company's Class A (Voting) Common Stock. This case is currently on appeal to the Delaware Supreme Court. Effective December 12, 1995, the Company entered into Executive Severance Agreements with 22 of its officers and executives and letter agreements regarding severance matters with 29 other employees of the Company. These agreements are collectively called the "Severance Agreements." See "Change in Control Arrangements." On June 13, 1996, Kent R. Hance, Sr. resigned from his position as a Director of the Company. Box Brothers delivered a letter dated June 17, 1996 to the Company's Board of Directors requesting that the Board promptly (a) call the Company's 1996 Annual Meeting of Stockholders and (b) fix the number of Directors of the Company at seven. Box Brothers also advised the Board that, at the 1996 Annual Meeting, Box Brothers intended to nominate and elect as Directors the seven persons who currently make up the Company's Board of Directors. See "Current Directors." The Board of Directors did not agree to set the Company's Annual Meeting on the date requested, and instead set the meeting for a later date, indicating that the Board would first undertake an analysis of the stock issuances in connection with the conversion in April 1992 of the Company's business from a limited partnership to the Company's corporate structure (the "Corporate Conversion"). Accordingly, on June 27, 1996, Box Brothers, as holder of 56.6% of the Company's voting stock, delivered to the Company a written 2 6 consent (the "Box Brothers Consent") executed by Box Brothers pursuant to Section 228 of the Delaware General Corporation Law that (i) amended the Company's Bylaws to permit removal of Directors with or without cause, (ii) removed John F. Arning, Thomas D. Box, John L. Kelsey, Norman W. Smith and Ewell Doak Walker as Directors of the Company, (iii) amended the Bylaws to fix the number of Directors at seven, and (iv) elected Glen Adams, Daryl L. Buchanan, Richard D. Squires, Thomas W. Rollins and Bernay C. Box to serve as Directors of the Company with Don D. Box and Alan C. Shapiro. Pursuant to the terms of the Box Brothers Consent, these actions were effective July 30, 1996. Thomas D. Box is the brother of Don D. Box, Gary D. Box and Douglas D. Box. Bernay C. Box is their first cousin. Also on June 27, 1996, Box Brothers filed an action in the Delaware Chancery Court under Section 225 of the Delaware General Corporation Law against the Company's former Directors (other than Don D. Box and Alan C. Shapiro) and the Company as a nominal defendant seeking a determination that the Box Brothers Consent was effective in accordance with its terms. At the end of July, Box Brothers filed a motion with the Delaware court seeking a temporary restraining order or a preliminary injunction declaring that the new Board was authorized to act on behalf of the Company. The court denied this motion. The individual defendants in the case filed answers alleging that Box Brothers might hold less than a majority of the Company's voting stock and that the Company had been conducting a study of this matter. On July 22, 1996, additional consents were delivered to the Company's registered office in Delaware. These consents were signed by Basil Georges and Pat Rutherford, Jr., the holders of 13.6% and 9.0%, respectively, of the Company's Class A (Voting) Common Stock. These consents adopted all of the actions taken in the Box Brothers Consent and were also to be effective on July 30, 1996. On July 26, 1996, Thomas D. Box, purporting to act on behalf of the Company, entered into a trust agreement with Comerica Bank -- Texas, as trustee, seeking to establish a trust for the purpose of funding the Company's obligations under the Severance Agreements. On July 30 and 31, Thomas D. Box and possibly certain of the Company's other officers caused $5.6 million of the Company's cash and marketable securities to be deposited with Comerica Bank -- Texas as the corpus of this "trust". The trust agreement states that, upon a "change of control" (defined to include the change in Directors on July 30, 1996), the alleged trust becomes irrevocable. The Company's Board of Directors and management have analyzed the facts surrounding the creation of this alleged trust, and they are of the opinion that (a) because Thomas D. Box and the other Company officers acted without authorization from the Board of Directors, these officers lacked the authority to act on the Company's behalf in this matter, and (b) because the Company has stated that it will honor the Severance Agreements in circumstances where they apply and the Company has more than adequate resources to pay these amounts, the arrangement with Comerica Bank -- Texas is unnecessary and not in the Company's interests. The Company is seeking to terminate or void the alleged trust with Comerica Bank -- Texas and cause the Company's $5.6 million (less prior payments to former employees entitled to benefits under the Severance Agreements) to be returned to it. On July 30, 1996, the day on which the action described in all of the consents became effective, three of the Directors of the Company -- John L. Kelsey, Norman W. Smith and Ewell Doak Walker -- tendered their resignations. Following the resignation of these three persons, Box Brothers stipulated to release them as defendants in the action pending in the Delaware court. Also, former Director John F. Arning signed a stipulation consenting to judgment in favor of Box Brothers. The court has scheduled this case for trial on September 17-18, 1996. On August 7, 1996, the newly constituted Board of Directors of the Company met and unanimously voted to terminate effective immediately the employment of Thomas D. Box, the Company's President and Chief 3 7 Executive Officer, and Jill M. Killam, Vice President and Chief Financial Officer. Don D. Box, the Company's Chairman of the Board, was elected to serve in the additional roles of President and Chief Executive Officer. On August 8, 1996, W. Jefferson Burnett, the Company's General Counsel and Secretary, tendered a letter requesting severance from the Company upon terms outlined in the letter. The Company and Mr. Burnett subsequently agreed to a termination of his employment. Currently, he is being retained by the Company as independent outside legal counsel during a brief transition period. See "Change in Control Arrangements." On May 2, 1996, the U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit") issued its opinion in the Griffin, et al v. Box, et al. litigation (the "Griffin Case") ordering a new trial and resolving certain other issues. See "Litigation Involving Directors and Executive Officers -- The Griffin Litigation." On June 20, 1996, the Board of Directors authorized the engagement of an outside law firm to determine whether the issuance of shares of the Company as part of the Corporate Conversion as Class B (Non-Voting) Common Stock, rather than Class A (Voting) Common Stock, to certain holders was in accordance with the Fifth Circuit's opinion in the Griffin Case. The law firm engaged an independent accounting firm to assist in the examination, and, on August 9, 1996, both firms issued a preliminary report (the "Report") to the Board of Directors. While the Report does not constitute a legal opinion of the outside law firm, based on the Report, management and the Board of Directors have concluded that the Box Brothers Consent together with the written consents executed by Messrs. Georges and Rutherford are effective in accordance with their terms. The Board of Directors will carefully consider the Report and other information and seek the advice of the Company's counsel to determine whether the issuance of certain shares of the Company's capital stock as Class B (Non-Voting) Common Stock was in accordance with the Fifth Circuit's opinion in the Griffin Case or otherwise legally appropriate and defensible, and the Company will take whatever action, if any, that it deems proper in respect thereof. On August 16 and 21, 1996, Thomas D. Box filed two lawsuits, one in federal court and the other in state court. In these cases, he asserts that he retains an ownership interest in Box Brothers and that Don D. Box, Douglas D. Box, Gary D. Box and the other defendants breached certain fiduciary duties and violated a federal securities anti-fraud statute and rule. See "Litigation Involving Directors and Executive Officers -- Thomas D. Box Lawsuits." CURRENT DIRECTORS The Board of Directors of the Company currently consists of seven persons. Each Director holds office until his or her successor is elected and qualified or until his earlier resignation or removal in accordance with the Certificate of Incorporation and Bylaws of the Company. Prior to the preparation and execution of the Box Brothers Consent in June 1996, Messrs. Adams, Bernay C. Box, Buchanan, Rollins and Squires agreed to serve on the Company's Board of Directors at the request of Box Brothers. There are no agreements regarding their continued service as Directors at this time. Certain current and past Directors and officers are named as defendants in a lawsuit related to the Griffin Case. In addition, all of the Directors who served in 1995 have been named as defendants in a consolidated class action. See "Litigation Involving Directors and Executive Officers." 4 8 Certain information concerning each Director is set forth below. Glen Adams has served as a Director since July 30, 1996. From 1990 until August 15, 1996, Mr. Adams served as a Director, Chairman, President and Chief Executive Officer of Southmark Corporation, a diversified company with interests in real estate, oil and gas properties, insurance and other areas. He currently serves as a director of U.S. Home Corporation and Zale Corporation. He is 57 years of age. Bernay C. Box has served as a Director since July 30, 1996. He has served as President of Bernay Box & Co., a private Dallas investment advisory firm, since 1991. Bernay C. Box was the nephew of Cloyce K. Box and is the first cousin of Don D. Box, Douglas D. Box, Gary D. Box and Thomas D. Box. He is 34 years of age. Don D. Box has served as a Director of the Company since March 4, 1991, and was elected Chairman of the Board of Directors on January 20, 1994. He has served as President and Chief Executive Officer of the Company since August 7, 1996. From March 1, 1994, until January 31, 1995, he served as the Company's Director of Corporate Development. He is a Director and a Vice President of Box Brothers, and President of CKB & Associates, Inc. ("Associates"), CKB Petroleum, Inc. ("Petroleum"), and certain other affiliates of Box Brothers. Box Brothers is the parent corporation of Associates and Petroleum. Until April 15, 1992, Associates was the corporate general partner of OKC Limited Partnership (the "Predecessor Partnership") and in such capacity provided all employees who rendered services to the Predecessor Partnership. He is the son of Cloyce K. Box and the brother of Douglas D. Box, Gary D. Box and Thomas D. Box. He is a co- executor of the Estate of Cloyce K. Box and is 45 years of age. Daryl L. Buchanan has served as a Director since July 30, 1996. Since January 1986, he has served as Executive Vice President of Georges Investment Company, a Houston and Dallas diversified investment firm controlled by Basil Georges, holder of 13.6% of the Company's Class A (Voting) Common Stock. Mr. Buchanan is 46 years of age. Thomas W. Rollins has served as a Director since July 30, 1996. Since 1992, Mr. Rollins has been Chief Executive Officer of Rollins Resources, a natural gas and oil consulting firm. From March 1991 until 1992, Mr. Rollins was President and Chief Executive Officer of Park Avenue Exploration Corporation, an oil and gas exploration company and a subsidiary of USF&G Corporation. He is a director of Pheasant Ridge Winery, The Teaching Company, and the Nature Conservancy of Texas. Mr. Rollins is 65 years of age. Alan C. Shapiro has served as a Director since May 5, 1994. From 1993 through the present, Professor Shapiro has served as Chairman of the Department of Finance and Business Economics in the Graduate School of Business Administration of the University of Southern California. Since 1984, Professor Shapiro has been a Professor of Finance and Business Economics at the University of Southern California's Graduate School of Business. From 1991 to present, Professor Shapiro has been the Ivadelle and Theodore Johnson Professor of Banking and Finance at the school. In addition, Professor Shapiro has also taught at the Wharton School of the University of Pennsylvania and at Carnegie Mellon University. His visiting teaching appointments have included Yale University and the University of California at Los Angeles. Professor Shapiro is 51 years of age. Richard D. Squires has served as a Director since July 30, 1996. Since 1988, Mr. Squires has served as President of RS Holdings, Inc., a Dallas real estate and high-yield securities investment firm. He is 38 years of age. 5 9 The Directors held six meetings in 1995. All Directors attended at least 75% of these meetings. With respect to Director activities undertaken by a committee of Directors in 1995, a quorum of committee members were present at each of the respective committee meetings. COMMITTEES OF THE BOARD There are three standing committees of the Board of Directors: the Audit, Executive and Compensation Committees. The Company's Board of Directors does not have a Nominating Committee. The Compensation Committee and the Audit Committee each met four times in 1995. The Executive Committee did not meet in 1995. During 1995, the members of the Audit Committee were John L. Kelsey, Alan C. Shapiro, and Norman W. Smith. The Audit Committee reviews the performance of the Company's independent auditors and recommends the selection of independent auditors to the Board of Directors. In addition, the Audit Committee also reviews the following matters with the independent auditors and management: scope and results of the independent audit; corporate accounting policies; adequacy and appropriateness of financial reporting to stockholders and others; internal accounting control procedures; and such other related matters as the Audit Committee considers to be appropriate. On August 7, 1996, the Board of Directors appointed Glen Adams, Bernay C. Box and Alan C. Shapiro to the Audit Committee. During 1995, the members of the Executive Committee were John F. Arning, Don D. Box, Thomas D. Box, Kent R. Hance, Sr., Norman W. Smith, and Ewell Doak Walker. The Executive Committee possesses authority to exercise all of the powers of the Board of Directors in the management and direction of the affairs of the Company between meetings of the Board of Directors, subject to specific limitations and directions of the Board of Directors and subject to limitations of Delaware law. On August 7, 1996, the Board appointed Don D. Box, Daryl L. Buchanan, Thomas W. Rollins and Richard D. Squires to the Executive Committee. During 1995, the members of the Compensation Committee were Kent R. Hance, Sr., John L. Kelsey, Alan C. Shapiro, and Norman W. Smith. The Compensation Committee's authority extends to matters relating to the retention and compensation of executive officers, review of pension and benefit plans, and the granting of stock options. The Compensation Committee also reviews and recommends executive officers' compensation and reviews the performance of these officers. Further, the Compensation Committee reviews all compensation levels throughout the Company. Its pension plan responsibilities include the approval of annual contributions, the approval of trustees and investment managers, and the approval of pension trust agreements and other plan instruments. Although the trustees and investment managers have primary investment responsibility with respect to these funds, the Compensation Committee reviews their performance. On August 7, 1996, the Board of Directors appointed Daryl L. Buchanan, Alan C. Shapiro and Richard D. Squires to be the members of the Compensation Committee. COMPENSATION OF DIRECTORS Each outside Director is paid a fee of $16,000 per annum. In addition, each Director receives $1,000 for each Board meeting attended and $750 for each committee meeting attended if the committee meeting is on a different day than the Board meeting. Directors are entitled to reimbursement for out-of-pocket expenses related to their services. The Company's Bylaws provide for the Company's indemnification of Directors and 6 10 officers in certain situations. The Company also provides the Directors with directors' and officers' liability insurance. The Company's Board of Directors approved the 1992 Non-Qualified Stock Option Plan (the "Non-Qualified Plan") on April 24, 1992, for Company Directors, including Directors who are full-time employees of the Company. The Non-Qualified Plan was approved by the holders of the Class A (Voting) Common Stock on July 1, 1992, effective as of April 24, 1992. The Non-Qualified Plan terminates on April 23, 2002. The primary purposes of the Non-Qualified Plan is to provide the Directors with an opportunity for investment in the Company's Class B (Non-Voting) Common Stock and an incentive to remain in their capacity as Directors and to continue to increase their efforts to make the Company successful. The Non-Qualified Plan is administered by the Compensation Committee. On April 28, 1992, the Stock Options Committee (now the Compensation Committee) granted each person then serving as Director, the option to purchase 25,000 shares of the Company's Class B (Non-Voting) Common Stock under the Non-Qualified Plan with an exercise price of $11.875 per share. On August 18, 1994, former Director John L. Kelsey was granted options for 25,000 shares with an exercise price of $9.00 per share. On May 4, 1995, Alan C. Shapiro was granted options for 25,000 shares with an exercise price of $8.625 per share. Terms of the Non-Qualified Plan include the following: a. More than one grant may be made to an individual, but options for no more than 50,000 shares may be granted to any individual under the Non-Qualified Plan. b. The option price shall be equal to the fair market value of a share of the Company's Class B (Non-Voting) Common Stock on the date of the grant, determined by reference to the stock's closing price on the NASDAQ National Market in the manner provided in the plan. c. Options may only be exercised by the optionee by written notice stating the number of shares covered by options being exercised. The shares purchased through the exercise of options are to be paid for in cash or a combination of cash and payments under an installment note payable to the Company monthly plus interest over a period of up to five years. No options can be exercised in the first three years after the date of grant; options can be exercised for no more than 50% of the optioned shares after the third year but before the fifth year after the date of grant; and the remaining 50% of the optioned shares may be exercised no sooner than five years after the date of grant. d. All options terminate upon a termination of an optionee's service as a Director of the Company, other than as a result of his death; however, options granted under the Non-Qualified Plan to Thomas D. Box may have become fully vested and exercisable at the time of his termination. See "Change of Control Arrangements." Options may not be transferred by an optionee except by will or the laws of descent and distribution. e. The number of shares of the Company's Class B (Non-Voting) Common Stock covered by options granted to any individual under the Non-Qualified Plan and the option prices are subject to certain antidilution adjustments. 7 11 PENSION PLAN The following table illustrates the annual pension benefit for pension plan participants who retire at "normal retirement age" in 1995: PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE(1)(3)(4) COMPENSATION(1)(2) ------------------------------------ - ------------------ 10 20 30 40 ($) ------ ------ ------ ------ ($) ($) ($) ($) 75,000........................................... 29,448 32,646 35,844 37,443 100,000........................................... 39,823 44,646 49,469 51,881 125,000........................................... 50,198 56,646 63,094 66,318 150,000........................................... 60,573 68,646 76,719 80,756 175,000........................................... 60,573 68,646 76,719 80,756 200,000........................................... 60,573 68,646 76,719 80,756 300,000........................................... 60,573 68,646 76,719 80,756 400,000........................................... 60,673 68,646 76,719 80,756 500,000........................................... 60,673 68,646 76,719 80,756
- --------------- (1) As of December 31, 1995, the Internal Revenue Code does not allow qualified plan compensation to exceed $150,000 or the benefit payable annually to exceed $120,000. These limitations will be adjusted by the Internal Revenue Service for inflation in future years. When the limitations are raised, the compensation considered, and the benefits payable under the Retirement Plan will increase to the level of the new limitations or the amount otherwise payable under the Retirement Plan, whichever amount is lower. (2) Compensation in this table is the sum of a participant's annual base salary plus annual bonus paid or payable for a fiscal year (see "Salary" and "Bonus" columns in the Summary Compensation table). Average compensation in this table is the average of a plan participant's compensation during the highest three consecutive years out of the prior 10 years. (3) The estimated credited service at December 31, 1995 for the Named Executive Officers (as defined below) is as follows: Thomas D. Box (12 years), Don D. Box (1 year), Craig T. Scott (4 years), Dennis A. Francis (14 years), Jill M. Killam (15 years) and W. Jefferson Burnett (7 years). (4) The normal form of payment is a life annuity for an unmarried participant or a 50% joint and survivor annuity for a married participant. The Company's pension plan provides retirement and other benefits to eligible employees upon reaching the "normal retirement age," which is age 65 or after five years of service, if later. Directors who are not also employees of the Company are not eligible to participate in the plan. Employees are eligible to participate on January 1 following the completion of six months of service or the attainment of age 20 1/2, if later. Additional provisions are made for early or late retirement, disability retirement and benefits to surviving spouses. At normal retirement age, an eligible employee will receive a monthly retirement income equal to 35% of his or her average monthly compensation during the three consecutive calendar years in the prior 10 years which provide the highest average compensation, plus 0.65% of such average compensation in excess of the amount shown in the Social Security Covered Compensation Table (as published annually by the Internal Revenue Service) multiplied by his or her years of service, limited to 35 years. If an employee terminates 8 12 employment (other than by death or disability) before completion of five years of service, no benefits are payable. If an employee terminates employment after five years of service, the employee is entitled to all accrued benefits. As stated above, the compensation considered in computing benefits under the Company's pension plan includes the participant's average monthly compensation during the three consecutive calendar years which provide the highest average compensation. The estimated annual benefits as of December 31, 1995, payable upon retirement at "normal retirement age" under the plan to Thomas D. Box, Don D. Box, Craig T. Scott, Dennis A. Francis and Jill M. Killam were $73,182, $73,816, $64,022, $71,996 and $71,709, respectively, (assuming continuous employment to "normal retirement age"). The employment of Thomas D. Box and Jill M. Killam terminated August 7, 1996. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of August 26, 1996, the following persons held shares of the Company's Class A (Voting) Common Stock in amounts totaling more than 5% of the 3,250,110 shares of such class outstanding. This information was furnished to the Company by such persons or contained in statements filed with the U.S. Securities and Exchange Commission ("SEC").
NUMBER OF SHARES OF PERCENT OF CLASS A (VOTING) CLASS A NAME AND ADDRESS COMMON STOCK (VOTING) OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK --------------------------------------------- ------------------- -------------- Box Brothers Holding Company 1105 North Market, Suite 1300 Wilmington, Delaware 19801................. 1,843,850(1) 56.7% Basil Georges 200 Crescent Court, Suite 1800 Dallas, Texas 75201........................ 442,500(2) 13.6% Pat Rutherford, Jr. 2550 Two Shell Plaza Houston, Texas 77002....................... 292,500 9.0%
- --------------- (1) This amount includes (a) 1,840,525 shares owned by Box Brothers, whose voting stock is owned and controlled by trusts established for and administered by Don D. Box, Gary D. Box and Douglas D. Box, and (b) 3,325 shares owned individually by Douglas D. Box. As the only holders of the voting stock of Box Brothers, the Trusts and their trustees, Don D. Box, Douglas D. Box and Gary D. Box, may be deemed the beneficial owners of the 1,840,525 shares of the Company's Class A (Voting) Common Stock under SEC Rule 13d-3(d)(3). Also, Box Brothers, the Trusts and the three trustees may be deemed a "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934. (2) This amount includes 2,500 shares held by Mr. Georges as trustee of a trust established for the benefit of his children. 9 13 OWNERSHIP OF MANAGEMENT The number of shares of the Company's Class A (Voting) Common Stock and Class B (Non-Voting) Common Stock beneficially owned as of August 26, 1996 by Directors (current and those in office in 1995) of the Company, each Named Executive Officer (defined below) and as a group composed of all Directors and executive officers, are set forth in the following table. This information was furnished to the Company by such persons.
SHARES OF SHARES OF CLASS B PERCENT OF CLASS A (VOTING) PERCENT OF (NON-VOTING) CLASS B COMMON STOCK CLASS A COMMON STOCK (NON-VOTING) BENEFICIALLY (VOTING) BENEFICIALLY COMMON OWNED COMMON STOCK OWNED (1) STOCK(1) ---------------- ------------ ------------ ------------ Glen Adams........................ 0 0 0 0 John F. Arning.................... 700 * 1,000 * Bernay C. Box..................... 0 0 0 0 Don D. Box (2).................... 1,840,525 56.6% 307,143 1.7% Thomas D. Box..................... 3,325 * 2,000 * Daryl L. Buchanan (3)............. 0 0 12,000 * W. Jefferson Burnett (4).......... 0 0 15,000 * Dennis A. Francis(5).............. 0 0 5,000 0 Kent R. Hance, Sr................. 0 0 5,000 * John L. Kelsey.................... 0 0 8,000 * Jill M. Killam.................... 1,000 * 0 0 Thomas W. Rollins................. 0 0 2,000 * Craig T. Scott(5)................. 0 0 5,000 0 Alan C. Shapiro................... 0 0 0 0 Norman W. Smith................... 1,000 * 0 0 Richard D. Squires................ 500 * 1,000 * Ewell Doak Walker................. 0 0 0 0 All 1995 Directors and executive officers as a group (21 persons)........................ 1,849,050 56.9% 363,643 2.1%
- --------------- * Less than 1% of the outstanding shares of this class. (1) The number of shares of Class B (Non-Voting) Common Stock owned by each Director excludes stock options not exercisable within 60 days for the purchase of 25,000 shares of Class B (Non-Voting) Common Stock by each of Don D. Box and Alan C. Shapiro. The numbers of shares of Class B (Non-Voting) Common Stock owned by Thomas D. Box, Craig T. Scott, Dennis A. Francis and Jill M. Killam do not include their stock options to purchase 70,000, 30,000, 30,000 and 30,000 shares, respectively, of Class B (Non-Voting) Common Stock. The total shares of Class B (Non-Voting) Common Stock owned by Directors and by executive officers as a group also does not include stock options not exercisable within 60 days to purchase 235,000 shares, in the aggregate. Certain of the options held by Thomas D. Box and Jill M. Killam may have become immediately exercisable. See "Change in Control Arrangements." (2) The number of shares of both Class A (Voting) Common Stock and Class B (Non-Voting) Common Stock shown as being beneficially owned by Don D. Box includes 1,840,525 shares of Class A (Voting) Common Stock and 88,668 shares of Class B (Non-Voting) Common Stock held by Box Brothers, and 205,975 shares of the Class B (Non-Voting) Common Stock held by Associates. The amount of Class B (Non-Voting) Common Stock shown as being beneficially owned by Mr. Box also includes 12,500 currently exercisable stock options held by him. (3) The number of shares of Class B (Non-Voting) Common Stock shown as beneficially owned by Mr. Buchanan includes 10,000 shares held by the Georges Investment Company Profit Sharing Plan, of which he is one of three trustees. (4) Options held by W. Jefferson Burnett to acquire 15,000 shares of Class B (Non-Voting) Common Stock became immediately exercisable upon his separation from the Company. See "Change in Control Arrangements." (5) Amounts of Class B (Non-Voting) Common Stock shown as beneficially owned consist totally of currently exercisable stock options. 10 14 COMPENSATION OF EXECUTIVE OFFICERS The following table summarizes the compensation paid by the Company during 1993, 1994 and 1995 to the Company's Chief Executive Officer and its four most highly compensated executive officers, other than the Chief Executive Officer, whose total annual salary and bonus in 1995 exceeded $100,000 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------------------------------ ANNUAL COMPENSATION AWARDS PAYOUTS --------------------------------- -------------------------- ------- (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING ALL OTHER COMPEN- STOCK OPTIONS/ LTIP COMPEN- NAME AND SALARY BONUS SATION AWARD(S) SAR'S PAYOUTS SATION PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($) - -------------------------------------- ---- ------- ------ ------- ---------- ------------- ------- --------- Thomas D. Box......................... 1993 166,200 10,000 (2) 0 0 0 4,900(3) Chief Executive Officer 1994 353,300 40,000 (2) 0 0 0 400(3) and President(1) 1995 355,500 25,000 (2) 0 50,000 0 400(3) Don D. Box............................ 1993 0 0 0 0 0 0 19,300(5) Chairman of the Board and 1994 183,600 20,000 (2) 0 0 0 400(5) Director of Corporate 1995 19,300 0 (2) 0 0 0 554,100(5) Development(4) Craig T. Scott........................ 1993 82,500 8,300 (2) 0 10,000 0 400(6) Executive Vice President 1994 120,000 19,200 (2) 0 0 0 400(6) 1995 123,600 21,800 (2) 0 20,000 0 400(6) Dennis A. Francis..................... 1993 97,600 8,300 (2) 0 0 0 11,400(7) Senior Vice President/ 1994 120,000 19,200 (2) 0 0 0 400(7) Operations 1995 123,600 21,700 (2) 0 20,000 0 400(7) Jill M. Killam........................ 1993 95,000 8,300 (2) 0 0 0 12,100(9) Vice President and 1994 120,000 19,200 (2) 0 0 0 400(9) Chief Financial Officer(8) 1995 123,600 21,000 (2) 0 20,000 0 400(9) W. Jefferson Burnett.................. 1993 70,000 6,300 (2) 0 0 0 400(11) General Counsel and 1994 90,000 12,600 (2) 0 0 0 400(11) Corporate Secretary(10) 1995 92,700 14,500 (2) 0 7,500 0 400(11)
- --------------- (1) Thomas D. Box was removed as Chief Executive Officer and President effective August 7, 1996. (2) This amount is not required as it is less than 10% of the total salary and bonus for the year. (3) For 1993, this amount includes $4,500 for Directors' fees and $400 for group term life insurance premiums paid by the Company. For 1994 and 1995, this amount is for group term life insurance premiums paid by the Company. (4) Don D. Box was employed by the Company as Director of Corporate Development from March 1, 1994, until January 31, 1995. Since then, he has remained Chairman of the Board. On August 7, 1996, he also became President and Chief Executive Officer of the Company. (5) For 1993, this amount is for Director's fees. For 1994, this amount is for group term life insurance premiums paid by the Company. For 1995, this amount includes $463,500 as severance pay (equal to 24 months of salary), $68,900 in other severance benefits such as art work, furniture and forgiveness of indebtedness, and $21,700 for Director's fees. (6) For the years 1993, 1994, and 1995, these amounts are for group term life insurance premiums paid by the Company. 11 15 (7) For 1993, this amount includes $11,000 for Directors' fees and $400 for group term life insurance premiums paid by the Company. For 1994 and 1995, this amount is for group term life insurance premiums paid by the Company. (8) Jill M. Killam was removed as Vice President and Chief Financial Officer effective August 7, 1996. (9) For 1993, this amount includes $11,700 for Directors' fees and $400 for group term life insurance premiums paid by the Company. For 1994 and 1995, this amount is for group term life insurance premiums paid by the Company. (10) W. Jefferson Burnett terminated his employment as General Counsel and Secretary effective August 8, 1996. (11) For 1993, 1994 and 1995, this amount is for group term life insurance premiums paid by the Company. Other than the severance agreements discussed below, no Named Executive Officer has an employment contract with the Company. See "Change in Control Arrangements." EMPLOYEE STOCK OPTIONS The Company's Board of Directors approved the 1992 Incentive Stock Option Plan (the "Incentive Plan") on April 24, 1992, for full-time Company employees, including Directors who are also full-time employees. The Incentive Plan was approved by the holders of a majority of the Company's Class A (Voting) Common Stock on July 1, 1992, effective as of April 24, 1992. The Incentive Plan permits option grants to purchase the Company's Class B (Non-Voting) Common Stock. The Incentive Plan terminates on April 23, 2002. The primary purposes of the Incentive Plan are to provide an additional inducement for those employees granted options to remain with the Company and to continue to increase their efforts to make the Company successful. The Incentive Plan is administered by those Directors serving on the Compensation Committee. During 1995, the Compensation Committee has granted options to purchase a total of 328,800 shares of Class B (Non-Voting) Common Stock under the Incentive Plan. No stock options granted under the Incentive Plan were exercisable prior to April 28, 1995. Terms of the Incentive Plan include the following: a. More than one grant may be made to an employee, but options for no more than 20,000 shares, in the aggregate, may be granted under the Incentive Plan to any employee. In 1995, the Directors voted to amend the Incentive Plan to allow the granting of options for an unlimited number of shares, in the aggregate, to an employee, provided that options for no more than 20,000 shares per year are granted to any individual employee, except for the Chief Executive Officer, who would be limited to options for no more than 50,000 shares per year. In order to become effective, this amendment to the Incentive Plan will require the approval of the holders of a majority of the Company's Class A (Voting) Common Stock. The current Compensation Committee has not made a recommendation to the Board of Directors as to whether this amendment should be submitted for stockholder approval. b. The option price is equal to the fair market value of a share of Class B (Non-Voting) Common Stock on the date of the grant, except that the option price for an employee owning more than 10% of the voting power of the Company is equal to 110% of the fair market value of Class B (Non-Voting) Common Stock on the date of grant. c. Options may only be exercised by the optionee by written notice stating the number of shares covered by options being exercised. The shares purchased through the exercise of options are to be paid 12 16 for in cash or a combination of cash and payments under an installment note payable to the Company monthly plus interest over a period of up to five years. No options can be exercised in the first three years after the date of grant; options can be exercised for no more than 50% of the optioned shares after the third year but before the fifth year after the date of grant, and the remaining 50% of the optioned shares may be exercised no sooner than five years after the date of grant; however, Severance Agreements entered into by the Company with 22 officers and executives state that all stock options fully vest upon the termination of employment in certain instances following a "change in control." See "Change in Control Arrangements." d. All options terminate 10 years from the date of grant, except those options granted to an individual who at the time of grant owns more than 10% of the voting power of any class of the Company's outstanding stock, which terminate five years from the date of grant, or upon a termination of an optionee's employment with the Company, other than an authorized retirement or as a result of death or an acknowledged physical disability. The options granted under the Incentive Plan may not be transferred by an optionee except by will or the laws of descent and distribution. e. As a condition to the grant of an option, the optionee is required to execute a written agreement to remain in the employment of the Company for one year, subject to termination at will by the Company. f. The number of shares of Class B (Non-Voting) Common Stock covered by options granted to any individual under the Incentive Plan and the option prices are subject to certain anti-dilution adjustments. 13 17 OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM - --------------------------------------------------------------------------------------------------- ------------------- (A) (B) (C) (D) (E) (F) (G) % OF TOTAL NUMBER OF OPTIONS/ SECURITIES SARS UNDERLYING GRANTED OPTIONS/ TO EXERCISE SARS EMPLOYEES OR BASE GRANTED IN FISCAL PRICE EXPIRATION NAME (#) YEAR ($/SHARES) DATE 5%($) 10%($) - ---------------------------------------------- ---------- --------- ---------- ---------- ------- ------- Thomas D. Box,................................ 50,000(2) 15.2% 9.625 11-30-01 77,100 223,300 Chief Executive Officer and President(1) Don D. Box,................................... 0(4) N/A N/A N/A N/A N/A Chairman of the Board and Director of Corporate Development(3) Craig T. Scott,............................... 20,000(5) 6.1% 8.75 11-30-06 110,100 278,900 Executive Vice President Dennis A. Francis,............................ 20,000(5) 6.1% 8.75 11-30-06 110,100 278,900 Senior Vice President/Operations Jill M. Killam,............................... 20,000(5) 6.1% 8.75 11-30-06 110,100 278,900 Vice President and Chief Financial Officer(6) W. Jefferson Burnett,......................... 7,500 2.3% 8.75 11-30-06 41,300 104,600 General Counsel and Corporate Secretary(7)
- --------------- (1) Thomas D. Box was removed as President and Chief Executive Officer effective August 7, 1996. (2) Options for 50,000 shares are contingent upon approval of an amendment to the Incentive Plan by the holders of the Company's Class A (Voting) Common Stock. (3) Don D. Box's employment as Director of Corporate Development of the Company ended as of January 31, 1995, but he continued as Chairman of the Board after that date. Don D. Box was appointed President and Chief Executive Officer of the Company August 7, 1996. (4) Prior to 1995, Don D. Box was granted options for 25,000 shares for his service as a Director under the Company's 1992 Non-Qualified Stock Option Plan. He was not granted any options under the Incentive Plan. (5) Options for 10,000 shares out of a total award of options for 20,000 shares are contingent upon approval of an amendment to the Incentive Plan by the holders of the Company's Class A (Voting) Common Stock. (6) Jill M. Killam was removed as Vice President and Chief Financial Officer effective August 7, 1996. (7) W. Jefferson Burnett terminated his employment as General Counsel and Secretary effective August 8, 1996. 14 18 EXECUTIVE OFFICERS AND DIRECTORS IN 1995 The following table provides information with respect to persons who served on the Company's Board of Directors or as an executive officer of the Company during 1995. Each Director holds office until his successor is elected and qualified or until his or her earlier resignation or removal in accordance with the Certificate of Incorporation and Bylaws of the Company. Executive officers hold their respective office at the pleasure of the Board of Directors. See "Litigation Involving Directors and Officers."
NAME AGE POSITION DURING 1995 - ------------------------- --- -------------------------------------------------- John F. Arning(1) 70 Director Don D. Box(1) 45 Chairman of the Board of Directors Thomas D. Box(1)(4) 40 Director, President and Chief Executive Officer Kent R. Hance, Sr.(1)(3) 53 Director John L. Kelsey(2)(3) 70 Director Alan C. Shapiro(2)(3) 50 Director Norman W. Smith(1)(2)(3) 53 Director Ewell Doak Walker(1) 69 Director Craig T. Scott 49 Executive Vice President Dennis A. Francis 43 Senior Vice President/Operations Jill M. Killam(5) 41 Vice President and Chief Financial Officer W. Jefferson Burnett(6) 37 General Counsel and Secretary Edward V. Howard 33 Vice President and Controller M. Carlisle Barker 43 Vice President, Chief Accounting Officer and Assistant Treasurer Rodney A. Madden 40 Vice President/Marketing and Supply Dorothy A. Knauf 75 Treasurer and Assistant Secretary
- --------------- (1) Member of Executive Committee. (2) Member of Audit Committee. (3) Member of Compensation Committee. (4) Thomas D. Box was removed as a Director effective July 30, 1996 and as President and Chief Executive Officer effective August 7, 1996. (5) Jill M. Killam was removed as Vice President and Chief Financial Officer effective August 7, 1996. (6) W. Jefferson Burnett terminated his employment as General Counsel and Secretary effective August 8, 1996. The following is a brief description of the background and principal occupation of each executive officer of the Company during 1995 who is not currently a Director. The periods of service shown below for officers of the Company include service prior to the Corporate Conversion, as officers of Associates which served as the corporate general partner of the Predecessor Partnership. Thomas D. Box served as President of the Company from July 1, 1993, and as Chief Executive Officer and a Director from October 29, 1993. He was removed from these positions effective July 30, and August 7, 1996. He was the Executive Vice President of the Company from April 15, 1992 to July 1, 1993. He previously served as Executive Assistant to the Chairman of Associates, as well as its Vice President and Secretary. He has also served as a director and in various officer positions in Box Brothers, Petroleum, 15 19 Associates and other affiliates of Box Brothers. He no longer serves as an officer of these entities, other than Box Brothers, although he remains a director of these entities. He is the son of the late Cloyce K. Box and the brother of Don D. Box, Douglas D. Box and Gary D. Box. He is a co-executor of the Estate of Cloyce K. Box. Craig T. Scott, an attorney and a Certified Public Accountant, has served as Executive Vice President of the Company since July 1, 1993. Prior to joining the Company in 1991, he served for three years as President of Sterling Operating Company, a privately held corporation engaged in the exploration and production of oil and gas and prior to that was engaged in the private practice of law for ten years and public accounting for six years. Mr. Scott received a Bachelor of Business Administration in Accounting and a law degree, both from the University of Texas, and a Masters of Laws from Southern Methodist University. Dennis A. Francis has served as Senior Vice President/Operations of the Company since 1989, and as Vice President from 1981 to 1989. He served as Vice President of Petroleum from 1982 until November 1993. He attended Central State University of Oklahoma. Jill M. Killam, a Certified Public Accountant, served as Vice President and Chief Financial Officer of the Company from March 1992, and as Vice President and Chief Accounting Officer from 1989 to March 1992. Ms. Killam was removed as Vice President and Chief Financial Officer effective August 7, 1996. From 1985 to 1989, Ms. Killam served as Assistant Treasurer. She served as Vice President and Treasurer of Box Brothers and Vice President and Chief Financial Officer of Associates, and certain other subsidiaries of Box Brothers Holding Company from 1989 until March 1996. She received a Bachelor of Business Administration in Accounting from the University of Texas-Arlington. W. Jefferson Burnett served as Corporate Secretary from July 1, 1993, and General Counsel from December 15, 1993. Mr. Burnett terminated his employment in these positions effective August 8, 1996. Prior to becoming General Counsel, he had been Associate General Counsel for the Company since 1989. He received his Bachelor of Arts from Knox College and his law degree from Texas Tech University. Following law school, Mr. Burnett was a law clerk for an appellate court in Texas. He then engaged in the private practice of law until he joined the Company. Edward V. Howard, a Certified Public Accountant, has served as Vice President and Controller of the Company since March 1992, and a senior accountant since 1989. From 1987 to 1989, Mr. Howard was employed as a ranch manager with E.D. Howard and Sons, and from 1984 to 1987 he was a tax accountant with KPMG Peat Marwick. Mr. Howard received a Bachelor of Business Administration in Accounting from West Texas State University. M. Carlisle Barker, a Certified Public Accountant, has served as Vice President and Chief Accounting Officer of the Company since March 1992, Assistant Treasurer since July 1, 1993, and a staff accountant from August 1991 to March 1992. He was the Trustee of the Constructive Trust imposed on Petroleum. See "Litigation Involving Directors and Executive Officers -- The Griffin Litigation." From 1988 to 1991, Mr. Barker served as Controller of Saxon Exploration, Inc. Prior to that, he was employed as a senior accountant with Bright and Company. He holds a Bachelor of Business Administration in Finance from the University of Texas. Rodney A. Madden has served as Vice President/Marketing and Supply of the Company since 1989 and as a manager of marketing since 1982. Mr. Madden received his Bachelor of Science in Business from Oklahoma State University. Dorothy A. Knauf has served as Treasurer of the Company since 1981. She served as Treasurer of Associates until March 1996. 16 20 New Officer J. Burke Asher, a Certified Public Accountant, was employed by the Company on September 3, 1996 as a Vice President. Mr. Asher was an independent, self-employed financial consultant and adviser from 1987 to 1996. He also served as controller of Doty-Moore Tower Services, Inc., a privately held contractor to the telecommunications industry, from 1993 to 1995. Mr. Asher received a Bachelor of Science from the Wharton School of the University of Pennsylvania. He is 55 years of age. On August 26, 1996, he held 950 shares of the Class A (Voting) Common Stock and 376 shares of the Class B (Non-Voting) Common Stock of the Company. LITIGATION INVOLVING DIRECTORS AND EXECUTIVE OFFICERS The Griffin Litigation The Griffin Case was filed in November 1987 in the U.S. District Court for the Northern District of Texas in Dallas. The plaintiffs are a small group of former unitholders of the Predecessor Partnership, including J.R. Simplot, a former unitholder whose units of the Predecessor Partnership have since been converted to approximately 15% of the Company's Class B (Non-Voting) Common Stock. The defendants are Cloyce K. Box and Associates, who served as the general partners of the Predecessor Partnership (the "General Partners"), the Predecessor Partnership, and Box Brothers. The Estate was substituted in the place of Cloyce K. Box in the litigation after his death in October 1993. As a result of the Corporate Conversion, the Company will receive all benefits, and will suffer all detriments, if any, of the Predecessor Partnership in the litigation. The plaintiffs made two types of claims in this case. First, plaintiffs sought individual damages for alleged securities law violations and a declaratory judgment regarding their voting rights. All of the plaintiffs' claims for individual damages and voting rights were denied by the district court at trial in October 1992. Secondly, plaintiffs brought derivative claims on behalf of the Predecessor Partnership alleging that the General Partners breached the limited partnership agreement of the Predecessor Partnership ("the Partnership Agreement"), breached fiduciary duties and violated an implied covenant of good faith and fair dealing in relation to three transactions. The derivative defendants' motion that the plaintiffs lacked standing on the derivative claims was rejected by the district court. The first transaction was the 1985 purchase of an interest in an oil pipeline by Petroleum. The second transaction involved the amount of general and administrative expenses paid by the Predecessor Partnership prior to the Corporate Conversion. The third transaction was a loan made by the Predecessor Partnership to an unaffiliated individual. The plaintiffs alleged actual damages of $20.0 million and punitive damages of $60.0 million. In addition, plaintiffs alleged that the General Partners engaged in racketeering activities in relation to the three transactions. In October 1992, the jury returned a verdict on the derivative claims finding that the General Partners did not breach the Partnership Agreement but breached fiduciary duties and an implied covenant of good faith and fair dealing arising from the Partnership Agreement. The jury awarded actual damages of approximately $20.0 million and future damages of approximately $6.2 million in favor of the Predecessor Partnership and against the General Partners relating to the pipeline transaction. Minor damages were awarded on the general and administrative expenses issue, while no damages were awarded based on the loan transaction. In addition, 17 21 the jury found no violation of the racketeering statutes. Punitive damages of approximately $2.2 million were awarded against Cloyce K. Box. In March 1994, the district court entered its initial judgment in favor of the Company and against the Estate and Associates in the amount of $20.1 million for past damages and against the Estate in the amount of $2.2 million for punitive damages. In addition, the judgment imposed a constructive trust for the benefit of the Company upon the pipeline interest owned by Petroleum, in lieu of the $6.2 million in future damages included in the verdict. The judgment also dismissed the plaintiffs' claims for individual damages and voting rights for their Class B (Non-Voting) Common Stock. In its amended final judgment issued in October 1994, the district court added pre-judgment and post-judgment interest. In a separate order, the district court granted the plaintiffs' motion for attorneys' fees and costs without specifying the amount awarded. The plaintiffs seek $3.5 million in attorneys' fees and costs. Following trial, the plaintiffs filed a motion with the district court challenging the foreclosure transaction in February 1994 in which Box Brothers acquired all of the Class A (Voting) Common Stock of the Company formerly owned by the Estate. The district court denied this motion without prejudice on the basis that it had no jurisdiction to rule on the motion. Following this ruling by the district court, the plaintiffs filed an adversary proceeding in the bankruptcy case of Box Brothers then pending in Wilmington, Delaware. See "-- Box Brothers Holding Company Bankruptcy." In February and March 1995, the bankruptcy court dismissed the adversary proceeding with prejudice and held that Box Brothers had no liability to the plaintiffs. In April 1995, the plan of reorganization of Box Brothers was approved by the bankruptcy court. The plaintiffs' appeal of the ruling in the adversary proceeding and the confirmation order was denied by the U.S. District Court in February 1996, and all three rulings in the case are currently on appeal to the U.S. Court of Appeals for the Third Circuit. The plaintiffs, the Estate, Associates and Petroleum all filed notices of appeal in the Griffin Case to the Fifth Circuit. In its opinion in the Griffin Case issued May 2, 1996, the Fifth Circuit (i) reversed the judgment and related damages against the Estate and Associates, and remanded the case for a new trial because of the jury's inconsistent answers to the liability issues; (ii) ruled that the trial court's imposition of the constructive trust was improper; (iii) affirmed the trial court's dismissal of the plaintiffs' individual claims for monetary damages; (iv) ruled that one plaintiff, James Lyle, was an original limited partner and remanded the case for a new trial to decide the number of voting shares to which he is entitled; (v) remanded the case for further fact findings to decide whether two other plaintiffs, Hayden McIlroy and B. R. Griffin, were original limited partners and the amount, if any, of voting stock to which they are entitled; (vi) affirmed the trial court's judgment that plaintiffs J. R. Simplot and David Hawk were not entitled to voting stock; and (vii) found that the trial court had erred in granting plaintiffs' attorneys' fees. The plaintiffs have filed an appeal to the U.S. Supreme Court. The Company cannot accurately predict when or how the Supreme Court will rule on this appeal or how the issues might be decided if a new trial occurs. In March 1995, the same plaintiffs as in the Griffin Case described above filed an action against the Company, and Thomas D. Box, Don D. Box, Douglas D. Box, Gary D. Box, John F. Arning, Dennis F. Francis, Phyllis George, Kent R. Hance, Sr., Edward V. Howard, John L. Kelsey, Jill M. Killam, Nauman S. Scott, III, Alan C. Shapiro, Norman W. Smith, Ewell Doak Walker and Richard S. Whitesell, Jr. in the state district court in Dallas, Texas. In their action, the plaintiffs allege that the defendants breached their fiduciary duty to the Company in relation to the collection of the trial court judgment entered in favor of the Company in the Griffin Case. The plaintiffs further allege conflicts of interest among the Directors, misappropriation of corporate assets, breaches of the duties of good faith and fair dealing, and wrongful payment of certain 18 22 attorneys' fees in the Griffin Case. These claims are apparently alleged both on behalf of the plaintiffs as individuals and derivatively on behalf of the Company. The damages sought exceed $50.0 million plus $100.0 million in punitive damages against each defendant. The action has been abated pending resolution of the underlying case on appeal to the U.S. Supreme Court. The defendants are expected to defend the action vigorously. The Company anticipates that it will be required to advance the defense costs of the defendants during the litigation although the plaintiffs have requested that the court prohibit the advancement of such defense costs. In addition, the Company may have indemnification obligations to the defendants as a result of the lawsuit. Devere and Nealon Cases Two class actions, one styled Melissa Devere v. John F. Arning, Don D. Box, Thomas D. Box, Kent R. Hance, Sr., John L. Kelsey, Alan C. Shapiro, Norman W. Smith, Ewell Doak Walker and Box Energy Corporation, and the other styled Caren M. Nealon and B. Peter Knudson v. John F. Arning, Don D. Box, Thomas D. Box, Kent R. Hance, Sr., John L. Kelsey, Alan C. Shapiro, Norman W. Smith, Ewell Doak Walker, Richard S. Whitesell, Jr. and Box Energy Corporation, were filed in the Chancery Court of Delaware in Wilmington in April and May 1995, respectively. In both cases the plaintiffs are holders of the Company's Class B (Non-Voting) Common Stock. The defendants are the Company and the Directors named above, except that Richard S. Whitesell, Jr., a former director, has been dismissed from the cases. The actions allege that the Company failed to make a proper response to offers or overtures previously made to purchase the Company's stock by J.R. Simplot and Phoenix Canada Oil Co., Ltd. and has failed to solicit other offers for the sale of the Company. In these cases the plaintiffs seek to compel the Company to take certain steps intended to result in a sale of the Company and unspecified amounts of damages, attorneys' fees and costs from the individual defendants. The Company intends to defend these suits vigorously. The cases have been consolidated. All of the defendants have filed or joined a motion seeking to dismiss the consolidated case. Further, the defendants have filed a motion to stay discovery while the motion to dismiss is pending. The court has yet to set a briefing schedule for either motion. The Company cannot predict when these motions will be resolved or the outcome of these cases. Box Brothers Holding Company Bankruptcy In August 1994, Box Brothers filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in Delaware as a result of an adverse judgment in a case not related to the Company. Box Brothers' Plan of Reorganization was approved by the bankruptcy court in April 1995, thus allowing Box Brothers Holding Company to emerge from bankruptcy. At the time of the bankruptcy, Don D. Box, Douglas D. Box, Gary D. Box and Thomas D. Box were directors of Box Brothers. Thomas D. Box Lawsuits On August 16, 1996, Thomas D. Box filed a lawsuit in the District Court for Dallas County, Texas (Tom Box v. Gary Box, Don Box, Doug Box, Box Brothers Holding Company, Inc. and CKB Petroleum, Inc. No. 9608451) alleging that the defendants have breached fiduciary duties to Box Brothers and its subsidiary Petroleum and wasted or converted their assets and asking the court for an accounting, unspecified damages, costs and attorneys' fees and for the appointment of a receiver for Box Brothers and Petroleum. 19 23 On August 21, 1996, Thomas D. Box filed a second lawsuit in the U.S. District Court for the Northern District of Texas (Tom Box V. Gary Box, Don Box and Doug Box, Defendants and Box Brothers Holding Company, Inc. Nominal Defendant No. 3-96CV2362-X) alleging, notwithstanding the decision of the Delaware Chancery Court in 1996, that he remains the sole holder of voting stock of Box Brothers, asserting that the defendants defrauded the plaintiff in violation of the Securities Exchange Act of 1934 and the anti-fraud rules adopted by the SEC under that statute and seeking unspecified actual and exemplary damages, costs and attorneys' fees, rescission of the stock issuances to the Trusts and a judicial declaration that the plaintiff has voting control of Box Brothers. Plaza Drive Associates, L.P. Bankruptcy In July 1994, Plaza Drive Associates, L.P. ("Plaza"), a limited partnership investing in high-yield securities with the sole general partner being a corporation owned by Richard D. Squires and Mr. Squires being one of two limited partners, filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code in the Bankruptcy Court in Dallas, Texas. Plaza's filing was in connection with its efforts to enforce a deed of trust lien securing a promissory note held by Plaza. After the filing, the collateral was liquidated, the promissory note was collected, all of Plaza's creditors were paid in full, and Plaza received the excess funds. RELATED PARTY TRANSACTIONS Box Brothers owns approximately 57% of outstanding shares of the Class A (Voting) Common Stock of the Company and 94% of the outstanding shares of both Petroleum and Associates. A resolution adopted in 1992 by the Board of Directors of the Company authorizes the Company to enter into a transaction with an affiliate of the Company so long as the Board of Directors determines that such a transaction is fair and reasonable to the Company and is on terms no less favorable to the Company than can be obtained from an unaffiliated party in an arms' length transaction. The Company pays oil transportation charges to Petroleum for transporting crude oil from its South Pass blocks. Since March 1985, Petroleum has owned a minority interest in the pipeline transporting oil from the wells in the South Pass blocks to Venice, Louisiana. The tariff for the pipeline at $2.75 per barrel was published and filed with the Federal Energy Regulatory Commission, which regulates such rates. The rate has been uniform since 1982 among all owners of the pipeline from South Pass Block 89 Field and is consistent with the rate charged by an unaffiliated party to the Predecessor Partnership prior to the acquisition of the pipeline interest by Petroleum. Petroleum billed the Company $2.7 million, $2.2 million and $2.7 million for oil transportation expense in 1995, 1994 and 1993, respectively. The amended judgment by the trial court in the Griffin Case imposed a constructive trust upon this pipeline interest in favor of the Company, but this decision later was reversed on appeal to the Fifth Circuit. See "Litigation Involving Directors and Executive Officers -- The Griffin Litigation." During 1995, 1994 and 1993, the Company billed Petroleum and other related parties, including the Estate of Cloyce K. Box (the "Estate"), Box Brothers and certain of their affiliates, for the estimated fair value of usage of an allocated portion of subleased office space, airplane usage (prior to the sale of the Company's aircraft in 1994), certain payroll costs and benefits, and other overhead costs. The amounts billed are considered to be the fair value of such usage by, or allocations for the benefit of, the related parties. The Company billed these related parties $134,000, $123,000 and $165,000 in 1995, 1994, and 1993, respectively, for items such as rent, aircraft use, payroll and overhead costs. 20 24 In March 1995, two of the Company's current Directors, seven of its former Directors and several of its current officers were named as defendants in a lawsuit filed in state district court in Dallas, Texas by the same plaintiffs as in the Griffin Case. In addition, nine of the Company's current and former Directors have been named as defendants in two class action lawsuits filed in the Delaware Chancery Court in Wilmington. See "Litigation Involving Directors and Executive Officers." In accordance with the Bylaws of the Company, the defendants have executed written undertakings to repay the Company for any such expenses advanced on their behalf if it is later found that such costs were not subject to indemnification by the Company. Although the plaintiffs in the Griffin Case have requested that the court prohibit the advancement of such defense costs, the Company believes it has indemnification obligations to the defendants as a result of the lawsuits. The total legal costs incurred in 1995 related to these cases were $583,000. The trial court in the Griffin Case entered its amended final judgment in October 1994 with respect to certain related party transactions on derivative claims against the General Partners and in favor of the Company. Cloyce K. Box passed away in October 1993. The Company has filed a claim against the Estate in the Probate Court for Collin County, Texas seeking to recover the full amount of the judgment, including certain attorneys' fees and costs as described below. The Partnership Agreement provided that the General Partners were to be indemnified for litigation expenses in certain situations in which they were sued in their capacity as general partners of the Predecessor Partnership. Accordingly, the Predecessor Partnership, and later the Company, paid the legal expenses and other defense costs of the General Partners during a large portion of the Griffin Case litigation. These payments were required under the Partnership Agreement as a result of the General Partners' execution of written undertakings to repay the Company for any such litigation expenses advanced on their behalf if it was later determined that such advancements were not subject to indemnification by the Company. The Company did not pay the legal expenses and other defense costs of the General Partners after February 1994. After the decision of the Fifth Circuit was handed down, the General Partners sought and received reimbursement from the Company of these legal fees for the period March 1994 to April 1996 in the amount of $1.4 million. In its claim in the Probate Court described above, the Company is seeking to recover from the Estate an amount of attorneys' fees and costs equal to the percentage of attorneys' fees and costs attributable to the defense of the derivative claims as to be determined by the district court in connection with the plaintiffs' request for attorneys' fees and costs. The Fifth Circuit reversed the award of plaintiffs' attorneys' fees and costs. If these fees should be reinstated by the U.S. Supreme Court or if another judgment is obtained against the defendants in a new trial, it is doubtful that a significant portion of the judgment, including attorneys' fees and costs, will be recovered by the Company against the Estate because of the uncertainties surrounding the value and the liquidity of the net assets of the Estate and Associates and the amount of other claims pending against the Estate. CHANGE IN CONTROL ARRANGEMENTS The Company entered into Severance Agreements with its employees in December 1995. The Severance Agreements require certain payments to employees upon a termination of employment, in certain instances during a period of two years after the change in control (as defined in the agreements). Terminations providing severance benefits include terminations by the Company other than for cause (as defined) or by the employee following certain enumerated acts by the Company adversely affecting the employee's employment. A change in control is defined in the Severance Agreements as the acquisition of 25% or more of the combined voting power of the then outstanding Class A (Voting) Common Stock, the cessation of membership of at least one-third of the eight member Board of Directors of the Company on August 16, 1995, a merger, 21 25 consolidation or reorganization of the Company, a plan of complete liquidation or dissolution of the Company or an agreement to sell or otherwise dispose of substantially all of the assets of the Company. When the Box Brothers Consent and the other stockholder consents became effective on July 30, 1996, a change of control occurred as the Company's new Board of Directors included only two of the eight members of the Board of Directors in office on August 16, 1995. See "Background." In applicable situations, the Severance Agreements provide for cash payments to former employees equal to the sum of: (1) all accrued, unpaid compensation and a pro-rata bonus, (2) severance pay ranging from six to eighteen months of the employee's base salary, and (3) an amount equal to the actuarial present value, as of the date of termination, of three years' hypothetical additional benefits under the Company's pension plan; provided, however, the former employee retains all vested benefits under the Company's pension plan and any other qualified pension or profit-sharing plans. In addition, the Severance Agreements provide for the continuation of life, disability, medical, dental and hospitalization insurance for six to eighteen months and for the full vesting and lapsing of all restrictions on any stock options granted to the employee. In light of the change of control that occurred on July 30, 1996, the Severance Agreements will remain in effect with respect to applicable terminations through July 30, 1998. The total estimated cost under the Severance Agreements, if all Severance Agreements became effective, is $5.4 million. The Company has stated that it will honor the Severance Agreements in circumstances where they apply. On July 26, 1996, Thomas D. Box, purporting to act on behalf of the Company, entered into a trust agreement with Comerica Bank -- Texas, as trustee, seeking to establish a trust for the purpose of funding the Company's obligations under the Severance Agreements. On July 30 and 31, Thomas D. Box and possibly certain of the Company's other officers caused $5.6 million of the Company's cash and marketable securities to be deposited with Comerica Bank -- Texas as the corpus of this "trust". The trust agreement states that, upon a "change of control" (defined to include the change in Directors on July 30, 1996), the alleged trust becomes irrevocable. The Company's Board of Directors and management have analyzed the facts surrounding the creation of this alleged trust, and they are of the opinion that (a) because Thomas D. Box and the other Company officers acted without authorization from the Board of Directors, these officers lacked the authority to act on the Company's behalf in this matter, and (b) because the Company has stated that it will honor the Severance Agreements in circumstances where they apply and the Company has more than adequate resources to pay these amounts, the arrangement with Comerica Bank -- Texas is unnecessary and not in the Company's interests. The Company is seeking to terminate or void the alleged trust with Comerica Bank -- Texas and cause the Company's $5.6 million (less prior payments to former employees entitled to benefits under the Severance Agreements) to be returned to it. Since July 30, 1996, three executive officers have left the Company. The Company directed that $218,117 be paid from the alleged trust established in July 1996 to W. Jefferson Burnett pursuant to his Severance Agreement with the Company. This amount does not include any amounts to be paid by the Company with respect to his options to acquire 15,000 shares of the Company's Class B (Non-Voting) Common Stock. These options also vested when Mr. Burnett left the Company, and, under the terms of the Severance Agreements signed by executives such as Mr. Burnett, upon exercise of the options, the executive also has the option of requiring the Company to purchase his shares at market value. The Company estimates that the cost of continuing Mr. Burnett's health insurance benefits for the required 18 months will be $13,546. The Company has not yet determined if Thomas D. Box or Jill M. Killam are entitled to any benefits pursuant to their Severance Agreements. If it is determined that they are entitled to benefits, Mr. Box would receive approximately $498,339 and Ms. Killam, approximately $280,512. The amounts do not include 22 26 amounts that might be payable with respect to options to acquire 70,000 shares of Class B (Non-Voting) Common Stock in the case of Thomas D. Box and 30,000 of these options held by Ms. Killam. Of Mr. Box's options for 70,000 shares and Ms. Killam's options for 30,000 shares, grants to acquire 50,000 shares and 10,000 shares, respectively, are subject to stockholder approval. The Company's current Compensation Committee has not recommended to the Board of Directors whether an amendment to the Company's Incentive Plan permitting an employee to hold options for more than 20,000 shares should be submitted to the holders of the Class A (Voting) Common Stock for their approval. The cost of continuing health insurance for 18 months is estimated to be $13,546 each for Thomas D. Box and Ms. Killam. STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING The Company's 1996 annual meeting has been delayed. The Board of Directors plans to call this meeting as soon as practicable. The Company anticipates that the meeting will be held on or about November 26, 1996. Stockholder proposals for inclusion in the proxy materials and consideration at the Company's 1996 annual meeting must be received by the Company before October 28, 1996 in order to be considered for inclusion in the proxy materials of the Company for that meeting. ANNUAL REPORT The Company's 1995 Annual Report to Stockholders has previously been submitted to stockholders. A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, WILL BE SENT TO EACH PERSON TO WHOM AN INFORMATION STATEMENT IS DELIVERED WITHOUT CHARGE BY FIRST CLASS MAIL OR EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF A WRITTEN REQUEST ADDRESSED TO DIRECTOR OF INVESTOR RELATIONS, BOX ENERGY CORPORATION, 8201 PRESTON ROAD, SUITE 600, DALLAS, TEXAS 75225-6211, OR AN ORAL REQUEST DELIVERED BY TELEPHONE TO (214) 890-8000. Exhibits to the Form 10-K will be furnished upon payment of the Company's reasonable expenses in furnishing such exhibits. 23 -----END PRIVACY-ENHANCED MESSAGE-----