<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Box Energy Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
N/A
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[BOXENERGY CORPORATION LOGO]
October 18, 1996
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Box Energy Corporation. The meeting will be held in Salon B of the Lafayette
Hilton, 1521 Pinhook Road, Lafayette, Louisiana 70505 at 9:00 a.m. on Tuesday,
November 19, 1996.
The Notice of Meeting and Proxy Statement on the following pages cover the
formal requirements for the business of the meeting. Whether or not you find it
possible to attend the meeting personally, we hope you will have your stock
represented by signing your proxy exactly as your name appears thereon and
returning it promptly.
Sincerely yours,
/s/ DON D. BOX
Don D. Box,
Chairman of the Board,
Chief Executive Officer
and President
<PAGE> 3
BOX ENERGY CORPORATION
NOTICE OF ANNUAL MEETING TUESDAY, NOVEMBER 19, 1996
9:00 A.M.
TO THE STOCKHOLDERS OF BOX ENERGY CORPORATION:
Notice is hereby given that the annual meeting of the holders of the Class
A (Voting) Common Stock of Box Energy Corporation, a Delaware corporation (the
"Company"), will be held at 9:00 a.m., Tuesday, November 19, 1996, in Salon B of
the Lafayette Hilton, 1521 Pinhook Road, Lafayette, Louisiana 70505 for the
following purposes:
1. To elect a board of seven (7) directors.
2. To transact such other business as may properly be brought before
the meeting or any adjournments or postponements thereof.
Only holders of the Company's Class A (Voting) Common Stock (the "Class A
Stock") of record at the close of business on October 7, 1996, are entitled to
notice of and to vote at the meeting or any adjournments or postponements
thereof. A complete list of the holders of the Class A Stock entitled to vote
will be available for examination by any holder of Class A Stock during normal
business hours at the Company's offices at 8201 Preston Road, Suite 600, Dallas,
Texas 75225-6211 for a period of ten business days prior to the date of the
Annual Meeting.
Holders of Class A Stock are invited to attend the meeting. Whether or not
you expect to attend, WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If you attend the meeting, you
may vote your shares in person, after revoking your proxy.
If your shares are held of record by a broker, bank or other nominee and
you wish to attend the meeting, you should obtain a letter from the broker, bank
or other nominee confirming your beneficial ownership of the shares and bring it
to the meeting. In order to vote your shares at the meeting, you must obtain
from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. Please
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ J. BURKE ASHER
J. Burke Asher,
Secretary
October 18, 1996
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING.
<PAGE> 4
BOX ENERGY CORPORATION
8201 PRESTON ROAD, SUITE 600
DALLAS, TEXAS 75225-6211
---------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 19, 1996
This Proxy Statement is being furnished to the holders of Class A (Voting)
Common Stock, par value $1.00 per share (the "Class A Stock"), of Box Energy
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Stockholders to be held on November 19, 1996 (the "Annual
Meeting"), and at any adjournments or postponements thereof. Stockholders
representing a majority of the Class A Stock outstanding and entitled to vote
must be present in person or represented by proxy in order to constitute a
quorum to conduct business at the meeting. The Board of Directors has fixed the
close of business on October 7, 1996, as the record date for the determination
of the Stockholders entitled to notice of and to vote at the Annual Meeting. On
the record date, 3,250,110 shares of Class A Stock were outstanding and entitled
to be voted at the meeting. Each share of Class A Stock entitles the registered
holder thereof to one vote on each matter submitted to a vote at the meeting.
All shares of Class A Stock represented at the Annual Meeting by properly
executed proxies received prior to the meeting, unless the proxies have been
properly revoked prior to voting, will be voted in accordance with the
instructions on such proxies. If no instructions are given, proxies will be
voted in accordance with the recommendations of the Board of Directors, as noted
in this Proxy Statement. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before it is voted. Proxies may be
revoked by delivery to the Corporate Secretary of the Company at the Company's
principal executive offices at Box Energy Corporation, 8201 Preston Road, Suite
600, Dallas, Texas 75225-6211 of a written notice of revocation bearing a later
date than the proxy, or by duly executing and delivering to the Corporate
Secretary a subsequent proxy relating to the same shares, or by attending the
Annual Meeting and voting in person (although attendance at the Annual Meeting
will not in and of itself constitute revocation of a proxy).
With regard to all items submitted for Stockholder vote, abstentions are
not counted as voting for approval of a matter and, therefore, will have the
same effect as a vote "against" the matter, even though the Stockholder may
interpret such action differently. Votes withheld, including broker non-votes,
are neither counted as voting for nor against a matter and, therefore, as to
that matter will not be treated as shares present and will be disregarded.
Management knows of no matters to be presented for action at the Annual
Meeting other than those specified in this Proxy Statement and the accompanying
Notice of Annual Meeting. Should any other matter properly come before the
Annual Meeting, proxies will be voted upon these other matters in accordance
with the best judgment of the persons voting such proxies.
This Proxy Statement and the accompanying proxy are being first sent to
Stockholders on October 18, 1996.
<PAGE> 5
BACKGROUND
Effective July 30, 1996, John F. Arning, Thomas D. Box, John L. Kelsey,
Norman W. Smith and Ewell Doak Walker resigned or were removed as directors of
the Company and Glen Adams, Bernay C. Box, Daryl L. Buchanan, Thomas W. Rollins
and Richard D. Squires were elected to serve in their stead. This action was
taken by written consent of Box Brothers Holding Company ("Box Brothers"), the
holder of 56.6% of the outstanding voting stock of 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. The following paragraphs describe this
action in greater detail and provide certain related background information.
Box Brothers is the holder of 1,840,525 shares of the Class A 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 (the "Estate") 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 Stock held by Box Brothers to the Estate. 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 -- Box Brothers Holding Company
Bankruptcy."
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.
This case is currently on appeal to the Delaware Supreme Court. 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.
Effective December 12, 1995, the Company entered into Executive Severance
Agreements with 23 of its officers and executives and letter agreements
regarding severance matters with 28 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,
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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 current 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 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. 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 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
("Comerica"), 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 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 is unnecessary and
not in the Company's interests. Pursuant to a Trust Termination Agreement dated
as of September 30, 1996, between the Company and Comerica, the parties declared
the alleged trust to be void from its inception and Comerica returned the
Company's $5.6 million (less prior payments to former employees entitled to
benefits under the Severance Agreements). The Company has agreed to indemnify
Comerica for certain liabilities or expenses that it might incur in connection
with this agreement.
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<PAGE> 7
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. Without objection by Thomas D. Box, the only remaining
Director-defendant, or the Company, as nominal defendant, the court in this case
entered a Final Judgment, dated September 16, 1996, ordering that the three
stockholder consents described above (a) were valid and effective under Delaware
corporate law, and (b) resulted in the changes in the composition of the
Company's Board of Directors and the amendments to the Company's Bylaws
described in the consents; provided, however, no judicial determination was made
as to whether, on July 30, 1996, Messrs. Kelsey, Smith and Walker resigned as
Directors or were removed. The entry of the Final Judgment concluded this
lawsuit.
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 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. He was retained by the Company as independent
outside legal counsel during a brief transition period, but as of August 30,
1996, he has not been actively engaged by the Company. Effective as of September
17, 1996, the Company discharged M. Carlisle Barker, the Company's Vice
President, Chief Accounting Officer and Assistant Treasurer. In addition,
effective as of October 2, 1996, the Company and Craig T. Scott, the Company's
Executive Vice President, agreed to a termination of Mr. Scott's employment. 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
(the "Class B Stock"), rather than Class A 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. The Report does not express an opinion of the outside law
firm. Management and the Board of Directors have concluded that the Box Brothers
Consent, together with the written consents executed by Messrs. Georges and
Rutherford, is effective in accordance with its 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 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
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securities anti-fraud statute and rule. See "Litigation Involving Directors and
Executive Officers -- Thomas D. Box Lawsuits."
ELECTION OF DIRECTORS
Seven Directors of the Company are to be elected at the Annual Meeting to
serve until the next Annual Meeting of the holders of the Class A Stock and
until their respective successors shall have been elected and qualified. Unless
authority to vote for one or more Directors is withheld, proxies will be voted
for the election of the persons listed below or, if any such person shall
unexpectedly become unable or unwilling to accept nomination or election, for
the election of such other person as the Board of Directors may recommend.
Directors will be elected by holders of a majority of the shares of Class A
Stock present in person or represented by proxy and entitled to vote. The
persons listed below are Directors of the Company now in office and are nominees
for re-election. The Board of Directors recommends a vote "FOR" the nominees.
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 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 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
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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.
The Board of 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.
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."
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 two times in 1995. The Executive Committee did not meet in 1995. All
committee members attended at least 75% of the meetings of their respective
committees.
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 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
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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 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 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 are to provide the
Directors with an opportunity for investment in the Company's Class B Stock and
an incentive to remain in their capacity as Directors and to encourage them 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 Class B 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, in the aggregate, 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 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 be exercised by the optionee only by written notice
stating the number of shares purchased. 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 for a period from the date of exercise to the month five years
from the date of grant. 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 through the end of the
fifth year after the date of grant;
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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.
e. The number of shares of the Class B Stock covered by options
granted to any individual under the Non-Qualified Plan and the option
prices are subject to certain antidilution adjustments.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of October 7, 1996, the following persons held shares of the Company's
Class A 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").
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME AND ADDRESS CLASS A STOCK PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS A STOCK
--------------------------------------------- ------------------- -------------
<S> <C> <C>
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%
</TABLE>
- ---------------
(1) This amount includes (a) 1,840,525 shares owned by Box Brothers, whose
voting stock is owned and controlled by the Trusts, 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 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.
8
<PAGE> 12
OWNERSHIP OF MANAGEMENT
The number of shares of the Company's Class A Stock and Class B Stock
beneficially owned as of October 7, 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.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
CLASS A STOCK CLASS B STOCK
BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF
OWNED CLASS A STOCK OWNED(1) CLASS B STOCK(1)
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
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).................... 3,325 * 2,000 *
Daryl L. Buchanan(4)................ 0 0 12,000 *
W. Jefferson Burnett(5)............. 0 0 0 0
Dennis A. Francis................... 0 0 5,000 *
Kent R. Hance, Sr................... 0 0 5,000 *
John L. Kelsey...................... 0 0 8,000 *
Jill M. Killam(6)................... 1,000 * 0 0
Thomas W. Rollins................... 0 0 2,000 *
Craig T. Scott(7)................... 0 0 0 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% 339,663 1.9%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of this class.
(1) The number of shares of Class B Stock owned by each Director excludes stock
options not exercisable within 60 days for the purchase of 12,500 and 25,000
shares of Class B Stock by each of Don D. Box and Alan C. Shapiro,
respectively. The numbers of shares of Class B Stock owned by Thomas D. Box,
Craig T. Scott, Dennis A. Francis, Jill M. Killam and W. Jefferson Burnett
excludes stock options not exercisable within 60 days for the purchase of
70,000, 30,000, 25,000, 30,000 and 15,000 shares, respectively, of Class B
Stock. The total shares of Class B Stock owned by Directors and by executive
officers as a group also does not include stock options not exercisable
within 60 days to purchase 257,500 shares, in the aggregate.
(2) The number of shares of both Class A Stock and Class B Stock shown as being
beneficially owned by Don D. Box includes 1,840,525 shares of Class A Stock
and 88,668 shares of Class B Stock held by Box Brothers, and 205,975 shares
of Class B Stock held by Associates. The amount of Class B Stock shown as
being beneficially owned by Mr. Box also includes 12,500 currently
exercisable stock options held by him.
(3) Options held by Thomas D. Box to acquire 70,000 shares of Class B Stock,
50,000 of which were granted contingent upon approval of an amendment to the
Incentive Plan (as hereinafter defined) by holders of the Class A Stock,
ceased to be exercisable upon his termination. See "Change in Control
Arrangements."
(4) The number of shares of Class B 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.
(5) Options held by W. Jefferson Burnett to acquire 15,000 shares of Class B
Stock ceased to be exercisable upon his separation from the Company. See
"Change in Control Arrangements."
(6) Options held by Jill M. Killam to acquire 30,000 shares of Class B Stock,
10,000 of which were granted contingent upon approval of an amendment to the
Incentive Plan by the holders of Class A Stock, ceased to be exercisable
upon her termination. See "Change in Control Arrangements."
(7) Options held by Craig T. Scott to acquire 30,000 shares of Class B Stock,
10,000 of which were granted contingent upon approval of an amendment to the
Incentive Plan by the holders of the Class A Stock, ceased to be exercisable
upon his termination. See "Change in Control Arrangements."
9
<PAGE> 13
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 $100,000 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- -------------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARD(S) SAR'S PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- -------------------------------------- ---- ------- ------ ------- ---------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas D. Box......................... 1993 166,200 10,000 (2) 0 0 0 4,900(5)
Chief Executive Officer 1994 353,300 40,000 (2) 0 0 0 400(5)
and President(1) 1995 355,500 25,000 (2) 0 50,000(3)(4) 0 400(5)
Don D. Box............................ 1993 0 0 0 0 0 0 19,300(7)
Chairman of the Board and 1994 183,600 20,000 (2) 0 0 0 400(7)
Director of Corporate 1995 19,300 0 (2) 0 0 0 554,100(7)
Development(6)
Craig T. Scott........................ 1993 82,500 8,300 (2) 0 10,000(3) 0 400(10)
Executive Vice President(8) 1994 120,000 19,200 (2) 0 0 0 400(10)
1995 123,600 21,800 (2) 0 20,000(3)(9) 0 400(10)
Dennis A. Francis..................... 1993 97,600 8,300 (2) 0 0 0 11,400(11)
Senior Vice President/ 1994 120,000 19,200 (2) 0 0 0 400(11)
Operations 1995 123,600 21,700 (2) 0 20,000(9) 0 400(11)
Jill M. Killam........................ 1993 95,000 8,300 (2) 0 0 0 12,100(13)
Vice President and 1994 120,000 19,200 (2) 0 0 0 400(13)
Chief Financial Officer(12) 1995 123,600 21,000 (2) 0 20,000(3)(9) 0 400(13)
W. Jefferson Burnett.................. 1993 70,000 6,300 (2) 0 0 0 400(15)
General Counsel and 1994 90,000 12,600 (2) 0 0 0 400(15)
Corporate Secretary(14) 1995 92,700 14,500 (2) 0 7,500(3) 0 400(15)
</TABLE>
- ---------------
(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) Under the terms of the Company's Incentive Plan, all options thereunder
ceased to be exercisable upon termination of the optionee's employment with
the Company. See "-- Employee Stock Options."
(4) Options for 50,000 shares were granted contingent upon approval of an
amendment to the Incentive Plan by the holders of the Class A Stock.
(5) 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.
(6) 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.
10
<PAGE> 14
(7) For 1993, this amount is for Directors' 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 and furniture and
reclassification of certain disputed items as income, and $21,700 for
Directors' fees.
(8) Craig T. Scott and the Company agreed to the termination of Mr. Scott's
employment effective as of October 2, 1996.
(9) Options for 10,000 shares out of a total award of options for 20,000 shares
were granted contingent upon approval of an amendment to the Incentive Plan
by the holders of the Company's Class A Stock.
(10) For the years 1993, 1994, and 1995, these amounts are for group term life
insurance premiums paid by the Company.
(11) 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.
(12) Jill M. Killam was removed as Vice President and Chief Financial Officer
effective August 7, 1996.
(13) 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.
(14) W. Jefferson Burnett terminated his employment as General Counsel and
Secretary effective August 8, 1996.
(15) 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 employees of the
Company or its subsidiaries, 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 Stock on July 1, 1992, effective as of April 24, 1992. The
Incentive Plan permits option grants to purchase the Company's Class B Stock.
The Incentive Plan terminates on April 23, 2002. The primary purposes of the
Incentive Plan are to provide an opportunity for investment in the Company's
Class B Stock, to provide an additional inducement for those employees granted
options to remain with the Company and to encourage them 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 granted options to purchase a total of 328,800 shares of
Class B 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 Board of 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 the Chief Executive Officer, who would be limited to
options for no
11
<PAGE> 15
more than 50,000 shares per year. In order to become effective, this
amendment to the Incentive Plan requires the approval of the holders of a
majority of the Company's Class A Stock.
b. The option price is equal to the fair market value of a share of
Class B 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 Stock on the date of grant.
c. Options may be exercised by the optionee only by written notice
stating the number of shares to be purchased. 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 for a period from the date of exercise to the month five years
from the date of grant. 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 through the end of 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 10 years from the date of grant, except those
options granted to an individual who at the time of such grant owns more
than 10% of the voting power of any class of the Company's outstanding
stock, which options 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 consideration for the grant of each option, and as a condition
to the exercise of an option, the optionee is required to execute a written
agreement to remain in the employment of the Company for at least one year
after the date of grant of such option, subject to termination at will by
the Company.
f. The number of shares of Class B Stock covered by options granted to
any individual under the Incentive Plan and the option prices are subject
to certain anti-dilution adjustments.
12
<PAGE> 16
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
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 ($/SHARE) DATE 5%($) 10%($)
- ---------------------------------------------- ---------- --------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Box................................. 50,000 15.2% 9.625 11-30-00 77,100 223,300
Chief Executive Officer and
President(1)(2)(3)
Don D. Box.................................... 0 N/A N/A N/A N/A N/A
Chairman of the Board and Director of
Corporate Development(4)
Craig T. Scott................................ 20,000 6.1% 8.75 11-30-05 110,100 278,900
Executive Vice President(2)(5)(6)
Dennis A. Francis............................. 20,000 6.1% 8.75 11-30-05 110,100 278,900
Senior Vice President/Operations(6)
Jill M. Killam................................ 20,000 6.1% 8.75 11-30-05 110,100 278,900
Vice President and Chief Financial
Officer(2)(6)(7)
W. Jefferson Burnett.......................... 7,500 2.3% 8.75 11-30-05 41,300 104,600
General Counsel and Corporate
Secretary(2)(8)
</TABLE>
- ---------------
(1) Thomas D. Box was removed as President and Chief Executive Officer effective
August 7, 1996.
(2) Under the terms of the Company's Incentive Plan, all options thereunder
ceased to be exercisable upon termination of the optionee's employment with
the Company. See "-- Employee Stock Options."
(3) Options for 50,000 shares were granted contingent upon approval of an
amendment to the Incentive Plan by the holders of the Company's Class A
Stock.
(4) 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.
(5) Craig T. Scott and the Company agreed to the termination of Mr. Scott's
employment effective as of October 2, 1996.
(6) Options for 10,000 shares out of a total award of options for 20,000 shares
were granted contingent upon approval of an amendment to the Incentive Plan
by the holders of the Company's Class A Stock.
(7) Jill M. Killam was removed as Vice President and Chief Financial Officer
effective August 7, 1996.
(8) W. Jefferson Burnett terminated his employment as General Counsel and
Secretary effective August 8, 1996.
13
<PAGE> 17
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISABLE IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL FISCAL
YEAR END YEAR END
(#) (#)
SHARES --------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------------------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Thomas D. Box,.......................................... -- -- 10,000/60,000 --(3)
Chief Executive Officer and President(1)(2)
Don D. Box,............................................. -- -- 12,500/12,500 --(3)
Chairman of the Board and Director of
Corporate Development(4)
Craig T. Scott,......................................... -- -- 5,000/25,000 --(3)
Executive Vice President(2)(5)
Dennis A. Francis,...................................... -- -- 5,000/25,000 --(3)
Senior Vice President/Operations
Jill M. Killam,......................................... -- -- 5,000/25,000 --(3)
Vice President and Chief Financial Officer(2)(6)
W. Jefferson Burnett,................................... -- -- 3,750/11,250 --(3)
General Counsel and Corporate Secretary(2)(7)
</TABLE>
- ---------------
(1) Thomas D. Box was removed as President and Chief Executive Officer effective
August 7, 1996.
(2) Under the terms of the Company's Incentive Plan, all options thereunder
ceased to be exercisable upon termination of the optionee's employment with
the Company. See "-- Employee Stock Options."
(3) None of the options held by any Named Executive Officer were in-the-money at
fiscal year end.
(4) 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.
(5) Craig T. Scott and the Company agreed to the termination of Mr. Scott's
employment effective as of October 2, 1996.
(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
<PAGE> 18
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
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE(1)(3)(4)
COMPENSATION(1)(2) ------------------------------------
- ------------------ 10 20 30 40
($) ------ ------ ------ ------
($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
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........................................... 60,573 68,646 76,719 80,756
500,000........................................... 60,573 68,646 76,719 80,756
</TABLE>
- ---------------
(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 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
15
<PAGE> 19
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, Jill M. Killam and
W. Jefferson Burnett were $73,112, $25,643, $65,343, $73,658, $73,248 and
$51,522, respectively, (assuming continuous employment to "normal retirement
age"). The employment of Thomas D. Box and Jill M. Killam terminated August 7,
1996, the employment of W. Jefferson Burnett terminated August 8, 1996, and the
employment of Craig T. Scott terminated October 2, 1996.
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 offices at the pleasure of the Board of Directors. See
"Litigation Involving Directors and Officers." All directors in 1995 except Don
D. Box and Alan C. Shapiro have recently resigned or been removed. See
"Background."
<TABLE>
<CAPTION>
NAME AGE POSITION DURING 1995
- ------------------------- --- --------------------------------------------------
<S> <C> <C>
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(5) 49 Executive Vice President
Dennis A. Francis 43 Senior Vice President/Operations
Jill M. Killam(6) 41 Vice President and Chief Financial Officer
W. Jefferson Burnett(7) 37 General Counsel and Secretary
Edward V. Howard 33 Vice President and Controller
M. Carlisle Barker(8) 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
</TABLE>
- ---------------
(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.
16
<PAGE> 20
(5) Craig T. Scott and the Company agreed to the termination of Mr. Scott's
employment effective as of October 2, 1996.
(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.
(8) M. Carlisle Barker was removed as Vice President, Chief Accounting Officer
and Assistant Treasurer effective September 17, 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 as
a Director effective July 30, 1996, and as an officer effective 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, Associates
and other affiliates of Box Brothers. He no longer serves as an officer of any
of these entities, although he remains a director of these entities, other than
Box Brothers. 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.
Craig T. Scott, an attorney and a Certified Public Accountant, served as
Executive Vice President of the Company from July 1, 1993. The Company and Mr.
Scott agreed to a termination of Mr. Scott's employment effective as of October
2, 1996. 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.
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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, served as Vice President
and Chief Accounting Officer of the Company from March 1992, Assistant Treasurer
from July 1, 1993, and a staff accountant from August 1991 to March 1992. Mr.
Barker was removed as Vice President, Chief Accounting Officer and Assistant
Secretary effective as of September 17, 1996. 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 and Assistant Secretary of the
Company since 1981. She served as Treasurer of Associates until March 1996.
New Officer
J. Burke Asher, a Certified Public Accountant, was employed by the Company
on September 3, 1996, as Chief Accounting Officer, and was appointed Secretary
of the Company on October 1, 1996. 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
communications 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.
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 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.
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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 million and punitive damages
of $60 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 of $112,500 were awarded on the
general and administrative expense issue, while no damages were awarded based on
the loan transaction. In addition, 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 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.
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
consequently lacked standing in the Griffin Case; and (vii) found that the trial
court had erred in granting plaintiffs' attorneys' fees. On October 7, 1996, the
plaintiffs' application to the U.S. Supreme Court for appellate review of the
Fifth Circuit decision was denied.
In February 1995, and March 1995, the same plaintiffs as in the Griffin
Case described above filed two actions against the Company, and Thomas D. Box,
Don D. Box, Douglas D. Box, Gary D. Box, John F.
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Arning, Dennis A. 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 state district court
in Dallas, Texas. In their actions, 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 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 million plus $100 million in punitive damages against each defendant. The
actions have been abated pending resolution of the underlying case on appeal to
the U.S. Supreme Court, which denied certiorari on October 7, 1996. 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 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. The plaintiffs in the Griffin
Case filed a motion with the bankruptcy court challenging the foreclosure
transaction in February 1994 in which Box Brothers acquired through foreclosure
all of the Class A Stock of the Company formerly owned by the Estate. (The
district court in the Griffin Case denied the same motion without prejudice on
the basis that it had no jurisdiction to rule on the motion.) 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. Box
Brothers' Plan of Reorganization was approved by the bankruptcy court in
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April 1995, thus allowing Box Brothers Holding Company to emerge from
bankruptcy. The Griffin Case plaintiffs' appeal of the ruling by the bankruptcy
court and the subsequent confirmation order were 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. 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 stockholder derivative 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. 96-08451)
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. On or about
September 20, 1996, a first amended petition was filed in this lawsuit adding
the Company as a defendant.
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.
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RELATED PARTY TRANSACTIONS
Box Brothers owns approximately 57% of outstanding shares of the Class A
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, 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.
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
died 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
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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,
however, reversed the award of plaintiffs' attorneys' fees and costs. 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, including all of the Named Executive Officers other than Don D.
Box. 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 Severance Agreements).
Terminations providing severance benefits include terminations by the Company
other than for cause (as defined in the Severance Agreements) or by the employee
following a change in control upon the occurrence of certain enumerated events
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 Stock, the cessation of membership
of more than one-third of the eight members of the Board of Directors of the
Company on August 16, 1995, a merger, 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 in 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, in applicable situations, the Severance Agreements provide for the
continuation of life, disability, medical, dental and hospitalization insurance
for six to eighteen months (however, the Severance Agreements entered into with
employees other than officers and executives provide that, in applicable
situations, the employee may elect to receive the cash equivalent of such
insurance benefits) and for the lapsing of all restrictions on and full vesting
of any outstanding incentive awards, including stock options granted to the
employee. Where applicable, the Severance Agreements entitle
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Thomas D. Box to a payment of $484,793.37, Craig T. Scott to a payment of
$378,197.99, Dennis A. Francis to a payment of $244,563.21, Jill M. Killam to a
payment of $269,897.02, and W. Jefferson Burnett to a payment of $217,117.40.
In light of the change in 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 become 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, 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 as the corpus of this
"trust." The trust agreement states that, upon a "change in 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 is unnecessary and not in the Company's
interests. Pursuant to a Trust Termination Agreement dated as of September 30,
1996, between the Company and Comerica, the parties declared the alleged trust
to be void from its inception and Comerica returned the Company's $5.6 million
(less prior payments to former employees entitled to benefits under the
Severance Agreements). The Company has agreed to indemnify Comerica for certain
liabilities or expenses that it might incur in connection with such agreement.
Since July 30, 1996, five 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 included $1,000 additional consideration that the Company
paid Mr. Burnett in exchange for his execution of an Agreement for Severance
Payment, Release and Non-Disclosure. The Company estimates that the cost of
continuing Mr. Burnett's health insurance benefits for the required 18 months
will be $13,546.
On September 17, 1996, the Company terminated the employment of M. Carlisle
Barker. The Company paid Mr. Barker $141,639 in accordance with the terms of his
Severance Agreement. This amount included $1,000 additional consideration that
the Company paid Mr. Barker in exchange for his execution of an Agreement for
Severance Payment, Release and Non-Disclosure. In addition, pursuant to his
Severance Agreement, Mr. Barker is entitled to receive 18 months of continued
health insurance with an estimated cost to the Company of $13,546.
On October 2, 1996, the Company and Craig T. Scott agreed to a termination
of Mr. Scott's employment with the Company. Under the terms of Mr. Scott's
Severance Agreement, the Company paid Mr. Scott $386,698, which amount included
$8,500 additional consideration that the Company paid Mr. Scott in exchange for
his execution of an Agreement for Severance Payment, Release and Non-Disclosure.
In addition, pursuant to his Severance Agreement, Mr. Scott is entitled to
receive 18 months of continued health insurance with an estimated cost to the
Company of $13,546.
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The Company has not yet determined if Thomas D. Box is entitled to any
benefits pursuant to his Severance Agreement. If it is determined that he is
entitled to benefits, Mr. Box would receive approximately $498,339. The Company
is currently negotiating with Jill M. Killam regarding a settlement of claims
under her Settlement Agreement. She is entitled to receive approximately
$269,897 under her Settlement Agreement. The cost of continuing health insurance
for 18 months is estimated to be $13,546 for each of Thomas D. Box and Ms.
Killam.
The amounts for each former executive do not include options to acquire
70,000 shares of Class B Stock in the case of Thomas D. Box, 30,000 of these
options in the case of Ms. Killam, 15,000 of these options in the case of Mr.
Burnett, 15,000 of these options in the case of Mr. Barker and 30,000 of these
options in the case of Mr. Scott. Of Mr. Box's options for 70,000 shares, Ms.
Killam's options for 30,000 shares and Mr. Scott's options to acquire 30,000
shares, grants to acquire 50,000 shares, 10,000 shares, and 10,000 shares,
respectively, are subject to stockholder approval. In addition, the terms of the
Company's Incentive Plan provide that options granted under such plan must be
exercised by the optionee only during the continuance of the optionee's
employment by the Company, other than in the case of an authorized retirement,
death or an acknowledged physical disability. See "Compensation of Executive
Officers -- Employee Stock Options." As a result, none of such options is
currently exercisable.
COMPENSATION REPORT ON EXECUTIVE COMPENSATION
The Company believes that employing and retaining highly qualified and high
performing executive officers is vital to the Company's achievement of its
long-term business goals. To this end, the Compensation Committee of the Board
of Directors has developed an executive compensation program which is designed
to attract and retain such officers.
The Compensation Committee retained the independent accounting firm of
Coopers & Lybrand to assist the Committee in this process and in developing the
Committee's philosophy and approach regarding executive compensation. The
Compensation Committee's resulting philosophy is to develop a systematic,
competitive executive compensation program which recognizes an executive
officer's position and responsibilities within the Company, takes into account
competitive compensation levels payable within the Company's industry by
similarly sized companies, and reflects both individual and Company performance.
The executive compensation program which has been developed is composed of
the following three elements: (i) a base salary, (ii) a performance-based annual
cash incentive, and (iii) a stock-based long-term incentive. Under this program,
short-term and long-term incentives are "at risk" and are based on performance.
BASE SALARIES
Base salary is the portion of an executive officer's total compensation
package which is payable for performing the specific duties and assuming the
specific responsibilities defining the executive's position with the Company.
The Compensation Committee's objective is to provide each executive officer a
base salary which is competitive at the desired level by reference to base
salaries payable to executives in corresponding positions with other
organizations in the Company's industry which are similar to the Company in size
and performance.
Coopers & Lybrand assisted the Committee in compiling data reflecting the
compensation practices of a broad range of such companies. Based on this data,
the Compensation Committee adopted a philosophy of
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paying its Chief Executive Officer a base salary which is competitive at
approximately the seventy-fifth percentile of these compensation survey data.
The Compensation Committee also adopted the philosophy of paying other executive
officers base salaries which are competitive at approximately the median of
these data. The Compensation Committee believes that establishing base salaries
at the foregoing levels, when coupled with the Company's short-term and
long-term incentive plans, will achieve its objective of attracting and
retaining highly successful and high performing executive officers.
SHORT-TERM ANNUAL CASH INCENTIVES
Coopers & Lybrand assisted the Compensation Committee in developing a
performance-based annual cash incentive plan covering the Company's executive
officers and top managers. The Compensation Committee's objectives in designing
the plan were to reward participants for accomplishing objectives which are
generally measurable and increase shareholder value. The Committee also
determined that award levels under the plan should be fiscally prudent and
competitive at the desired levels of compensation survey data.
Under the Company's annual incentive plan, the Compensation Committee is to
establish a "target" cash incentive award for each executive officer which is
payable for achieving highly challenging performance objectives. For the
Company's Chief Executive Officer, the Compensation Committee's philosophy is to
establish a target annual incentive award which is competitive at approximately
the seventy-fifth percentile of compensation survey data. The Compensation
Committee's philosophy for other executive officers is to establish target
annual cash awards which are competitive at approximately the median of such
data.
The Committee is also to establish specific performance objectives for the
Company's Chief Executive Officer for each year which are based on Company-level
performance criteria. The Company's Chief Executive Officer is to establish
individual performance objectives for other executive officers, subject to the
Compensation Committee's approval, which are based on Company, department and
individual performance criteria.
At the close of each fiscal year, the Compensation Committee is to evaluate
the performance of the Company's Chief Executive Officer and approve the Chief
Executive Officer's evaluation of the performance of all other plan participants
in achieving specific performance objectives. Based on this year-end evaluation,
the Compensation Committee is to determine the extent to which each officer's
target annual incentive is payable. The Committee believes that the incentive
awards paid to the Chief Executive Officer and other executive officers for 1995
reflect individual performance for the year in achieving plan objectives and are
fiscally prudent.
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LONG-TERM STOCK-BASED INCENTIVES
The Company maintains a stock option plan for officers and other employees.
The Committee's philosophy is to award stock options to selected plan
participants based on their levels within the Company and upon individual merit.
The Committee's philosophy is to grant stock options which are competitive
within the industry for other individuals at the employee's level and which
provide the employee a meaningful incentive to increase performance and focus on
achieving long-term increases in shareholder value. Other factors the Committee
considers in granting stock options include the employee's contributions toward
achieving the Company's long-term objectives, such as reserve replacements and
acquisitions, as well as the employee's contributions in achieving the Company's
short-term and long-term profitability targets.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Kent R. Hance, Sr.
John L. Kelsey
Alan C. Shapiro
Norman W. Smith
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PERFORMANCE GRAPH
The following performance graph compares the performance of both classes of
the Company's common stock to the Nasdaq indices of United States companies and
to a peer group composed of Nasdaq companies listed under the Standard
Industrial Classification Codes 1310-1319 for the Company's last five fiscal
years. These industrial codes include companies engaged in the oil and gas
business. The graph assumes that the value of an investment in the Company's
common stock and in each index was $100 at December 31, 1990, and that all
dividends were reinvested.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) BOXXA BOXXB NASDAQ U.S. NASDAQ O&G
--------------------- ----- ----- ----------- ----------
<S> <C> <C> <C> <C>
12/31/90(1) 100.00 100.00 100.00 100.00
12/31/91(1) 191.36 191.36 169.93 101.18
12/31/92 349.44 320.32 186.85 116.70
12/31/93 865.29 420.17 215.09 138.39
12/31/94 465.93 357.76 209.66 127.85
12/31/95 361.93 287.04 296.56 134.89
</TABLE>
- ---------------
(1) The closing price for depositary receipts for units of limited partnership
interest of the Predecessor Partnership as traded on the Pacific Stock
Exchange was used for purposes of this performance graph as the price of
both classes of Company's common stock for all periods prior to the
Corporate Conversion from the Predecessor Partnership on April 15, 1992.
28
<PAGE> 32
OTHER MATTERS
THE SOLICITATION
The cost of solicitation of proxies will be borne by the Company. Proxies
may be solicited by mail, advertisement, telephone and in person. Directors and
employees of the Company may, without additional compensation, make
solicitations through personal contact or by telephone or telecopy, and
arrangements may be made with brokerage houses or other custodians, nominees and
fiduciaries to send proxy material to their principals. The Company will
reimburse any such persons for their reasonable expenses.
AUDITORS
On September 23, 1996, the Company dismissed Coopers & Lybrand L.L.P. as
the Company's independent accountant and appointed Arthur Andersen LLP as the
Company's independent accountant for the remainder of fiscal year 1996 and for
fiscal year 1997, effective with such appointment. The change in independent
accountants was recommended by the Audit Committee of the Company's Board of
Directors and approved by the Board of Directors.
Coopers & Lybrand L.L.P.'s reports on the financial statements for the two
most recent fiscal years did not contain an adverse opinion, disclaimer of
opinion, qualification, or modification as to uncertainty, audit scope, or
accounting principles, except as set forth in the last four sentences of this
paragraph. Furthermore, during the two most recent fiscal years and the interim
period subsequent to December 31, 1995, there have not been any disagreements
with Coopers & Lybrand L.L.P. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Coopers & Lybrand L.L.P.,
would have caused that firm to make reference to the subject matter of such
disagreements in connection with its report. The Company wishes to point out,
however, that the report of Coopers & Lybrand L.L.P. included in the Company's
Annual Report to Stockholders for the year ended December 31, 1994, contained
the following additional statements: "As discussed in Note 1 to the financial
statements, the Company changed its method of accounting for marketable
securities in 1994. As discussed in Note 10 to the financial statements, the
Company is a defendant in a lawsuit brought by Phillips Petroleum Company. The
ultimate outcome of the litigation cannot presently be determined. Accordingly,
no provision for any liability that may result upon adjudication has been made
in the accompanying financial statements."
During the two most recent fiscal years and through September 23, 1996,
neither the Company nor anyone on its behalf has consulted with Arthur Andersen
LLP regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements.
Although representatives of Coopers & Lybrand L.L.P. are not expected to be
present at the Meeting, representatives of Arthur Andersen LLP are expected to
be present at the Meeting and will be available to respond to appropriate
questions. The representatives of Arthur Andersen LLP will have an opportunity
to make a statement if they desire to do so.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals for inclusion in the proxy materials and
consideration at the Company's 1997 annual meeting must be received by the
Company before December 1, 1996 in order to be considered for
29
<PAGE> 33
inclusion in the proxy materials of the Company for that meeting. Any such
proposal must comply in all respects with the rules and regulations of the
Securities and Exchange Commission.
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 A PROXY 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.
30
<PAGE> 34
BOX ENERGY CORPORATION
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Don D. Box, Alan C. Shapiro and J. Burke
Asher, or any of them with full power of substitution, proxy to vote all shares
of the Class A Common Stock of the Company held or owned by the undersigned on
October 7, 1996, at the Annual Meeting of Stockholders of Box Energy Corporation
(the "Company") to be held on November 9, 1996, at 9 a.m., central standard
time, and any adjournments or postponements thereof, hereby revoking any proxies
heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF THE DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS.
You are encouraged to specify your choices by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot vote
your shares unless you sign and return this card.
(TO BE SIGNED ON REVERSE SIDE.)
<PAGE> 35
- ------------------------------------------------------------------------------
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
- -------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors [ ] [ ]
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------
- -------------------------------------------------------
NOMINEES: Glen Adams
Bernay C. Box
Don D. Box
Daryl L. Buchanan
Thomas W. Rollins
Alan C. Shapiro
Richard D. Squires
2. In their discretion, the Proxies are authorized to vote as
described in the Proxy statement and upon such other business as
may properly come before the meeting or any adjournments or
postponements thereof.
SIGNATURE(S) _________________________________ DATE __________________, 1996
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as an attorney, executor, administrator, trustee or
guardian, please give full title as such.
