SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-11516
BOX ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2369148
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
8201 Preston Road, Suite 600, Dallas, Texas 75225-6211
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 890-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A (Voting) Common Stock, $1 Par Value Pacific Stock Exchange
Class B (Non-Voting) Common Stock, $1 Par Value Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A (Voting) Common Stock, $1 Par Value
(Title of Class)
Class B (Non-Voting) Common Stock, $1 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant on March 20, 1997 was $12,333,869. On that date, the number
of outstanding shares of Class A (Voting) Common Stock, $1 par value, was
3,250,110, and the number of outstanding shares of Class B (Non-Voting)
Common Stock, $1 par value, was 17,553,010.
Registrant's Registration Statement filed on Form S-2 effective
December 1, 1992 for its 8 1/4% Convertible Subordinated Notes is
incorporated by reference in Part IV of this Form 10-K.
<PAGE>
FORM 10-K
BOX ENERGY CORPORATION
TABLE OF CONTENTS
----------
Item No. Page
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
<PAGE>
PART I
ITEM 1. BUSINESS.
THE COMPANY
Box Energy Corporation (the "Company" or "BEC") is an independent
exploration and production company primarily engaged in the exploration for, and
the development and production of, oil and natural gas. The Company is a
Delaware corporation with executive offices located at 8201 Preston Road, Suite
600, Dallas, Texas 75225-6211 (telephone number 214/890-8000). The Company
employed 41 people on December 31, 1996. The Company was initially organized in
1981 as OKC Limited Partnership (the "Predecessor Partnership") until it
converted to a corporation on April 15, 1992 (the "Corporate Conversion").
BEC's common stock was exchanged for the assets and liabilities of the
Predecessor Partnership and then distributed to its partners and other
unitholders on a one-for-one basis. The Predecessor Partnership was then
dissolved.
The Company has two classes of stock, Class A Voting Common Stock ("Class A
Stock") and Class B Non-Voting Common Stock ("Class B Stock"). Both classes are
entitled to equal participation in earnings, dividends and liquidation proceeds.
Class A Stock has voting rights while the Class B Stock has no voting rights,
unless otherwise required by Delaware law. Class A Stock was distributed to
original limited partners of the Predecessor Partnership and Class B Stock was
distributed to all other unitholders of the Predecessor Partnership. Prior to
the Corporate Conversion, the Company had no significant assets, liabilities or
operations. Unless otherwise required by the context, the term "Company" or
"BEC" includes Box Energy Corporation and the Predecessor Partnership.
LONG-TERM BUSINESS STRATEGY
The Company is primarily engaged in one industry segment and one line of
business which is the exploration, development and production of oil and natural
gas reserves. Prior to the Corporate Conversion, the Company's oil and gas
activities, as the Predecessor Partnership, were limited to certain geographical
areas, mainly South Pass Blocks 86, 87 and 89. As a result the oil and gas
operations were concentrated in this area. The primary producing property was
South Pass Block 89. The Company's natural gas production from this block is
subject to a long-term gas sales contract containing prices substantially in
excess of current spot market prices. Likewise, the value of the natural gas
reserves from this block are significantly higher than comparable natural gas
reserves at market prices.
In 1992, the Company began to implement a long-term strategy designed to
maximize the natural gas revenue and cash flow from South Pass Block 89 and to
use the cash flow generated from this block to expand and diversify the oil and
natural gas reserve base. The focus of this strategy is to replace BEC's value
of the natural gas reserves from South Pass Block 89 and at the same time
increase overall shareholders' value. The long-term strategy was refined in 1995
to focus on exploration and acquisition activities in four "core areas" which
were selected because of their potential to provide high impact wells with
significant oil and natural gas reserves, ready access to markets and economical
drilling costs. The four core areas include the Gulf of Mexico (including the
Company's South Pass blocks), Mississippi/Alabama, West Texas/New Mexico, and
South Texas. Additional core areas, both domestic and international, may be
selected in the future.
The Company employs 13 for operational, technical and support staff that
conduct independent evaluations of the exploration and development activities of
the South Pass blocks and other oil and gas projects in the core areas. In
addition, BEC owns four 3-D workstations and utilizes this technology to
generate oil and gas prospects in its core areas and review outside generated
oil and gas prospects which are available for acquisition, farm-in or working
interest participation. Drilling prospects reviewed are both exploratory and
developmental. The capital used to invest in oil and gas projects is primarily
from cash flow from operations. The Company has also accumulated cash and,
pending future projects or acquisitions, has invested it in marketable
securities.
COMPETITION
The Company faces competition from large integrated oil and gas companies,
independent exploration and production companies, private individuals and
sponsored drilling programs. The Company competes for operational, technical and
support staff, options or leases on prospective oil and natural gas properties
and sales of products from developed properties. Many of the Company's
competitors have significantly more financial, personnel and other resources
available and some of the larger integrated companies may be better able to
respond to industry changes including price fluctuations, oil and gas demands
and governmental regulations.
MARKETS
The Company presently sells its oil production based upon a market price
for crude oil as posted from day to day by major purchasers. The applicable
posted price is modified for crude oil quality, refined product yields,
geographical proximity to refineries and availability of transportation
facilities. In addition, because the BEC is able to deliver large quantities of
oil from certain areas, the Company negotiates a premium over the posted prices
which may not be available to smaller producers for crude oil delivered in
certain market areas. Oil prices fluctuate significantly over time because of
changes in supply and demand, changes in refinery utilization, levels of
economic activity throughout the country, and political developments.
The Company's oil production from its South Pass blocks is transported at a
cost of $2.75 per barrel by a pipeline operated by Marathon Pipe Line Company. A
minority interest in the pipeline is owned by a subsidiary of Box Brothers
Holding Company ("BBHC") and has been the subject of litigation involving the
Company. See Item 3. "Legal Proceedings" and Item 13. "Certain Relationships
and Related Transactions."
The Company sells its natural gas production from South Pass Block 89 under
a 20-year gas sales contract with Texas Eastern Corporation ("Texas Eastern")
that was originally entered into on July 15, 1982, and expires on July 15, 2002.
In November 1990, the Company settled litigation regarding the contract that was
instituted by Texas Eastern in 1989. In the court-approved settlement, among
other things, the parties acknowledged that the contract remained in effect, and
Texas Eastern paid the Company $69.6 million to settle the issues involved in
the litigation. In addition, the future prices to be paid for natural gas under
the contract were reduced to the prices discussed below. Such redetermined
prices remain significantly in excess of current market prices for natural gas
and are expected to increase further under the annual escalation provisions of
the contract.
For its natural gas production in January 1997, the Company received
natural gas prices under the Texas Eastern contract of $11.25 per Mcf for wells
in the southern portion of South Pass Block 89 and $6.18 per Mcf for wells in
the northern portion of South Pass Block 89, including in both cases the
adjustment anticipated for the Btu content of the natural gas. Effective January
1 of each year until the termination of the gas contract, the contract provides
for a 10% annual price increase for each of these prices.
Texas Eastern's purchase obligation under the Company's gas sales contract,
as modified by the 1990 settlement, will cease as to natural gas production from
the northern portion of South Pass Block 89 when Texas Eastern has purchased a
net total of 15.0 billion cubic feet ("Bcf") of natural gas from the Company
from that area. Through 1996, net natural gas production of the Company from the
northern portion of the block in the amount of 4.6 Bcf has been sold under this
contract. No such restriction applies to gas produced from the southern portion
of the block. However, the gas sales contract does not apply to any production
from either portion from sands which lie beneath the U-sand horizon. The
contract also provides that Texas Eastern will not be required to purchase any
gas that does not meet the quality specifications for gas as described in the
contract.
Subject to the other provisions of the contract, Texas Eastern is required
by the contract to take and pay for 100% of the casinghead gas produced from the
block. Until December 1993, all of the natural gas production from the block had
been casinghead gas (i.e., gas produced from "oil wells", as distinguished from
gas produced from a "gas well"). Since that time, a significant portion of the
Company's gas production has been from gas wells. Once oil has been
substantially depleted from the oil wells, the oil wells may be reclassified or
recompleted as gas wells. Texas Eastern is obligated to take or pay for 80% of
the Company's delivery capacity (i.e., the maximum efficient flow rate based on
periodic field deliverability tests) of gas well gas. Texas Eastern may defer
the taking of (but may not defer its obligation to pay for) up to 40% of the
Company's delivery capacity of gas well gas for up to five years (but not beyond
the term of the contract). Any such deferred takes for which payment has already
been made shall be subject to all price increases under the contract at the time
it is later taken.
The gas sales contract expressly provides that Texas Eastern assumes any
and all regulatory risks associated with the performance of the contract and
waives any right to assert that it is not obligated to perform under the
contract by reason of economic, governmental or regulatory conditions or
changes, including action by a regulatory agency such as the Federal Energy
Regulatory Commission ("FERC"). All of the obligations of Texas Eastern under
the contract are guaranteed by PanEnergy Corporation, the parent holding company
of Texas Eastern and two other major interstate pipeline companies, pursuant to
a guarantee that provides, among other things, that the guarantee is enforceable
regardless of any law or regulation that might impair or prohibit performance of
the contract by Texas Eastern.
The amount by which the Texas Eastern contract prices will exceed market
prices in the future cannot be predicted. In addition, regulatory initiatives
over the past several years (most recently, FERC's Order 636-B in November
1992), have sought to redefine the role played by interstate pipeline companies
and have created a time of rapid and substantial change and uncertainty in the
pipeline industry. These conditions will continue to affect the operations, and
potentially the financial condition, of many pipeline companies in a significant
manner. See "Governmental Regulation." These changes began prior to the Texas
Eastern settlement in November 1990, and the Company believes that the parties
anticipated such future uncertainties in the settlement and allocated to Texas
Eastern the economic and regulatory risks associated with, among other things,
the current pipeline industry restructuring.
The Company sells its natural gas production from wells not located in
South Pass Block 89 at the current market price for gas in the month of sale.
The market price for natural gas production fluctuates significantly. The
Company received an average price of $2.57 per thousand cubic feet ("Mcf") for
its non-contract natural gas production in 1996, including the proceeds received
from the sale of processed liquids therefrom. The price at which the Company's
natural gas may be sold will continue to be affected by a number of factors,
including the price of alternate fuels such as oil and coal and competition
among various natural gas producers and marketers.
MAJOR CUSTOMERS
The Company's most significant customers during 1996 were BayOil (USA),
Inc. and Texas Eastern, whose purchases represented 18% and 51%, respectively,
of the Company's total oil and gas revenues. Marathon Oil Company ("Marathon")
purchased the Company's oil production from its South Pass blocks, accounting
for 25% and 18% of the Company's total oil and gas revenues during 1995 and
1994, respectively. Texas Eastern's payments for the Company's natural gas
production from South Pass Block 89 accounted for 70% and 63% of the Company's
total oil and gas revenues during 1995 and 1994, respectively.
RISK OF COMPANY OPERATIONS
Oil and gas drilling and production operations involve a high degree of
risk. Unprofitable efforts may result not only from dry holes but also from
marginally productive wells that do not produce oil or gas in sufficient
quantities to return a profit on the amounts expended. The Company is largely
dependent upon production from wells in the South Pass area and upon the
continued performance by the natural gas purchaser under the Company's long-term
gas sales contract covering South Pass Block 89. The loss of one well or such
contract could cause a material decline in revenues, cash flow and
profitability. Additionally, the utilization of 3-D seismic data to identify and
define the parameters of drilling prospects may be unprofitable in those
situations where the interpretation of the data determines that a prospect
should not be drilled or indicates that a prospect should be drilled which later
proves to be unproductive. Further, the success of the Company's operations
depends, in part, upon the ability and continued employment of its management
and technical personnel. Accordingly, there is no assurance that the Company's
oil and gas drilling or acquisition activities will be successful, that
significant additional production will be obtained, that any such production, if
obtained, will be profitable, or that the Company's management and technical
personnel will make correct decisions or continue to be employed.
The Company's operations are subject to all of the operating hazards and
risks normally incident to drilling for and producing oil and gas, such as title
risks, exploration risks, geophysical interpretation risks and risks of
encountering unusual or unexpected formations and pressures, blowouts,
environmental pollution and personal injury. The Company maintains general
liability insurance and obtains insurance against blowouts, redrilling expenses
and certain other operating hazards, including certain pollution risks. If the
Company sustains an uninsured loss or liability, or if the amount of loss
exceeds the limits of its insurance, its financial condition may be materially
adversely
affected.
GOVERNMENTAL REGULATION
Regulation of Oil and Gas Operations
Domestic exploration for, and production and sale of, oil and gas are
regulated at both the national and local levels. Legislation and regulations
affecting the oil and gas industry are under constant review for amendment or
expansion, frequently increasing the burden of compliance. Also, numerous
departments and agencies, both federal and state, are authorized by statute to
issue and have issued rules and regulations binding on the oil and gas industry
which may be difficult and costly to comply with and which carry substantial
penalties for the failure to comply. The regulatory burden upon the oil and gas
industry increases its costs of doing business and consequently affects its
profitability. The Company's operations are affected by various political
developments, federal and state laws, and regulations. In particular, oil and
gas production, operations and economics are affected by price controls,
production allowables, tax and other laws relating to the petroleum industry, by
changes in such laws and by changing administrative regulations and the
interpretation and application of such rules and regulations.
State Regulation
Oil and gas operations are subject to a wide variety of state regulations.
Administrative agencies in such jurisdictions may promulgate and enforce rules
and regulations relating to virtually all aspects of the oil and gas business.
Many states require permits for drilling operations, drilling bonds and reports
concerning operations and impose other requirements relating to the exploration
for and production of oil and gas. Such states also have statutes or regulations
addressing conservation matters, including provisions for the unitization or
pooling of oil and gas properties, the establishment of maximum rates of
production from oil and gas wells and the regulation of spacing, plugging and
abandonment of such wells. The statutes and regulations of many states limit the
rate at which oil and gas can be produced from oil and gas wells.
Environmental Regulation
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, affect the Company's operations and costs as a
result of their effect on oil and gas exploration, development and production
operations. At present, substantially all the Company's production of oil,
condensate and gas is in federal waters or states having conservation laws and
regulations. It is not anticipated that the Company will be required in the near
future to expend amounts that are material in relation to its total capital
expenditure program by reason of environmental laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance. The Company is unable to
control the operations of wells for which it does not act as operator.
Notwithstanding the Company's lack of control over wells operated by others, the
failure of the operator to comply with applicable environmental regulations may,
in certain circumstances, be attributed to the Company.
The oil and gas industry may experience increasing liabilities and risks
under the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, as well as other federal, state and local environmental
laws, as a result of increased enforcement of environmental laws by various
regulatory agencies. As an "owner" or "operator" of property where hazardous
materials may exist or be present, the Company, like all others engaged in the
petroleum industry, could be liable for fines and/or "clean-up" costs,
regardless of whether the Company was responsible for the release of any
hazardous substances. Although the Company has not been subject to the
imposition of "clean-up" orders by the government, the potential for sudden and
unpredictable liability attributable to environmental problems is a
consideration of increasing importance to the Company and the petroleum industry
as a whole.
Because the Company is engaged in the exploration and development of
natural resources, it is subject to various federal, state and local provisions
regarding environmental and ecological matters. Regulations covering the
discharge of materials into the environment, the financial responsibility
requirements for companies owning an interest in an offshore oil and gas lease
or facility as defined under the Oil Pollution Act of 1990, or otherwise
relating to the protection of the environment, may affect the Company's
operations and costs as a result of their effect on oil and gas exploration,
development and production operations. No assurance can be given that the
Company will be able to comply with the financial responsibility requirements of
the Oil Pollution Act of 1990 or that other governmental laws or regulations
will not limit the scope or profitability of the Company's business. Capital
expenditures relating to environmental control facilities are incurred in the
operations of the Company, but were not material to the Company's operations in
1996 nor are they anticipated to be material in 1997.
OTHER BUSINESS CONDITIONS
Except for its oil and gas leases with third parties, the Company has no
material patents, licenses, franchises or concessions which it considers
significant to its oil and gas operations. The nature of the Company's business
is such that it does not maintain or require a "backlog" of products, customer
orders, or inventory. The Company has not been a party to any bankruptcy,
reorganization, adjustment or similar proceeding.
Generally, the Company's business activities are not seasonal in nature.
However, weather conditions affect the demand for natural gas and can hinder
drilling activities. Demand for natural gas is typically higher during winter
months.
RECENT DEVELOPMENTS
Box Brothers Holding Company ("BBHC"), a Delaware corporation, is the
record and beneficial holder of approximately 57% of the outstanding Class A
Stock of the Company. A majority equity interest in BBHC is owned by the four
Box brothers, Don D. Box, Thomas D. Box, Gary D. Box and Douglas D. Box. In
April 1995, Thomas D. Box, then President and Chief Executive Officer of BEC
filed a lawsuit in the Delaware Chancery Court alleging that he was
the holder of the only outstanding voting stock of BBHC and seeking
confirmation of action taken by him by written consent in removing and electing
directors of BBHC. In February 1996, the court ruled that BBHC had no
outstanding voting stock and that all four brothers were directors of BBHC. A
few days after that ruling, BBHC issued equal numbers of shares of its voting
stock to three irrevocable trusts established for the benefit of Don D. Box,
Gary D. Box and Douglas D. Box. Don D. Box, Gary D. Box and Douglas D. Box
serve as trustees for each of the trusts, and they are currently executive
officers of BBHC. Don D. Box and Douglas D. Box are currently directors of
BBHC.
In June 1996, BBHC executed and delivered to the Company, a written consent
pursuant to Section 228 of the Delaware General Corporation Law (the "BBHC
Consent") that (i) amended the Company's By-Laws to permit the removal of
directors without cause, (ii) removed all the then current directors except Don
D. Box and Alan C. Shapiro, (iii) fixed the number of the directors of the
Company at seven, and (iv) elected Glen Adams, Daryl L. Buchanan, Richard D.
Squires, Thomas D. Rollins, and Bernay C. Box to serve as directors of the
Company with Don D. Box and Alan C. Shapiro. The effective date of the BBHC
Consent was July 30, 1996. Subsequent to the delivery of the BBHC Consent,
two additional written consents to the same effect were delivered to the Company
by two record and beneficial holders of approximately another 23% of the
Company's Class A Common Stock.
After the BBHC Consent became effective the following officers were
either removed by the Board of Directors or resigned: President and Chief
Executive Officer Thomas D. Box, Executive Vice President Craig T. Scott,
Vice President and Chief Financial Officer Jill M. Killam, Secretary and General
Counsel W. Jefferson Burnett, and Vice President and Chief Accounting
Officer M. Carlisle Barker . Don D. Box was elected by the Board of Directors
to serve as President and Chief Executive Officer. In addition, the Board of
Directors elected J. Burke Asher to the positions of Secretary and Chief
Accounting Officer. In January 1997, Glen Adams and Daryl L. Buchanan resigned
from the Board of Directors of the Company. Mr. Adams cited other increased
obligations, and Mr. Buchanan cited personal reasons.
On March 2, 1997 and March 6, 1997 BBHC and Box Control, LLC ("BCLC") and
others filed Schedule 13Ds disclosing that on February 26, 1997, the Gary D. Box
1996 Trust ("GDBT") and the Don D. Box 1996 Trust ("DDBT") each contributed 11
shares of voting stock of BBHC representing all of their voting stock in BBHC
to BCLC in exchange for non-voting interests in BCLC. On the same date Don D.
Box contributed three non-voting shares of BBHC common stock to BCLC in exchange
for the sole voting membership interest in BCLC. On March 3, 1997, BCLC
executed a Written Consent (the "BCLC Consent"), in its capacity as the majority
shareholder of BBHC, to remove the Board of Directors of BBHC and replace it
with a new Board. On March 4, 1997, Don D. Box and BCLC filed an action in the
Court of Chancery of the State of Delaware, under 8 Del C. Sec. 225, asking the
Court to declare the BCLC Consent valid and enforceable and to declare that the
old Board of BBHC had been removed and replaced by the new Board (the "Delaware
Action"). On March 27, 1997, Douglas D. Box filed an answer in the Delaware
Action contesting the effectiveness of the actions taken by Don D. Box, Gary D.
Box and BCLC.
On March 4, 1997, Douglas D. Box filed an action in Dallas County, Texas,
styled Douglas D. Box, individually and as next friend of Alisa D. Box, a minor,
and settlor and co-trustee of The Douglas D. Box 1996 Trust, The Gary D. Box
1996 Trust and The Don D. Box 1996 Trust v. Don D. Box and Gary D. Box,
individually and as Trustees of The Don D. Box 1996 Trust, The Gary D. Box 1996
Trust and The Douglas D.Box 1996 Trust, and Steven J. Craig, J. Burke Asher,
Patricia Arvin and BCLC, alleging that Don D. Box and Gary D. Box had breached
various fiduciary duties, requesting that they be removed as the trustees from
certain trusts, asking for the appointment of a receiver for BBHC, and
requesting an order restraining Don D. Box and others from taking various
actions with regard to BBHC (the "Texas Action"). The application for
temporary restraining order was denied at a hearing held on March 7, 1997. On
March 20, 1995, the defendants in the Texas Action filed their answers, and
Don D. Box filed a counterclaim against Douglas D. Box for attorneys' fees. On
March 21, 1997, Douglas D. Box filed a Motion for Nonsuit requesting that the
Texas Action be dismissed without prejudice.
ITEM 2. PROPERTIES.
OIL AND GAS PROPERTIES
Certain of the information, required by this Item is incorporated herein by
reference from Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations", Item 8. "Financial Statements and
Supplementary Data" and Note 10. of Notes to Financial Statements. The following
table presents a summary of the significant active oil and gas properties of the
Company by core area. A more detailed discussion of certain properties in the
core areas follows this table.
<TABLE>
<CAPTION>
Net Reserves at
December 31, 1996
Acreage Average Interest Oil Gas
Location Gross Net Working Revenue MBbls MMcf
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gulf of Mexico
South Pass Block 89 5,000 1,250 25% 21% 1,318 15,601
South Pass Block 86 5,000 1,250 25% 21% 288 3,889
South Pass Block 87 3,540 1,168 33% 27% 832 13,858
West Delta Block 128 <F1> 20% 17% 116 857
Main Pass Block 262 4,995 1,648 33% 28% - 2,134
Eugene Island Block 135 5,000 750 15% 13% 50 1,788
Vermillion Block 194 5,000 1,250 25% 21% Undeveloped
Ship Shoal Block 309 5,000 2,500 50% 42% Undeveloped
Ship Shoal Block 116 4,891 1,614 33% 28% Undeveloped
South Timbalier Block 214 5,000 2,500 50% 42% Undeveloped
South Timbalier Block 247 5,000 1,650 33% 28% Undeveloped
South Timbalier Block 279 5,000 5,000 100% 83% Undeveloped
Other Undeveloped 9,995 7,495 75% 62% Undeveloped
Mississippi/Alabama
Indian Wells Field 840 781 93% 74% 255 -
Moselle Dome Field 2,772 1,194 76% 58% 323 56
Hub Field 2,105 1,110 74% 54% - 358
County Line Dome Prospect 2,121 1,077 92% 75% Undeveloped
Other Developed 160 81 Various 23 -
Other Undeveloped 19,180 8,389 Various Undeveloped
West Texas/New Mexico
SW Bronco Field 1,320 462 35% 27% 74 94
Other Developed 161 32 20% 15% 13 19
Other Undeveloped 13,767 5,688 Various Undeveloped
South Texas
Berclair Field 12,763 1,787 14% 11% 5 521
North Hinde Field 953 238 25% 19% 2 157
Other Undeveloped 24,909 4,813 Various Undeveloped
---------------- -----------------
Total 144,472 53,727 3,299 39,332
================ =================
<FN>
<F1>
Box Energy Corporation owns a working interest in one well drilled from South Pass Block
87, Platform "D" into West Delta Block 128.
</FN>
</TABLE>
GULF OF MEXICO
Oil and natural gas reserves totaling 2.6 million barrels of oil ("MMBbls")
and 38.1 Bcf of gas in the Gulf of Mexico represent approximately 79% and 97% of
BEC's total net oil and natural gas reserves, respectively. Since 1994, the
Company has expanded its presence in the Gulf of Mexico away from the South Pass
area by participating in the last three offshore Gulf of Mexico Minerals
Management Service ("MMS") lease sales. The Company has purchased seismic data
covering over 300 blocks in the Gulf of Mexico. Such data cover over 1.5 million
acres. The Company also trades portions of its working interest in acquired
blocks for similar interests in other blocks. Although many of the blocks
acquired to date are yet undrilled, the Company will continue its efforts to
maintain a prospect inventory of Gulf of Mexico properties.
South Pass Area
The Company's South Pass properties, South Pass Blocks 86, 87 and 89, as
well as one well in West Delta Block 128, are characterized by complex geology,
including multiple oil and gas reservoirs. Currently the Company's most valuable
properties, South Pass Properties accounted for over 87% of the Company's total
revenues in 1996. In addition, approximately 90% of the before-tax present value
of the Company's estimated future net cash flows from proved reserves
(discounted at 10% per annum) at December 31, 1996 is derived from these
properties. The Company's wells in the four blocks have typically been drilled
with significant directional deviation to total vertical depths ranging from
8,400 to 18,500 feet. The gross completed well cost of the deeper U-sand wells
sometimes exceeds $10.0 million per well due to the complex geological nature of
the area.
South Pass Block 89
The Company acquired its interest in South Pass Block 89 from Aminoil USA,
Inc. in 1977 and initially participated in the drilling of wells in the area
near Platform "A". Platform "A" was shut-in due to uneconomical production rates
in 1988 and the production deck was sold in 1995. Platform "B" was installed in
1981 and since that time has produced 47.8 MMBbls (10.0 MMBbls net to BEC) of
oil, and 167.2 Bcf (34.8 Bcf net to BEC) of natural gas from the U-sand and
shallow sands. Platform "B" wells drilled to the U-sand encountered a thick,
porous sand interval with a nearly vertical orientation. As a result, the wells
have produced very efficiently through a combination of a water drive, a gas cap
expansion and gravity drainage. Of the thirteen wells producing at December 31,
1996 from Platform "B" in South Pass Block 89, two wells were producing in the
U-sand, seven wells were producing in the T-sand and four wells were producing
in the CP/8, R-1 and Lentic sands.
Two wells completed from Platform "C", which is physically located in South
Pass Block 86, into the northern portion of South Pass Block 89 are currently
producing from the U-sand in a fault block separate from the fault block in
which the Platform "B" wells are producing. Production from this platform began
in 1992 and has produced 4.5 MMBbls, (930,000 barrels ("Bbls") net to BEC) and
22.2 Bcf, (4.6 Bcf net to BEC) from the northern portion of South Pass Block 89.
The Company may drill additional South Pass Block 89 wells from Platform "C" in
the future; however, the platform drilling rig was demobilized in 1994.
The Company's natural gas production through July 15, 2002 from South Pass
Block 89 is subject to a long-term gas sales contract with Texas Eastern. See
Item 1. "Business - Markets."
The Company began production of the gas cap reserves in the U-1/1 reservoir
in December 1993 from Well B-20S. A second gas well, Well B-13S, was drilled
during 1994, and production commenced in October 1994. After experiencing
mechanical problems at the end of the first quarter of 1995, Well B-13S was
recompleted in September 1995 in a lower portion of the T-sands and is still
classified as a gas well. A third gas well, Well B-11S, was drilled in the
summer of 1995, and production commenced in September 1995. In March 1996, Well
B-11S, began producing high levels of sand. As a result, the well was shut-in
and production curtailed. Attempts to recomplete this well during the second and
third quarters of 1996 were unsuccessful. In December 1996, the Company began to
side track Well B-12 to the U-sand reservoir. The operator encountered
difficulties during drilling and operations have ceased. The Company is
evaluating drilling a new side track from this wellbore in the second or third
quarter of 1997. The most recent five-day production test of the Company's gas
wells was conducted in February 1997, when the three gas wells produced at a
combined gross rate of 28.9 million cubic feet of gas per day ("MMcfgd") (or 6.0
MMcfgd, net to BEC).
The Company pays a Net Profits Interest ("NPI") to Phillips Petroleum
Company pursuant to a farmout agreement regarding the Company's working interest
in the oil and natural gas lease covering South Pass Block 89. NPI is calculated
as 33% of the Company's "net profits" from the subject lease as defined in the
farmout agreement. BEC and Phillips Petroleum Company are currently involved in
litigation concerning the calculation of the NPI. See Item 3. "Legal
Proceedings."
South Pass Block 86
Five wells have been completed from Platform "C" in the southern portion of
South Pass Block 86 and four are currently producing oil and natural gas from
the U-sands. Three of these wells are producing from the same fault block as the
wells drilled from Platform "C" into South Pass Block 89. In addition,
production from Well C-8 has been suspended pending depletion of the oil-bearing
portion of the U-sand in this fault block, which is currently projected for the
year 2000. The C-8 well was tied back and completed to Platform "C" in 1993 and
is now produced for very short intervals to monitor bottom hole pressures from
the reservoir. All South Pass Block 86 Platform "C" wells are productive from
the U-sand, and total production from 1992 to the end of 1996 was 3.1 MMBbls
(637,000 Bbls net to BEC) of oil, and 12.7 Bcf (2.6 Bcf net to BEC) of natural
gas from these wells.
South Pass Block 87 and West Delta Block 128
To date, the Company and the other working interest owners have jointly
drilled six wells in South Pass Block 87 and West Delta Block 128. The initial
well drilled encountered an estimated 37 feet of net gas and condensate pay
before being plugged and abandoned due to mechanical problems. Five other wells
were then successfully drilled in the area prior to the fabrication and
installation of Platform "D". Platform "D", a four-pile, 12-slot platform
capable of concurrent drilling and production operations, is located in South
Pass Block 87 and commenced production in June 1995. Production from Platform
"D" comes from four wells producing from the U-sand. Total cumulative production
from Platform"D" at December 31, 1996 was 2.9 MMBbls, (713,000 Bbls net to BEC)
and 14.1 Bcf, (3.6 Bcf net to BEC).
Main Pass Block 262
Main Pass Block 262 is located in 288 feet of water offshore, Louisiana.
Two wells, Wells A-1 and A-2, were horizontally drilled in the Buliminella-1
sands in 1995. Subsequently, Platform "A", a four-pile platform capable of
concurrent drilling and production operations, was installed in March 1996. A
third well, the Subsea #1 (formerly called Main Pass #3), was drilled and
completed in late 1996 and tied back to the platform in February 1997. Well A-1
currently produces 5.1 million cubic feet of gas per day ("MMcfgd") (1.4 MMcfgd
net to BEC). This platform produced 3.8 Bcf (1.1 Bcf net to BEC) of natural gas
in 1996. The Subsea #1 well is currently producing 16.6 MMcfgd, (4.6 MMcfgd net
to BEC).
Eugene Island Block 135
The Company acquired its 15% working interest in Eugene Island Block 135 in
1995. The initial discovery well on Eugene Island Block 135 was drilled in the
fourth quarter of 1996. A second exploratory well is planned to begin drilling
in April 1997 and a platform is currently being constructed for installation in
the third or fourth quarter of 1997. The development plans include three wells
initially with the potential for additional development wells. During the 1997
Outer Continental Shelf Central Gulf of Mexico Lease Sale, in an effort to
possibly extend the discovery, the Company along with two other bidding partners
submitted the highest bids on Eugene Island Blocks 153 and 154 which are
contiguous blocks to the south of Eugene Island Block 135. The bids are pending
award after review by the MMS.
Other Activities and Properties
Depending upon rig availability, the Company expects to drill exploration
wells on South Timbalier Blocks 214, 247 and 279 during 1997. One exploratory
well, which did not find commercial oil and natural gas reserves was drilled on
South Timbalier Block 214 in 1997, however, two additional prospects remain to
be drilled on this block. The timing for exploration drilling on the remaining
offshore blocks is pending further evaluation and awaiting joint venture
partners. In addition to the two blocks in Eugene Island, the Company submitted
the highest bids on four additional blocks during the 1997 Outer Continental
Shelf Central Gulf of Mexico Lease Sale in March 1997. The awarding of these
blocks is also pending a review by the MMS.
MISSISSIPPI/ALABAMA
The Company's strategy for the Mississippi/Alabama area is to utilize the
Company's existing 2,700 miles of 2-D data supplemented with additional new 2-D
data and subsurface geology to identify relatively low risk prospects and higher
potential salt related prospects. The Company will purchase or shoot 3-D seismic
data on certain prospects to target locations, minimize drilling risk, and
reduce development costs, as appropriate. BEC typically retains a large working
interest in these projects and uses an unrelated local oil and gas exploration
and production company to operate in this area.
Indian Wells Field
The Indian Wells Field located in Jasper County, Mississippi was discovered
in January 1996 by the Box-Davis 35-1 Well. Three additional wells have been
drilled in 1996 and early 1997, two of which did not find commercial oil and gas
reserves. An additional well may be drilled in 1997 to further delineate the
reservoir. Gross production from this field in December 1996 was 237 barrels of
oil per day ("BOPD").
Moselle Dome Field
This field is characterized by a large sub-surface salt dome located in
Jones County, Mississippi. The Company drilled the Gladdis Knight #1 well in
late 1996 and completed the well during the first quarter of 1997. The well
encountered multiple sands and pay zones and was recently tested in the Hosston
sand at 312 BOPD. The Company is currently drilling one development well and
plans additional wells to develop and extend the oil reservoirs.
Other Activities and Properties
The Company holds leases covering 2,121 gross acres on the County Line Dome
prospect. This prospect is a sub-surface salt dome with a potential for multiple
sands much like the Moselle Dome Prospect. BEC is also acquiring leases on one
additional dome as well as leases covering a structure between salt domes. In
addition to the salt dome prospects, the Company expects to drill three
prospects that are offsetting existing production or shows.
WEST TEXAS/NEW MEXICO
The Company identifies prospects in the West Texas/New Mexico area using 3-
D seismic data in areas of established shallow production looking for deeper
potential. The wells drilled in the area are typically wildcat exploration
wells.
SW Bronco Field
The Lowe "20" No. 1 Well was drilled and completed in October 1995 as a
Wolfcamp discovery well for the SW Bronco Field in Lea County, New Mexico. The
well was drilled after analyzing an 8 square mile 3-D seismic survey. In
addition, a development well, the Lowe "20" No. 2 Well, was drilled as a
successful well in the first quarter of 1996. Gross production from this field
in December 1996 was 120 BOPD and 200 Mcfgd. One additional development well may
be drilled later to further delineate this field.
Other Activities and Properties
The same 3-D seismic survey involved in the discovery of the SW Bronco
Field appears to identify another possible Wolfcamp drilling prospect in Lea
County, New Mexico. In addition, the Company has at least one exploration well
to drill on the Whopper South 3-D survey in Reagan County, Texas. The Company
has a 20% working interest in this survey. The Company also has a 60% working
interest in the Fortune 3-D survey in Yoakum County, Texas and has plans to
drill two additional exploratory wells on this survey in 1997.
SOUTH TEXAS
The Company uses 3-D seismic data to target deeper potential zones in
existing trends. BEC has generated prospects in this area, participated in
several 3-D seismic shoots and entered into its second year of a strategic
alliance with an established oil and gas exploration company in which the
Company has an option to take 25% of any prospect generated by the joint venture
partner.
Berclair Field
In 1996, the Company completed a 43 square mile 3-D seismic survey in
Goliad County, Texas along the same trend as some recent natural gas
discoveries. The Company then drilled 4 shallow wells that targeted the
Vicksburg formation and one deep well, the Dieble #1, that was completed in
the Wilcox formation. The Company expects to drill two additional exploration
wells into the deeper Wilcox formations in this area.
North Hinde Field
The Echols #1 was drilled based on the interpretation of a 12 square mile
3-D seismic survey and completed in the Vicksburg formation. The Field is
located in Starr County, Texas.
Other Activities and Properties
The Company has purchased a 3-D seismic survey on the South Linn drilling
prospect that will target Vicksburg sands at 15,000 feet in Hidalgo County. BEC
owns 100% of this prospect and anticipates adding industry partners to drill
this prospect in late 1997. The Company is participating with a 30% working
interest in a 47 square mile 3-D survey on the Cologne project located in
Victoria and Goliad Counties, Texas. The Cologne project will target shallow
Miocene, Catahoula and Frio formations with deeper potential in the Yegua and
Wilcox formations. In addition, BEC will participate with a 20% to 25% working
interest in three projects generated by its alliance partnership in the South
Texas area, the Black Diamond, Riverside and Tartan.
PRODUCING WELLS
The following table presents a summary of the gross and net producing wells
by core area for the years ended December 31, 1996, 1995 and 1994. Productive
wells are producing wells and wells capable of production but do not include
wells awaiting completion or the installation of a platform. Gross wells refer
to the total producing wells in which the Company owns an interest. Net wells
represent the gross wells multiplied by the Company's working interest
percentage.
1996 1995 1994
Location Gross Net Gross Net Gross Net
- -------------------------------------------------------------------------
Oil Wells
Gulf of Mexico 18 4.61 25 6.28 23 5.75
Mississippi/Alabama 5 3.53 2 1.00 - -
West Texas/New Mexico 3 .81 1 0.31 - -
South Texas 2 .21 - - - -
------------------------------------------------
Total 28 9.16 28 7.59 23 5.75
Gas Wells
Gulf of Mexico 9 2.57 4 1.16 2 .50
Mississippi/Alabama - - - - - -
West Texas/New Mexico - - - - - -
South Texas 3 .53 - - - -
------------------------------------------------
Total 12 3.10 4 1.16 2 .50
DRILLING ACTIVITIES
The Company's strategy has been to aggressively drill exploratory wells in
order to replace production from South Pass Block 89. The following is a summary
of the Company's exploration and development drilling activities for the past
three years by core area:
<TABLE>
<CAPTION>
1996 1995 1994
Location Gross Net Gross Net Gross Net
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Prod. Dry Prod. Dry Prod. Dry Prod. Dry Prod. Dry Prod. Dry
Gulf of Mexico 4 4 1.15 1.15 1 1 .25 .33 1 2 .20 .57
Mississippi/
Alabama 2 8 1.65 5.81 1 1 .52 .25 - - - -
West Texas/
New Mexico 2 4 .50 1.72 1 1 .30 .35 - 3 - 1.45
South Texas 4 5 .60 1.87 1 4 .47 1.56 - - - -
----------------------------------------------------------------------
Total 12 21 3.90 10.55 4 7 1.54 2.49 1 5 .20 2.02
Development
Gulf of Mexico - - - - 1 - .33 - 2 - .50 -
Mississippi/
Alabama 1 2 .94 1.87 2 - .89 - - - - -
West Texas/
New Mexico - - - - - - - - - - - -
South Texas - - - - - - - - - - - -
----------------------------------------------------------------------
Total 1 2 .94 1.87 3 - 1.22 - 2 - .50 -
</TABLE>
At December 31, 1996 the Company had an interest in three (1.35, net to
BEC) exploratory wells and one (0.14, net to BEC) development well in progress.
OPERATING AGREEMENTS
The Company typically owns its interests in oil and gas properties subject
to joint operating agreements naming another company as operator of the property
and granting the operator a lien on the Company's interests to secure payment of
the Company's share of expenses. Being a non-operator is advantageous to the
Company by not requiring the Company to employ an operational staff, but is
disadvantageous in that the Company forgoes certain control over the property as
a non-operator.
TITLE TO PROPERTIES
The Company's oil and gas properties are subject to customary royalty
interests, liens incident to operating agreements and liens for other burdens,
including other mineral encumbrances and restrictions. The Company does not
believe that any of these burdens materially interferes with the use of such
properties in the operation of its business. A thorough examination of title has
been performed with respect to the Company's producing properties, and the
Company believes that it is vested with satisfactory title to such properties.
With respect to any future acquisitions of undeveloped properties, preliminary
investigation of title will be made at the time of acquisition. As is customary
in the oil and gas industry, title investigation is made and title opinions of
local counsel are generally obtained only before commencement of drilling
operations.
NON-OIL AND GAS PROPERTIES
On December 31, 1996, the Company owned approximately 8,500 acres in
several non-contiguous tracts of land in Southern Louisiana and Southern
Mississippi. Several of the tracts are presently leased to third parties for
farming, grazing, timber, sand and gravel, camping, hunting and other purposes.
The Company received approximately $209,000 in gross operating revenues from
these real estate properties in 1996. In past years, the Company has considered
opportunities to enter into oil and gas leases covering some of these lands.
The Company implemented a restructuring plan in 1995 which called for the
closing of the Company's office in New Orleans, Louisiana which had managed
several non-oil and gas properties for many years and for the sale or other
disposition of those non-core, real estate properties. Net sales proceeds
received in 1996 from the sales of these real estate properties were $260,000.
The Company anticipates selling or otherwise disposing of the remaining real
estate properties, although the timing and the amount of sales proceeds from the
disposition of these properties is unknown.
OFFICE LEASE
The Company leases office space in Dallas, Texas covering approximately
33,000 square feet. Approximately 5.1% of the office space is subleased at the
Company's cost to CKB Petroleum, Inc. See Item 13. "Certain Relationships and
Related Transactions."
ITEM 3. LEGAL PROCEEDINGS.
The information required by this Item is incorporated herein by reference
to Item 8. "Financial Statements and Supplementary Data." - Note 9. of Notes to
the Financial Statements
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 19, 1996 the Company held its annual stockholders meeting for
the purpose of electing the members of the Company's Board of Directors. Set
forth below are the results of the stockholder voting:
Director For Withheld
- -------------------------------------------------------------------------------
Glen Adams 2,730,229 6,825
Bernay C. Box 2,729,729 7,325
Don D. Box 2,730,229 6,825
Daryl L. Buchanan 2,730,229 6,825
Thomas D. Rollins 2,730,229 6,825
Alan C. Shapiro 2,730,229 6,825
Richard D. Squires 2,730,229 6,825
The members of the Company's Board of Directors do not serve staggered
terms of office. All directors elected at the meeting were already members of
the Board at the time of election. No Director serving at the time of the
election failed to retain his seat on the Board. On June 27, 1996 BBHC, as the
record and beneficial holder of approximately 57% of the outstanding Class A
Stock of the Company, delivered a Written Consent ("BBHC Consent") executed by
BBHC pursuant to Section 228 of the Delaware General Corporation Law that (i)
amended the Company's By-Laws to permit the removal of directors without cause,
(ii) removed all the then current directors except Don D. Box and Alan C.
Shapiro, (iii) fixed the number of the directors of the Company at seven, and
(iv) elected the following as directors of the Company: Glen Adams, Bernay C.
Box, Daryl L. Buchanan, Thomas D. Rollins, and Richard D. Squires. The effective
date of the BBHC Consent was July 30, 1996. Subsequently, written consents to
the same effect, executed by Basil Georges and Pat Rutherford, Jr., the record
holders of approximately 14% and 9%, respectively, of the Company's Class A
Stock, were delivered to the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company has two classes of stock: Class A (Voting) Common Stock and
Class B (Non-Voting) Common Stock. Both classes are traded on the NASDAQ
National Market System, where the trading symbols are BOXXA and BOXXB,
respectively, and on the Pacific Stock Exchange, where the trading symbols are
BXCA.P and BXCB.P, respectively. The following table sets forth, for the periods
indicated, the high and low last sales price per share for the Class A Stock and
the Class B Stock as reported by NASDAQ.
Class A Class B
Stock Stock
High Low High Low
- -----------------------------------------------------------------------------
1997
First Quarter
(through March 20, 1997) $10 1/2 $ 7 $ 9 5/16 $6 3/4
1996
Fourth Quarter 11 8 10 3/8 8
Third Quarter 10 3/4 8 9 3/4 8
Second Quarter 11 5/8 9 11 1/8 8 3/4
First Quarter 13 8 5/8 11 3/8 7 3/4
1995
Fourth Quarter 12 3/8 10 9 7/8 8 1/8
Third Quarter 12 7/8 9 1/2 11 1/4 7 7/8
Second Quarter 12 9 1/2 9 5/8 8 1/4
First Quarter 13 1/4 10 11 7 5/8
On March 20, 1997, the last reported sales prices of Class A Stock and
Class B Stock were $8 3/4 and $7 per share, respectively. On such date, there
were 453 shareholders of record of Class A Stock and 1,201 shareholders of
record of Class B Stock. Box Energy has not declared or paid any cash dividends
since its commencement of operations in 1992. Although there are no present
contractual restrictions on the amount of dividends that the Company may pay,
if dividends in excess of 2% of the then market price per share of Class B Stock
are paid in a calendar quarter to holders of the Class B Stock, the conversion
price of the 8 1/4% Convertible Subordinated Notes will be adjusted
proportionately. The determination of future cash dividends, if any, will
depend upon, among other things, the Company's financial condition, cash flow
from operating activities, the level of its capital and exploration expenditure
needs and its future business prospects.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 <F1>
------------------------------------------------------------
<S>
Financial <C> <C> <C> <C> <C>
(In thousands,
except per share data)
Total Revenue $ 70,210 $ 59,493 $ 59,244 $ 37,102 $ 19,732
Net Income (loss) $ (7,662) $ 5,392 $ 9,157 $ 2,161 $ 19,194
Income (loss) per share $ (0.37) $ 0.26 $ 0.44 $ 0.10 $ 0.92
Total assets $ 136,599 $ 145,491 $ 135,041 $ 128,882 $ 126,475
8 1/4% convertible
subordinated notes $ 55,077 $ 55,077 $ 55,077 $ 55,077 $ 55,077
Other long-term
indebtedness $ 0 $ 0 $ 0 $ 1,970 $ 2,258
Stockholders' equity $ 74,356 $ 82,047 $ 75,513 $ 67,655 $ 65,494
Shares outstanding
Class A Common Stock 3,250 3,250 3,250 3,245 3,245
Class B Common Stock 17,553 17,553 17,553 17,558 17,558
Net cash flow from
operations $ 28,955 $ 24,047 $ 27,644 $ 11,006 $ 4,166
Net cash flow from
investments $ (47,602) $ (19,899) $ (13,769) $ (10,082) $ (52,127)
Net cash flow from
financing $ 0 $ 0 $ (1,970) $ (514) $ 52,048
Operational
Average sales prices
Oil (per Bbl) $ 20.21 $ 16.64 $ 15.51 $ 17.02 $ 19.78
Natural gas (per Mcf) $ 5.69 $ 6.89 $ 7.46 $ 5.07 $ 4.22
Future net revenue from
proved reserves
(before tax)
Undiscounted (in thousands) $ 227,817 $ 223,896 $ 206,701 $ 222,300 $ 268,508
Discounted (in thousands) $ 189,155 $ 173,388 $ 157,721 $ 163,793 $ 185,673
Future net revenue from
proved reserves
(after tax)
Undiscounted (in thousands) $ 177,178 $ 173,869 $ 163,633 $ 167,626 $ 211,053
Discounted (in thousands) $ 146,013 $ 133,982 $ 124,490 $ 124,002 $ 146,281
Proved Reserves
Oil (MBbls) 3,299 2,938 3,298 3,389 4,491
Natural gas (Bcf) 39.3 51.4 50.3 53.2 66.8
Average production
(net sales volume)
Oil (BOPD) 2,555 2,300 1,796 2,204 1,671
Natural gas (MMcfgd) 22.5 16.1 17.2 10.7 4.4
<FN>
<FN1>
Results reported for 1992 include the results of OKC Limited Partnership for the period
from January 1, 1992 to April 15, 1992 and of Box Energy Corporation for the period April
16, 1992 to December 31, 1992. Results in 1992 include a $19.7 million non-cash deferred
income tax benefit.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion is intended to assist in the understanding of the
Company's financial position and results of operations. The following
information is intended to be read in conjunction with the financial statements
and the related notes to financial statements. In addition to historical
information, this discussion contains certain forward-looking statements that
involve risks and uncertainties about the business, long-term strategy,
financial condition and future of the Company. Factors that may affect future
results are included in the discussion below and in Part I, Item 1. "Business"
and Item 2. "Properties." Actual results could differ materially from those
forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
Box Energy Corporation is an independent oil and gas exploration and
production company with activity and properties located in four core areas,
offshore Gulf of Mexico, Mississippi/Alabama, West Texas/New Mexico and South
Texas. Over 87% of the Company's 1996 total revenues are generated from a group
of four offshore Gulf of Mexico blocks, South Pass Blocks 86, 87 and 89 and West
Delta Block 128. Of this group, oil and natural gas sales from South Pass Block
89 accounts for approximately 61% of BEC's 1996 revenues with natural gas sales
alone from this block accounting for almost 51% of BEC's revenues for 1996. This
concentration of revenue is the result of a long-term gas sales contract
covering natural gas production from South Pass Block 89 and a large quantity of
production from natural gas reserves on this block. The long-term sales contract
is a take or pay contract with prices significantly in excess of the spot market
prices. Such prices escalate annually at 10%. Gas sales revenue from South Pass
Block 89 accounted for approximately 79% of the total revenues for 1995 and
approximately 77% of the total revenues for 1994.
The Company's long-term strategy since 1992 has consisted of two key
components, maximize the exploration, development and production of natural gas
reserves in South Pass Block 89 prior to the end of the gas sales contract in
July 2002 and replace the value of the proved natural gas reserves from this
block with additional reserves in the South Pass area and the other core areas.
This strategy has driven the capital investment and exploration program of the
Company for the past two years and will continue to be the focus in the
foreseeable future. The Company uses the Successful Efforts Method of accounting
for oil and gas expenditures. Under this method exploration costs incurred for
2-D and 3-D seismic and other geological, geophysical or prospecting costs are
charged to exploration expense as incurred. Other capital costs are capitalized
until it has been determined whether or not the property has commercial oil and
natural gas reserves. If proved oil and natural gas reserves are not found on a
property then the costs of drilling exploratory wells are charged to exploration
expense. For purposes of the following table and related discussion however, the
total capital and exploration costs are combined. The following table depicts
the capital expenditures by core area for the past three years as well as the
current 1997 capital expenditure and exploration budget. New operating
management is currently reviewing all drilling anticipated for 1997 to ensure
that the prospects meet the economic hurdles and fit the overall plans of the
Company.
<TABLE>
<CAPTION>
1997 1996 1995 1994
Area Budget Actual Actual Actual
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gulf of Mexico $ 25,770 $ 28,189 $ 15,602 $ 15,362
Mississippi/Alabama 6,225 8,820 2,874 81
West Texas/New Mexico 2,537 2,226 3,252 678
South Texas 5,293 3,406 758 -
Other onshore - 77 1,228 868
---------------------------------------------------------
Total $ 39,825 $ 42,718 $ 23,714 $ 16,989
</TABLE>
Capital and exploration expenditures in 1996 increased approximately 83%
compared to 1995, primarily due to the increased drilling activity during 1996.
Prior to 1992, the Company, as a limited partnership, was limited to certain
geographical areas, mainly the South Pass Block 89 area. As a result, during
1993, 1994 and 1995 the Company was building seismic data bases, leasehold
positions and an inventory of drilling prospects. In 1996 the Company drilled
wells on six prospects in the Gulf of Mexico, ten prospects in
Mississippi/Alabama, seven prospects in West Texas/New Mexico and six prospects
in South Texas as compared to two, five, two, and one prospects in the
respective areas in 1995 and two, zero, three, and zero prospects in the
respective areas in 1994.
Capital and exploration expenditures for the Gulf of Mexico area included
approximately $5.4 million for platform fabrication, drilling and completion
costs of three Main Pass Block 262 wells, $7.9 million for an exploratory well
in Ship Shoal Block 352, $1.8 million for an exploratory well in High Island
Block 576, $1.9 million for a successful exploratory well in Eugene Island
Block 135, $1.0 million for one of three planned exploratory wells in South
Timbalier Block 214 and $923,000 for an exploratory well in West Cameron
Block 365. The Company also invested $5.3 million in the South Pass blocks of
which $3.3 million was for a side track of Well B-11S. The Company incurred
over $1.0 million for seismic and other geophysical activities during 1996 in
the Gulf of Mexico. Other Gulf of Mexico capital expenditures totaling $2.6
million include costs incurred in acquiring additional offshore blocks. The
Company plans to sell or exchange part of its working interest in one or more
of these blocks for interests in other offshore blocks. Projected capital and
exploration expenditures for 1997 include costs budgeted at $3.7 million to
drill and complete three development wells and fabricate an offshore platform
on Eugene Island Block 135. The Company plans to drill prospects on South
Timbalier Blocks 214, 247 and 279 for a total cost of $6.2 million. Also
included in the 1997 capital and exploration budget is $15.9 million for an
additional five offshore wells including one U-sand well and one exploratory
well in South Pass Block 89.
Capital expenditures for the Mississippi/Alabama area included
approximately $2.5 million for drilling and leasehold costs for the Gladdis
Knight #1 on the Moselle Dome prospect. The Company's independent petroleum
engineers estimated initial proved reserves associated with this well of
approximately 323,000 barrels and, as a result, the Company expects to drill at
least four additional wells in 1997 at an estimated cost of $2.3 million. The
Company also expended $1.5 million on the Indian Wells Field to drill three
wells to offset the Box-Davis #1 discovery well and further define the extent of
the reservoir. Although two of these wells did not encounter commercial
reserves the total proved oil reserves on this field was 255,000 barrels at
December 31, 1996. A fourth well is expected to be drilled in 1997 in this
field. The Company invested $830,000 in the Hub Prospect for leasehold costs
and drilling costs of the Walker 10-9 #1. Also included in capital and
exploration expenditures in the Mississippi/Alabama area are leasehold costs
totaling $719,000 for prospects that are not yet drilled. The remaining capital
and exploration expenditures included $1.2 million for seismic, geological and
geophysical expenses and $1.9 million for leasehold and drilling cost on
prospects that were condemned by a dry hole or further seismic analysis. In
addition to the Moselle Dome wells, the Company expects to drill two exploratory
wells for $1.0 million on identified prospects in 1997 and has budgeted $1.0
million to drill three additional prospects currently being evaluated. The
Company expects to spend approximately $1.6 million on leases and seismic
expense for 1997 in the Mississippi/Alabama Area.
During 1996, capital and exploration expenditures in the West Texas/New
Mexico area included a development well and a salt water disposal well on the SW
Bronco field totaling $352,000. The remainder was for six exploratory wells on
three prospects in West Texas. The Company has identified five prospects to be
drilled in 1997 in this area. In South Texas the Company drilled several shallow
wells and one deep well, the Diebel #1 on the Berclair prospect for a total cost
of $436,000. The total proved oil and natural gas reserves net to the Company
for this field was 5,100 barrels of oil and 521,000 Mcf of natural gas. The
Company plans to drill at least six exploration wells in the South Texas area
in 1997.
The Company finances capital expenditures primarily out of net cash flow
from operations. As stated above, a large portion of this cash flow is generated
by natural gas sales from South Pass Block 89. A majority of the natural gas
production from this block is dependent on U-sand wells on Platform "B," and an
unforeseen mechanical or other failure of any one of these wells could
potentially have an immediate and significant impact on the Company's natural
gas revenue, net income and net cash flow from operations. The Company currently
has only one well producing from the U-sand, Well B-20S. An attempt to
recomplete a second producing well, Well B-11S, during the fourth quarter of
1996, was not successful. A side track of Well B-12S into the U-sand reservoir
was attempted late in 1996, but the well encountered mechanical problems and the
drilling activity was ceased pending further investigation of the available
wellbore. The Company will continue its efforts to maximize production from the
U-sand during 1997.
In the first quarter of 1997 the Company learned that the operator, a
working interest partner, and Texas Eastern are currently engaged in a dispute
concerning their long-term gas sales contracts covering production from South
Pass Block 89 which are similar to the one held by the Company. The exact
details of the dispute are not known and the effect on the Company's long-term
gas sales contract cannot be predicted at this time. The Company and Phillips
Petroleum Company are engaged in litigation concerning the NPI in South Pass
Block 89. The trial is currently set to begin March 31, 1997. The Company
believes in the merit of its case, however, an adverse judgment or settlement
could have a significant impact on the Company's cash flow from operations and
the current liquidity of the Company's balance sheet.
Net cash flow from operations increased 20% to $29.0 million in 1996. The
increase resulted from an increase in oil and natural gas sales that resulted
from a full year of production and revenue from South Pass Block 87 Platform "D"
and sales of oil and natural gas from new properties which began producing in
1996. The increase in cash received from oil and natural gas sales was partially
offset by an increase in operating, general and administrative, and
reorganization expenses.
During 1996 the Company used liquid assets of approximately $10.8 million
to fund the excess of capital expenditures over net cash flow from operations.
However, the Company still maintains a strong balance sheet with current assets
exceeding current liabilities by $39.0 million and a current ratio of
approximately 6.4 to 1.
During the second quarter of 1994, Box Energy established a $25.0 million
line of credit with a bank. The line of credit with a current borrowing base of
$10.0 million was renewed in 1995 and again in 1996. The line of credit is
secured by the Company's South Pass oil and natural gas properties. The Company
has issued letters of credit to the Minerals Management Service totaling
$150,000 against this line. If not extended, the credit facility will expire
in June 1997. The Company anticipates renewing this line or obtaining a similar
line of credit at that time.
In December 1992, the Company issued $55.1 million of 8 1/4% Convertible
Subordinated Notes which are currently outstanding and due December 1, 2002
("Notes"). In the event of a "change in control" as defined in the Indenture for
the Notes (the "Indenture"), the Company is required to make an offer to
repurchase the Notes at 100% of the Principal amount thereof, plus accrued
interest. BBHC owns 57% of the Class A Stock of the Company. A sale or other
disposition of those shares to any entity, person or group of persons not
controlled by, or outside of, Don D. Box, Gary D. Box, Douglas D. Box and
Thomas D. Box, would constitute a "change in control" under the Notes. In
addition, the Indenture defines a "change in control" to have occurred if at
any time the existing Board of Directors does not have at least three
independent directors as defined in the Indenture. The Company currently
has only three independent directors. If any one of the independent directors
were to cease to be a director, the Company would be required to offer to
repurchase the Notes as stated above.
If a "change in control" were to occur the Company may not have the current
liquidity to repurchase the Notes if all were tendered, and certain debt
covenants in the $25.0 million credit facility regarding current ratios may
not be met. Therefore, the credit line may not be available without a debt
covenant waiver or renegotiation of the credit facility. In addition, the
capital resources needed to implement the long-term strategy would be reduced
to reliance on cash flow from operations in the short term.
The Company's balance sheets reflect a net deferred income tax asset of
$14.7 million and $13.0 million on December 31, 1996 and 1995, respectively.
This asset arises primarily as a result of federal income tax loss
carryforwards of $25.9 million and $21.4 million for 1996 and 1995,
respectively, and $21.3 million and $14.3 million in temporary differences
between the book basis and tax basis of the Company's oil and natural gas
properties for 1996 and 1995, respectively. The Company's tax basis in the oil
and natural gas properties was carried over from OKC Limited Partnership in
April 1992 and principally consists of the sum of the individual partner's or
unitholder's tax basis in the partnership's oil and natural gas properties,
which exceeded the partnership's book basis as accounted for under generally
accepted accounting principles. The net operating loss carryforwards were
generated in 1992, 1993 and 1996 and will expire in 2007, 2008 and 2011,
respectively. Based on the Company's current projections, the deferred tax asset
is expected to reverse during the next several years as significant taxable
income is generated and the reserves near Platform "B" are depleted. Such
projection assumes that the Company's natural gas production from Platform "B"
will be sold under its long-term sales contract at prices significantly higher
than current spot market prices. If actual taxable income from future operations
is substantially less than the current projections, the deferred tax asset
would be impaired, causing an increase in the valuation allowance and a
significant charge to earnings.
Results of Operations
The following table discloses the net oil and natural gas sales volumes,
average sales prices and average lifting costs for each of the three years ended
December 31, 1996, 1995 and 1994. The table is an integral part of the following
discussion of results of operations for the periods 1996 compared to 1995 and
1995 compared to 1994.
% Increase % Increase
1996 (Decrease) 1995 (Decrease) 1994
-------------------------------------------------------
Net sales volumes:
Oil (MBbls) 933 11% 839 28% 656
Natural Gas (MMcf) 8,219 40% 5,867 (7%) 6,282
Average sales price:
Oil (per Bbl) $ 20.21 21% $ 16.64 7% $ 15.51
Natural gas
(per Mcf) $ 5.69 (17%) $ 6.89 (8%) $ 7.46
Average lifting costs
(per BOE) $ 1.66 (4%) $ 1.73 4% $ 1.67
1996 Compared to 1995
The Company incurred a net loss for 1996 totaling $7.7 million, or $0.37
per share. This loss resulted primarily from a $15.9 million, or 323%, increase
in exploration expenses, a $7.8 million, or 52%, increase in depreciation,
depletion and amortization expense on the oil and natural gas properties and a
$4.0 million, or 43%, increase in general and administrative and reorganization
expenses. Exploration expenses increased because of higher dry hole costs which
resulted from the increased drilling activity. The most significant dry holes
drilled during the year included the following offshore Gulf of Mexico blocks;
Ship Shoal Block 352 at $7.9 million, High Island Block 576 at $1.8 million and
West Cameron Block 365 at $923,000. Depreciation, depletion and amortization
expense increased as a result of new properties being depleted, an increase in
the depreciable basis of offshore platforms and a decrease in net oil and
natural gas reserves.
General and administrative expenses and reorganization costs were higher
because of an increase in legal fees primarily related to the reimbursement of
legal fees to the Estate of Cloyce K. Box for the Simplot litigation and the
"change in control" which occurred when BBHC replaced the existing Board of
Directors by a written consent effective July 30, 1996. The "change in control"
triggered the applicability of severance agreements which then resulted in the
payment of severance benefits in applicable situations. Resignations and
terminations decreased the total number of employees from 55 prior to July 30,
1996 to 41 at December 31, 1996. Management continues to analyze other areas
for additional general and administrative savings.
Natural gas revenue increased $6.3 million primarily as a result of higher
average natural gas prices. Although the average sales price shown on the table
above reflects a decrease, such decrease in prices is a result of the lower
percentage of total volume from South Pass Block 89 sold at above market prices
compared to a higher percentage of total volume from other areas which are sold
at spot market prices during 1996 as compared to the prior years. The 10% per
annum increase in the gas price for South Pass Block 89 production, in
accordance with the long-term gas sales contract, resulted in an additional
$3.3 million in natural gas sales revenue. Average spot market prices for
natural gas increased from $1.88 in 1995 to $2.45 for 1996 which added another
$2.4 million to natural gas sales revenue. In addition, production from
Platform "D" located in South Pass Block 87, Main Pass Block 262 and other
properties increased by 3.0 Bcf, or 222%, when compared to 1995 resulting in
an additional $6.7 million in natural gas sales revenue. However, the above
increases were partially offset by a 624,000 Mcf decrease in natural gas
production from South Pass Block 89 which, when combined with the high
contract price received for production from this block lowered natural gas sales
revenue by $5.5 million. Natural gas production from South Pass Block 89
decreased because the B-11 Well experienced mechanical difficulties in March
1996 and attempts to drill a replacement well in 1996 were not successful.
Net natural gas production from South Pass Block 86 decreased 296,000 Mcf
resulting in a decrease in natural gas sales revenue totaling $550,000.
Oil sales increased $4.9 million, or 35%, because of an increase in the
average oil price of $3.57, from $16.64 to $20.21 and an increase in total oil
production of 94,000 Bbls. The increase in price caused oil sales revenue to
increase $3.3 million, and the increase in production caused oil sales revenue
to increase $1.6 million. Oil production increased as a result of a full year of
production from Platform "D" producing from South Pass Block 87 and West Delta
Block 128, and new production from the Indian Wells field in Mississippi and
other onshore oil properties. Platform "D" production increased 233,000 Bbls and
new production from the Indian Wells Field totaled 39,000 Bbls in 1996. Oil
production from South Pass Blocks 86 and 89 decreased primarily as a result of
natural depletion of the reservoirs.
In 1995 the Company sold real estate properties in Mississippi and
Louisiana for a total gain of $1.0 million as part of a reorganization plan
adopted in early 1995. In 1996 the gain from the sales of real estate in
Mississippi and Louisiana was $93,000. The decrease was partially offset by a
$661,000 increase in net oil trading income.
Operating expenses were $889,000, or 16%, higher in 1996 because of the
increase in the number of operating properties which included a full year of
operating cost from Platform "D" in South Pass Block 87 and a partial year of
operating costs from Main Pass Block 262. Net Profits expense decreased
approximately 8%, or $1.0 million primarily because of a net decrease in natural
gas revenues from South Pass Block 89 as described above.
1995 Compared to 1994
Net income for 1995 was $5.4 million, or $0.26 per share, compared to $9.2
million, or $0.44 per share, for 1994. The primary reason for the decrease in
net income is the decrease in natural gas production from Platform "B" and the
increase in exploration costs.
Natural gas revenues during 1995 were $40.4 million, constituting a 14%
decrease from 1994. Natural gas production from Platform "B" decreased 1.5 Bcf
which in turn caused natural gas revenues to decrease by $12.2 million. This
decrease was partially offset by an increase in production from Platform "C" and
initial production from Platform "D" beginning in May 1995, which increased
production by 308 MMcf and 725 MMcf, respectively. In addition, a 10% increase
in the price received for natural gas produced from Platform "B" partially
offset the decrease in natural gas revenue due to the lower production from
Platform "B".
Oil revenues increased from $10.2 million for 1994 to $14.0 million for
1995. This 37% increase is the result of initial oil production from Platform
"D", commencing in May 1995. Production from Platform "D" during the year was
240,000 barrels which added $4.0 million to oil revenues. Increases in oil
production from Platform "C" and production from new wells located onshore added
$514,000 to oil revenues, and a 7% increase in the average price received during
1995 added $741,000 to oil revenues. A decrease in the oil production from
Platform "B" of 91,000 barrels offset the aforementioned increases in oil
revenues by $1.4 million.
Interest income increased $471,000, or 29%, in 1995 due to additional funds
invested during the year. An increase in oil marketing income, gains on the sale
of real estate properties in Louisiana and Mississippi, and the sale of the
production deck from Platform "A" located in South Pass Block 89 caused other
income to increase $2.4 million for 1995 compared to 1994.
Operating costs increased to $5.4 million for 1995 from $4.6 million for
1994 as a result of workovers performed on Platform "B" wells during the year
and operating costs for Platform "D" which commenced production in May 1995. Net
Profits expense in 1995 decreased due to the lower oil and natural gas revenues
from Platform "B", partially offset by lower capital costs charged against the
Net Profits account. Exploration expenses increased $2.7 million in 1995,
compared to 1994, primarily as a result of an additional $2.3 million in 3-D and
2-D seismic data purchased in 1995. The $3.9 million increase in depreciation,
depletion and amortization expenses resulted from the initial depreciation of
Platform "D" and the wells on that platform, an increase in depreciation expense
on Platform "C" resulting from an increased basis subject to depreciation, and
an impairment loss recognized during the fourth quarter of 1995 as a result of
the adoption of SFAS No. 121.
During 1995 the Company adopted a reorganization plan which eliminated
certain positions within the Company. A total of eight positions were
terminated, including the Director of Corporate Development and certain
personnel involved with the management of the Company's real estate
properties in Louisiana and Mississippi. Total reorganization costs were
$800,000, including severance pay, rent expense on the closed offices, and
health insurance and related benefits for terminated employees. Income tax
expense decreased by $2.9 million in 1995, compared to 1994, as a result of the
lower income before taxes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
Page
Report of Independent Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for 1996, 1995 and 1994
Statements of Changes of Stockholders' Equity
for 1996, 1995 and 1994
Statements of Cash Flow for 1996, 1995 and 1994
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Stockholders and Board of Directors of
Box Energy Corporation
We have audited the accompanying balance sheet of Box Energy Corporation ("the
Company") as of December 31, 1996 and the related statements of income,
stockholders' equity and cash flows for the year then ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Box Energy Corporation as of
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for impairment of long-lived assets in 1995.
ARTHUR ANDERSEN L.L.P.
Dallas, Texas
March 27, 1997
<PAGE>
To The Stockholders and Board of Directors of
Box Energy Corporation
We have audited the accompanying balance sheet of Box Energy Corporation
as of December 31, 1995 and the related statements of income, stockholders'
equity and cash flows for each of the two years in the period ended
December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Box Energy Corporation as of
December 31, 1995 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 5, 1996
<PAGE>
BOX ENERGY CORPORATION
BALANCE SHEETS
(In thousands, except share data) At December 31,
1996 1995
---------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 2,997 $ 21,644
Marketable securities available for sale 32,678 24,757
Accounts receivable - oil and gas 7,093 8,048
Accounts receivable - other 1,390 543
Accounts receivable - related party 66 63
Prepaid expenses and other current assets 1,961 663
---------- ----------
Total current assets 46,185 55,718
---------- ----------
Properties
Oil and gas properties (successful
efforts method) 187,251 165,454
Other properties 3,226 3,096
Accumulated depreciation, depletion
and amortization (116,371) (93,651)
---------- ----------
Total properties 74,106 74,899
---------- ----------
Other Assets
Deferred income taxes
(net of valuation allowance) 14,723 13,027
Deferred charges (net of accumulated
amortization) 1,585 1,847
---------- ----------
Total other assets 16,308 14,874
---------- ----------
Total assets $ 136,599 $ 145,491
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,043 $ 4,829
Accrued interest payable 379 391
Accrued transportation liability -
related party 263 289
Net Profits expense payable 1,481 2,858
---------- ----------
Total current liabilities 7,166 8,367
---------- ----------
Other liabilities
Convertible subordinated notes payable 55,077 55,077
---------- ----------
Total other liabilities 55,077 55,077
---------- ----------
Total liabilities 62,243 63,444
---------- ----------
Commitments and contingencies (Note 9)
Stockholders' equity
Common stock, $1.00 par value
Class A (Voting) Common Stock - 15,000,000
shares authorized; 3,250,110 issued and
outstanding 3,250 3,250
Class B (Non-Voting) Common Stock -
30,000,000 shares authorized; 17,553,010
issued and outstanding 17,553 17,553
Additional paid-in capital 25,197 25,197
Retained earnings 28,542 36,204
Valuation allowance for marketable securities (186) (157)
---------- ----------
Total stockholders' equity 74,356 82,047
---------- ----------
Total liabilities and stockholders' equity $ 136,599 $ 145,491
========== ==========
See accompanying Notes to Financial Statements.
<PAGE>
BOX ENERGY CORPORATION
STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended December 31,
1996 1995 1994
--------- -------- --------
Revenues
Oil sales $ 18,849 $ 13,966 $ 10,170
Natural gas sales 46,757 40,440 46,831
Interest income 2,273 2,123 1,652
(Loss) on sale of securities (73) - -
Other income 2,404 2,964 591
--------- -------- --------
Total revenues 70,210 59,493 59,244
--------- -------- --------
Costs and expenses
Operating costs 6,316 5,427 4,645
Net Profits expense 11,479 12,500 13,899
Exploration expense 20,805 4,924 2,256
Depreciation, depletion and
amortization 22,800 14,967 11,075
General and administrative expense 11,388 8,525 8,092
Reorganization costs 1,959 800 -
Interest and financing costs 4,895 4,836 5,062
--------- -------- --------
Total costs and expenses 79,642 51,979 45,029
--------- -------- --------
Income (loss) before income taxes (9,432) 7,514 14,215
Deferred income tax expense (benefit) (1,770) 2,122 5,058
--------- -------- --------
Net income (loss) $ (7,662) $ 5,392 $ 9,157
========= ======== ========
Income (loss) per share $ (0.37) $ 0.26 $ 0.44
========= ======== ========
See accompanying Notes to Financial Statements.
<PAGE>
BOX ENERGY CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands) Common Stock
-------------------------------------
Class A Stock Class B Stock Valuation
-------------- ------------------ Additional Allowance
At Par At Par Paid-in Retained Marketable
Shares Value Shares Value Capital Earnings Securities
------ ------ ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1993 3,245 $3,245 17,558 $17,558 $25,197 $21,655 -
Exchange of
Class B stock
for Class A
stock 5 5 (5) (5)
Cumulative effect
of change in
accounting
principle (net
of income tax) $ (194)
Net income 9,157
Unrealized loss
(net of income
tax) (1,105)
------ ------ ------- -------- -------- -------- ----------
Balance,
December 31,
1994 3,250 3,250 17,553 17,553 25,197 30,812 (1,299)
Net income 5,392
Unrealized gain
(net of income
tax) 1,142
------ ------ ------- -------- -------- -------- ----------
Balance,
December 31,
1995 3,250 3,250 17,553 17,553 25,197 36,204 (157)
Net income
(loss) (7,662)
Unrealized loss
(net of income
tax) (29)
------ ------ ------- -------- -------- -------- ----------
Balance,
December 31,
1996 3,250 $3,250 17,553 $17,553 $25,197 $28,542 $ (186)
====== ====== ======= ======== ======== ======== ==========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
BOX ENERGY CORPORATION
STATEMENTS OF CASH FLOW
(In thousands)
Years Ended December 31,
1996 1995 1994
--------- -------- ---------
Net income (loss) $ (7,662) $ 5,392 $ 9,157
Depreciation, depletion and amortization 22,800 14,967 11,075
Amortization of deferred charges 262 254 261
Amortization of premium on marketable
securities 27 15 15
Dry hole and impairment costs 17,638 2,223 1,619
Loss (gain) on sale of assets (20) (1,080) 739
Deferred income tax expense (benefit) (1,696) 1,995 4,820
Decrease (increase) in accounts receivable 105 (3,492) (21)
(Increase) in prepaid expenses and other
current assets (1,298) (127) (292)
Increase (decrease) in accounts payable 176 3,306 (708)
Increase (decrease) in Net Profits
expense payable (1,377) 594 979
--------- -------- ---------
Net cash flow provided by
operations 28,955 24,047 27,644
--------- -------- ---------
Cash flow from investing activities
Additions to properties (39,798) (21,274) (16,648)
Proceeds from sale of properties 260 1,375 2,879
Sales and maturities of marketable
securities 19,127 - -
Investments in marketable securities (27,191) - -
--------- -------- ---------
Net cash used in investing
activities (47,602) (19,899) (13,769)
--------- -------- ---------
Cash flow from financing activities
Principal payments on notes payable - - (1,970)
--------- -------- ---------
Net cash flow used in financing
activities - - (1,970)
--------- -------- ---------
Net increase (decrease) in cash and
cash equivalents (18,647) 4,148 11,905
Cash and cash equivalents at beginning
of period 21,644 17,496 5,591
--------- -------- ---------
Cash and cash equivalents at end of period $ 2,997 $21,644 $17,496
========= ======== =========
Cash paid for interest and financing costs $ 4,645 $ 4,623 $ 4,748
========= ======== =========
Cash paid for income taxes $ - $ 80 $ 238
========= ======== =========
See accompanying Notes to Financial Statements.
<PAGE>
BOX ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Box Energy Corporation (the "Company") was formed in 1991 and was inactive
until it acquired all of the assets and liabilities of OKC Limited Partnership
(the "Predecessor Partnership") on April 15, 1992, in exchange for the common
stock of the Company. The stock was then distributed to the general partners,
limited partners and other unit holders of the Predecessor Partnership. The
exchange was accounted for in a manner similar to a pooling of interests and
accordingly, the assets and liabilities were recorded by the Company at the
historical cost of the Predecessor Partnership. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods. Actual results
could differ from those estimates. Certain reclassifications for prior years
have been made to conform with the current year presentation.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of
three months or less when purchased including investment grade commercial paper
and money market funds invested in United States government securities. Cash and
cash equivalents are stated at cost which approximates market value.
Marketable Securities
Marketable securities, all of which are classified as available-for-sale,
are recorded on the balance sheet at their market value on the balance sheet
date. Unrealized holding gains and losses for securities classified as
available-for-sale are excluded from earnings and recorded, net of tax, as a
separate component of stockholders' equity.
Oil and Gas Properties
The Company uses the successful-efforts accounting method for oil and gas
exploration and development expenditures. Leasehold acquisition costs,
development costs, including costs of tangible equipment, intangible drilling
costs and certain interest expense are capitalized. Geological, geophysical and
other prospecting costs are charged to exploration expense as incurred while the
drilling costs of exploratory wells are capitalized until it is determined that
the wells have not found commercial oil and natural gas reserves at which time
the costs are charged to exploration expense. Capitalized costs are amortized
using the units-of-production method based on total proved reserves for
leasehold acquisition costs and total proved developed oil and natural gas
reserves for all other capitalized costs. The Company capitalizes interest as
part of construction costs of major facilities such as offshore platforms.
Interest capitalized in 1996, 1995 and 1994 was zero, $69,000 and $45,000,
respectively.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 entitled "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" in 1995. Under SFAS No. 121 certain events
cause the Company to periodically assess the total capitalized costs of each oil
and natural gas property net of depletion, depreciation and amortization
("Carrying Value") to determine if the Carrying Value will be fully recovered
from the estimated undiscounted future net cash flows before income taxes. The
undiscounted future net cash flow is derived from estimated proved and probable
oil and natural gas reserves. An impairment loss, equal to the difference
between the Carrying Value and the fair value of the asset, is recognized if the
undiscounted future net cash flows from an individual property are less than the
Carrying Value of that same property. The Company uses the present value of the
future net cash flows from proved oil and natural gas reserves discounted at an
appropriate rate to estimate the fair value of the asset. The impairment loss is
recorded as a component of depreciation, depletion and amortization expense in
the income statement. Impairment losses totaling $451,000 and $567,000 were
recognized during 1996 and 1995, respectively, for the Company's interests in
East Melvin and Raleigh properties in 1996 and the Traxler property in 1995.
All three properties are located in Mississippi.
Future dismantlement, restoration and abandonment ("DR&A") costs include
the estimated costs to dismantle, restore and abandon the Company's offshore
platforms, flowlines, wells and related structures. The total estimated future
DR&A liability is $4.2 million. The liability is accrued over the life of the
property using the units-of production method and recorded as a component of
depreciation, depletion and amortization expense. The accrued liability at
December 31, 1996 and 1995 was $2.5 million and $1.9 million, respectively. See
Note 10. Oil and Gas Properties.
Other Properties
Other properties include leasehold improvements, furnishings and equipment
for office space leased by the Company and are depreciated on a straight-line
method over their estimated useful lives.
Deferred Charges
Deferred charges are the costs incurred in 1992 with respect to the
Company's offering of the Notes, as defined in Note 5 below. The deferred
charges are amortized to interest and financing costs on a straight-line basis
over the 10-year term of the Notes. See Note 5. Notes Payable.
Oil and Gas Revenues
The Company recognizes oil and natural gas revenues as it is produced and
sold. Oil and natural gas sold is not materially different from the Company's
share of production. Natural gas imbalances were not significant for the
years ended December 31, 1996, 1995 and 1994.
Income Taxes
A deferred income tax asset or liability is recorded as a result of the
estimated future income tax consequences attributed to temporary differences
between the financial and tax basis of assets and liabilities, net operating or
capital loss carryforwards and certain alternative minimum or other tax credit
carryforwards. The amount of the deferred income tax asset or liability is the
total of the enacted tax rate multiplied by the temporary differences, net
operating or capital loss carryforwards and the tax credit carryforwards. The
tax rate used is the effective rate applicable for the year in which these
temporary differences are expected to reverse as additional taxable income or
tax deductions. A valuation allowance offsets deferred income tax assets which
are not expected to reverse in future years. Deferred income tax expense or
benefit for a period is the difference between the net deferred income tax
assets and liabilities at the beginning of the period and the end of the period.
See Note 4. Deferred Income Tax Asset and Income Taxes.
Income per Common Share
Primary income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding for the year. Stock options granted to directors and employees are
included as common stock equivalents if they are calculated to be dilutive using
the treasury stock method. The Notes are not considered common stock
equivalents. Fully-diluted income per share is calculated by dividing net
income, adjusted for the interest expense accrued on the Notes, net of income
tax expense, by the number of shares of common stock outstanding and all
contingent issues of common stock. Contingent issues of common stock include
the number of shares that would be issued upon both the assumed exercise of the
remaining stock options not considered common stock equivalents and the assumed
conversion of all of the Notes. The weighted average of the common stock
outstanding for computing primary income per share was 20.8 million shares for
each of the years ended December 31, 1996, 1995 and 1994. The calculation of
fully-diluted income per share was anti-dilutive for each of the three years
presented.
NOTE 2. MARKETABLE SECURITIES
The following table presents the amortized costs of all marketable securities,
the range of maturities and the gross unrealized holding gains and losses.
At December 31,
1996 1995
---------- ----------
(In thousands)
Amortized cost of marketable securities:
Maturities within one year
United States government and agency
debt securities $ 1,240 $ 10,012
Corporate debt securities 1,491 -
Maturities between one and five years
United States government and agency
debt securities 21,001 14,986
Corporate debt securities 7,679 -
Foreign government debt securities 1,553 -
---------- ----------
Total amortized cost of marketable securities 32,964 24,998
Gross unrealized holding gains 47 -
Gross unrealized holding (losses) (333) (241)
---------- ----------
Net carrying value at year end $ 32,678 $ 24,757
========== ==========
Realized gains and losses are computed based on specific identification of
the securities sold. The proceeds from the sale of available-for-sale securities
and the gross realized gains and losses and change in net unrealized holding
gains and losses included as a separate component of shareholders' equity were
as follows:
For Years ended December 31,
1996 1995 1994
---------- ---------- ----------
(In thousands)
Sales proceeds $ 8,127 - -
Gross realized gains $ 7 - -
Gross realized (losses) $ (80) - -
Change in net unrealized holding
gains and losses $ (29 ) $ 1,142 $ (1,299)
NOTE 3. NET PROFITS EXPENSE
The Company pays a Net Profits expense to a third party pursuant to a
farmout agreement regarding the Company's working interest in the oil and gas
lease covering South Pass Block 89. Net Profits expense is calculated as 33% of
the Company's "net profits" from the subject lease, as defined in the farmout
agreement. The following table summarizes the Net Profits expense calculation:
For the Years ended December 31,
1996 1995 1994
---------- ---------- ----------
(In thousands)
South Pass Block 89
Oil and natural gas revenue
(net of transportation) $ 42,063 $ 45,354 $ 53,590
Operating, overhead and capital
expenditures (7,279) (7,475) (11,472)
---------- ---------- ----------
"Net profits" from South Pass
Block 89 $ 34,784 $ 37,879 $ 42,118
========== ========== ==========
Net Profits expense (at 33%) $ 11,479 $ 12,500 $ 13,899
========== ========== ==========
NOTE 4. DEFERRED INCOME TAX ASSET AND INCOME TAXES
The significant components of the Company's deferred tax asset are as
follows:
At December 31,
1996 1995
---------- ----------
(In thousands)
Excess of tax basis over book basis for
oil and natural gas properties $ 7,461 $ 6,456
Excess of tax basis over book basis for
other properties 133 103
Excess of tax basis over book basis for
marketable securities 100 85
Excess of accrued book liabilities over tax
liabilities 862 672
Federal income tax operating loss carryforward 9,072 7,477
Federal long-term capital loss carryforward 197 197
Alternative minimum tax credit carryforward 262 365
---------- ----------
Total deferred tax asset 18,087 15,355
Valuation allowance (3,364) (2,328)
---------- ----------
Net deferred tax asset $ 14,723 $ 13,027
========== ==========
The Company's tax basis in the oil and gas properties was carried over from
the Predecessor Partnership and consisted primarily of the sum of each partner's
tax basis in the oil and gas properties, which exceeded the Company's book basis
as accounted for under generally accepted accounting principles. The unused
federal income tax operating loss carryforward of $25.9 million will expire
during the years 2007 through 2011 if not previously utilized, and the
long-term capital loss carryforward of $563,000 will expire in 1999. The
valuation allowance for the deferred income tax asset reflects the Company's
estimate of the temporary differences which are not expected to reverse in
future years. Based on the Company's current projections, the net deferred tax
asset is expected to fully reverse in the next several years as the Company
expects to generate significant future taxable income from the sale of its oil
and gas production presently classified as proved reserves. Some of the expected
gas production is subject to a long-term gas sales contract with sales prices
that are significantly above the current market sales prices. If the actual
taxable income from operations is substantially less than the current
projections, the deferred tax asset would be impaired and the valuation
allowance would be increased, resulting in a charge to earnings. The following
table provides a reconciliation of the Company's income tax expense or
(benefit):
For the years ended December 31,
1996 1995 1994
--------- --------- ---------
(In thousands)
"Expected" tax expense (benefit)
(computed at 35% of income
before taxes) $ (3,301) $ 2,630 $ 4,976
Expense (benefit) from change in book
and tax basis difference 932 (2,397) (3,258)
(Benefit) from alternative minimum tax
credit - (127) (238)
(Benefit) from long-term capital loss
carryforward - (197) -
Utilization (benefit) of net operating
loss (363) 2,608 3,293
--------- --------- ---------
Total deferred tax expense (benefit) (2,732) 2,517 4,773
Valuation allowance 1,036 (522) 47
--------- --------- ---------
Net deferred income tax expense
(benefit) (1,696) 1,995 4,820
Current income tax expense (alternative
minimum tax) (74) 127 238
--------- --------- ---------
Total income tax expense (benefit) $ (1,770) $ 2,122 $ 5,058
========= ========= =========
NOTE 5. NOTES PAYABLE
In December 1992, the Company issued 8 1/4% Convertible Subordinated Notes
("Notes") in the amount of $55.1 million which mature on December 1, 2002. The
Notes are convertible at the election of the holders at any time prior to
maturity, unless previously redeemed, into shares of Class B Stock at a
conversion price of $11.00 per share. Interest accrued at 8 1/4% per annum is
payable semi-annually on each June 1 and December 1. The Company may redeem the
Notes in whole or in part any time after December 1, 1995 at 105.775% of the
face amount. This percentage decreases .825% every year thereafter. The Notes
are unsecured and subordinate in right of payment to all existing and future
senior indebtedness.
In the event of a "change in control" as defined in the Indenture for the
Notes (the "Indenture"), the Company is required to make an offer subject to
certain restrictions, to repurchase all or part of the Notes at 100% of the
principal amount thereof, plus accrued interest. BBHC, a Delaware corporation,
owns approximately 57% of the outstanding Class A Stock of the Company. The sale
of such stock to any party other than, or not controlled by, at least one of the
four Box brothers (i.e., Don D. Box, Thomas D. Box, Gary D. Box or Douglas D.
Box) or BBHC would constitute a change in control. The Class A Stock owned by
BBHC is pledged, with other collateral, by BBHC as security under a credit
agreement with a bank and under a settlement agreement with another creditor.
A default by BBHC under either agreement could possibly result in a change in
control of the Company. In addition, the Indenture defines a "change in
control" to have occurred if at any time the existing Board of Directors does
not have at least three independent directors, as defined in the Indenture.
The Company currently has only three independent directors. If any one of
the independent directors were to cease to be a director, the Company would
be required to offer to repurchase the Notes as stated above.
During the second quarter of 1996, the Company renewed a $25.0 million line
of credit facility with a bank. The line of credit, with a current borrowing
base of $10.0 million, is collateralized by the Company's South Pass oil and
natural gas properties. The interest rate for the line of credit is the lender's
floating base rate plus 0.5%. The Company has issued letters of credit
totaling $150,000 against this line. The credit facility will expire in June
1997, unless renewed.
If a "change in control" were to occur, the Company may not have the
liquidity to repurchase all or a large portion of the Notes if tendered. Certain
debt covenants in the $25.0 million credit facility may not be met if all or a
large portion of the Notes were tendered and the credit line may not be
available without a debt covenant waiver or renegotiation of the credit
facility.
The estimated fair value of the Company's long-term indebtedness, including
the current maturities of such obligations, was approximately $55.8 million and
$53.4 million at December 31, 1996 and 1995, respectively. The fair value was
based on the quoted market bid price for the Company's Notes and on current
rates available to the Company for its other indebtedness with the same
remaining maturities.
NOTE 6. COMMON STOCK AND DIVIDENDS ON COMMON STOCK
The holders of Class A Stock and Class B Stock of the Company are entitled
to equal participation in earnings, dividends and liquidation. The only
difference between the two classes of stock is that Class A Stock has voting
rights while the Class B Stock has no voting rights, unless otherwise required
by Delaware law. Three million shares of authorized but unissued Class B Stock
have been reserved for the two 1992 stock option plans. See Note 7. Employee
and Director Benefit Plans.
The Company has not paid a dividend for the years ended December 31, 1996,
1995 or 1994. There are no present contractual restrictions on the amount of
dividends that the Company may pay; however, in the event that dividends in
excess of 2% of the market price of Class B Stock are paid in a calendar quarter
to holders of such Stock, the conversion price for Class B Stock under the Notes
will be adjusted proportionally.
NOTE 7. EMPLOYEE AND DIRECTOR BENEFIT PLANS
Stock option plans
SFAS No. 123, entitled "Accounting for Stock-Based Compensation,"
encourages but does not require companies to record compensation cost for stock-
based employee compensation plans at fair value. During 1996, the Company
adopted the disclosure provisions of SFAS No. 123. The Company continues to
apply the accounting provisions of Accounting Principles Board Opinion 25,
entitled "Accounting for Stock Issued to Employees," and related interpretations
to account for stock-based compensation. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
The Company has adopted two plans under which stock options may be granted:
the 1992 Non-Qualified Stock Option Plan and the 1992 Incentive Stock Option
Plan. The 1992 Non-Qualified Stock Option Plan provides for the granting of
stock options to directors of the Company for the purchase of up to 50,000
shares per director of Class B Stock and up to a maximum under the plan of 1.0
million shares for all directors. The 1992 Incentive Stock Option Plan provides
for the granting of stock options to employees of the Company for the purchase
of up to 20,000 shares per employee of Class B Stock and up to a maximum under
the plan of 2.0 million shares for all employees.
The exercise price of the options is equal to the closing price for the
common stock at the date of grant, except for employees owning more than 10% of
the voting stock, for which the exercise price is 110% of the closing price on
the date of grant. Under both stock option plans 50% of the options are
exercisable no sooner than three years from the date of the grant, and the
remaining 50% may be exercised only after five years from the date of the grant.
Under both plans the options expire ten years from the date of grant. Both plans
are administered by the compensation committee of the Board of Directors.
In November 1995, the Compensation Committee of the Board of Directors
recommended an amendment to the 1992 Incentive Stock Option Plan that would
eliminate the limit on the number of stock options that could be granted to an
individual employee but limit the annual grant of stock options to 50,000 to any
one employee. This recommendation has not been presented to the Class A Stock
shareholders. Stock options totaling 10,000 granted to an officer on November
30,1995 are subject to the approval of such an amendment.
A summary of the Company's two stock option plans as of December 31, 1996,
1995 and 1994 and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
For years ending December 31,
1996 1995 1994
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 622,000 $10.08 334,000 $11.71 334,300 $11.93
Granted 41,000 $ 8.85 353,800 $ 8.87 25,000 $ 9.00
Exercised 0 0 0
Forfeited (350,500) $10.43 (65,800) $11.88 (25,300) $11.88
--------- --------- --------- --------- --------- ---------
Outstanding at end of
year 312,500 $ 9.52 622,000 $10.08 334,000 $11.71
========= ========= ========= ========= ========= =========
Options exercisable at
year-end 38,600 $11.88 116,600 $11.98 - -
Weighted-average fair
value of options
granted during the year $6.15 $6.00 - -
</TABLE>
The options outstanding at December 31, 1996 have a weighted-average
remaining contractual life of 8 years and an exercise price ranging from $8 1/16
to $11 7/8 per share.
The following is a pro forma disclosure of the effect on net income or loss
if compensation cost for the Company's stock option compensation plans had been
determined consistent with SFAS No. 123.
For the years ended December 31,
1996 1995
------- ------
(In thousands)
Net Income (loss) As Reported $(7,662) $5,392
Pro forma $(7,907) $4,987
Income (loss) per share As Reported $ (0.37) $ 0.26
Pro forma $ (0.38) $ 0.24
The fair value of each option grant for the years ended December 31, 1996
and 1995 is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
For the years ended December 31,
1996 1995
------ ------
Expected life (years) 10 10
Interest rate 6.85% 5.97%
Volatility 48.21% 47.96%
Dividend yield 0% 0%
Pension Plan
The Company's Pension Plan is a noncontributory defined benefit pension
plan covering substantially all employees. The retirement benefits available
under the plan are generally based on years of service and average earnings. The
funding policy is to make annual contributions to the plan in an amount at least
equal to the minimum funding provisions of the Employee Retirement Income
Security Act of 1974, as amended, but no more than the maximum tax deductible
contribution allowed. Plan assets consist primarily of equity and fixed income
securities. The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheets:
At December 31,
1996 1995
------- -------
Accumulated benefit obligation (In thousands)
Vested $2,657 $2,532
Non-vested 208 270
------- -------
Total $2,865 $2,802
======= =======
Fair value of plan assets $3,500 $2,803
Projected benefit obligation (3,032) (3,000)
------- -------
Projected plan asset value in excess of
benefit obligation 468 (197)
Unamortized transition amount 147 161
Unrecognized net (gain) or loss (350) (107)
------- -------
Accrued pension liability $ 265 $ (143)
======= =======
The net periodic pension cost in the Company's statements of income
included the following components:
For the years ended December 31,
1996 1995 1994
------- ------- -------
(In thousands)
Service cost $ 140 $ 126 $ 97
Interest cost on projected benefit
obligation 214 215 193
Actual return on plan assets (324) (420) 137
Net amortization and deferrals 114 221 (370)
------- ------- -------
Net periodic pension cost $ 144 $ 142 $ 57
======= ======= =======
The determination of the actuarial present value of the projected benefit
obligation assumed a weighted average discount rate of 7.5% and a 3% increase in
future compensation levels. The weighted average expected long-term rate of
return on plan assets was 8%.
Post retirement benefits and post employment benefits
SFAS No. 106 entitled "Employers' Accounting for Postretirement Benefits
Other than Pensions" and SFAS No. 112 entitled "Employers Accounting for
Postemployment Benefits" require the recognition and disclosure of the estimated
future costs of postretirement and postemployment benefits to which the Company
is obligated. The Company has no history of paying postretirement benefits other
than pensions and is not obligated to pay such benefits in the future. Future
obligations for postemployment benefits are immaterial. Therefore, no liability
for either has been recognized in the financial statements.
Employee Severance Agreements
The Company entered into severance agreements with its employees in
December 1995. The severance agreements require certain payments to employees
upon termination of employment, in certain instances, during a period of two
years after a 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 and upon the occurrence of certain 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 that constituted 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.
On July 30, 1996, certain of the Company's Directors were replaced by
written consent of the holders of more than a majority of the Company's Class A
Stock. As a result, a change in control, as defined in the severance agreements,
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.
On February 26, 1997, Box Control, LLC ("BCLC"), a Texas limited liability
company, acquired beneficial ownership of 56.7% of the Company's Class A Stock.
As a result, a change in control as defined in the severance agreements
occurred.
In applicable situations, the severance agreements provide for cash payment
to the terminated employee 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, and for the lapsing of all restrictions on and full
vesting of any outstanding incentive awards, including stock options granted
to the employee. 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 the insurance benefits. The
Company's Incentive Plan provides that options granted thereunder must be
exercised only during the continuance of the optionee's employment by the
Company, except in cases of retirement, death or disability. Accordingly, any
options remaining unexercised when an employee's employment is terminated for
any other reason expire at the time of termination. The severance agreements
remain in effect with respect to applicable terminations through February 26,
1999.
The total estimated cost under the severance agreements, if all severance
agreements became effective, is $5.4 million. As of December 31, 1996, five
executive officers (including the Chief Executive Officer, Executive Vice
President, Chief Financial Officer, General Counsel and Chief Accounting
Officer) and ten other employees were either dismissed, reached agreements to
terminate employment or were notified of their impending termination. Amounts
totaling $2.0 million, which include severance pay, related legal fees and
estimated life, disability, medical, dental and hospitalization benefits for the
above terminated employees, were charged to reorganization expense for the
period ending December 31, 1996. As of that date, the Company had paid $1.6
million of the accrued amounts.
NOTE 8. RELATED PARTY TRANSACTIONS
Box Brothers Holding Company ("BBHC") owns approximately 57% of the Class
A Stock of the Company and 94% of the outstanding stock of CKB Petroleum, Inc.
("Petroleum") and CKB & Associates ("Associates"). A resolution adopted in 1992
by the Board of Directors 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.
Petroleum has owned since March 1985 a minority interest in the pipeline
transporting oil from the wells in the South Pass blocks to Venice, Louisiana.
The tariff for the pipeline of $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 by Petroleum. Petroleum billed
the Company $2.8 million, $2.7 million and $2.2 million for the three years
ending December 31, 1996, 1995 and 1994, respectively.
The Company bills Petroleum and other related parties for an allocated
portion of office space that is subleased to Petroleum, payroll including the
related costs and benefits, and other overhead costs. The amounts billed are
considered to be the fair value of such usage or allocations. The Company billed
expenses totaling $81,000, $134,000 and $123,000 for the three years ending
December 31, 1996, 1995 and 1994, respectively.
In March 1995, two of the Company's current Directors, seven of its former
Directors, two of its current officers and one former officer 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 Note 9.
"Commitments and Contingencies." In accordance with the By-Laws of the Company,
the defendants have executed written undertakings to repay the Company for any
related 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 related
to these cases were $60,000 and $583,000, for 1996 and 1995, respectively.
On June 27, 1996 BBHC, as the record and beneficial holder of approximately
57% of the outstanding Class A Stock of the Company, delivered to the Company a
written consent (the "BBHC Consent") executed by BBHC pursuant to Section 228
of the Delaware General Corporation Law that (i) amended the Company's By-Laws
to permit the removal of directors with or without cause, (ii) removed all the
then current directors except Don D. Box and Alan C. Shapiro, (iii) fixed the
number of the directors of the Company at seven and (iv) elected Glen Adams,
Daryl L. Buchanan, Richard D. Squires, Thomas D. Rollins, and Bernay C. Box to
serve as Directors of the Company with Don D. Box and Alan C. Shapiro. The
effective date of the BBHC Consent was July 30, 1996. Subsequently, written
consents to the same effect, executed by Basil Georges and Pat Rutherford, Jr.,
the record holders of approximately 14% and 9%, respectively, of the Company's
Class A Stock, were delivered to the Company. Also on June 27, 1996, BBHC 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 BBHC Consent was effective in accordance with its
terms. The individual defendants in the case filed answers alleging that BBHC
might hold less than a majority of the Company's Class A Stock and that the
Company had been conducting a study of this matter. The court in this case
entered a Final Judgment dated September 16, 1996, ordering that the three
stockholder consents discussed 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 By-Laws as
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. Petroleum paid certain legal expenses on behalf of BBHC and
subsequently requested and received reimbursement of those legal expenses by the
Company. In addition, the Company paid legal expenses for the above matter on
behalf of BBHC in accordance with Delaware law. Legal expense paid or reimbursed
by the Company to or on behalf of BBHC and on behalf of the former Board of
Directors totaled $229,000 in 1996.
After the U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit")
issued its opinion in May 1996, ordering a new trial and resolving certain other
issues, the previous 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 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. The costs related to this study totaled $348,000. 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 BBHC Consent,
together with the written consents executed by Basil Georges and Pat Rutherford,
Jr., is effective in accordance with its terms.
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 Partnership Agreement provided that the General
Partners were to be indemnified for litigation expenses in certain situations in
which they were sued in their capacity as general partners of the Predecessor
Partnership. Accordingly, the Predecessor Partnership, and later the Company,
paid the legal expenses and other defense costs of the General Partners during a
large portion of the Griffin Case litigation. These payments were required under
the Partnership Agreement as a result of the General Partners' execution of
written undertakings to repay the Company for any such litigation expenses
advanced on their behalf if it was later determined that such advancements were
not subject to indemnification by the Company. The Company did not pay the legal
expenses and other defense costs of the General Partners after February 1994.
After the decision of the Fifth Circuit was handed down, the General Partners
sought and received reimbursement from the Company of these legal fees for the
period March 1994 to April 1996 in the amount of $1.4 million. Since that date,
the indemnified parties have incurred additional litigation expenses of
approximately $51,000, which the Company has advanced or is obligated to
advance. The Company 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 above.
In its claim the Company was 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.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space under a noncancelable operating lease that
expires on April 1, 1998. The lease may be renewed for one additional period of
five years at a market rental rate, if the Company occupies at least 50% of the
space. Future minimum rental payments in the amount of $668,000, and $169,000
are due in the next two years, respectively. Total rent expense was $717,000,
$688,000 and $710,000 in 1996, 1995, and 1994, respectively.
Litigation Contingencies
Griffin Cases
The Griffin, et al. v. Box, et al. case was filed in November 1987 in the
United States 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 (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.
Plaintiffs made two types of claims. First, plaintiffs sought individual
damages for alleged securities law violations and a declaratory judgment
regarding their voting rights. All of the plaintiffs' claims for individual
damages and voting rights were denied by the district court at trial in October
1992.
Secondly, plaintiffs brought derivative claims on behalf of the Predecessor
Partnership alleging that the General Partners breached the 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. See Note 8. Related Party
Transactions. The second transaction involved the amount of general and
administrative expenses paid by the Predecessor Partnership before the Corporate
Conversion. The third transaction was a loan made by the Predecessor Partnership
to an unaffiliated individual. Plaintiffs alleged actual damages of $20.0
million and punitive damages of $60.0 million. In addition, plaintiffs alleged
that the General Partners engaged in racketeering activities in relation to the
three transactions.
In October 1992, the jury returned a verdict on the derivative claims
finding that the General Partners did not breach the Partnership Agreement but
breached fiduciary duties and an implied covenant of good faith and fair dealing
arising from the Partnership Agreement. The jury awarded actual damages of
approximately $20.0 million and future damages of approximately $6.2 million in
favor of the Predecessor Partnership and against the General Partners relating
to the pipeline transaction. Minor damages were awarded on the general and
administrative expenses issue while no damages were awarded based on the loan
transaction. In addition, 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 for $20.1 million for past
damages and against the Estate for $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 Common Stock.
In its amended final judgment issued in October 1994, the district court
added pre-judgment and post-judgment interest. In a separate order, the district
court granted the plaintiffs' motion for attorneys' fees and costs without
specifying the amount awarded. The plaintiffs sought $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
(vii) found that the trial court had erred in granting plaintiffs' attorneys'
fees. On October 7, 1996, the Plaintiffs' application to the United States
Supreme Court for appellate review of the Fifth Circuit's decision was denied.
In February and March 1995, the same plaintiffs as in the Griffin case
filed two actions against the Company, all of its then current directors, two of
its former directors, its then current vice president and chief financial
officer, its senior vice president/operations and its vice president and
controller in the 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 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 $50.0 million plus $100.0
million in punitive damages against each defendant. The action was abated
pending resolution of the underlying case on appeal to the United States
Supreme Court, which denied certiorari on October 7, 1996 and was dismissed
during the fourth quarter of 1996.
Phillips Petroleum Case
In August 1990, Phillips Petroleum Company ("Phillips") brought an action
against the Predecessor Partnership now pending in state court in Orleans
Parish, Louisiana, claiming that Phillips is entitled, pursuant to its 33%
Net Profits Interest ("NPI") in South Pass Block 89, to receive an overriding
royalty interest for months in which monthly net profits were not achieved.
In addition, Phillips claims that the net profits account is being charged
an excessive oil transportation fee. In September 1991, this lawsuit was
amended by Phillips to include a claim that the entire $69.6 million lump sum
cash payment received by the Predecessor Partnership in its 1990 settlement of
litigation with Texas Eastern Transmission Corporation ("Texas Eastern
Settlement") should have been credited to the net profits account. Under this
latter claim, Phillips alleges damages in excess of $21.5 million. The Company
previously credited the net profits account with $5.8 million of the $69.6
million received in the Texas Eastern Settlement, which is all of the Texas
Eastern Settlement proceeds that the Company believes should be credited to the
net profits account. On the first two claims, Phillips alleges aggregate damages
of several million dollars. Phillips further seeks double damages, interest,
attorneys' fees and cancellation of the farmout agreement. The Company is
vigorously defending that such amounts are not payable under the NPI and that
Phillips is not entitled to any of the damages sought. In March 1993, Phillips
filed a motion for summary judgment on its claim relating to the Texas Eastern
Settlement. That motion was denied by the court in July 1993. Discovery is
ongoing by both parties. A trial date of March 31, 1997 has been set by the
court.
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 shareholders of the Company's Class B Stock. The
defendants are the Company and its then current Board of Directors. 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. The Company believes these class actions are without legal merit
and will defend the 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.
Thomas D. Box Lawsuit
On August 16, 1996, Thomas D. Box filed a lawsuit for direct and derivative
relief 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 BBHC
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 BBHC and Petroleum. On or about September
20, 1996, a first amended petition was filed in this lawsuit adding the Company
as a defendant. On or about February 18, 1997, plaintiff filed a second amended
petition adding as defendants, Alan C. Shapiro, Thomas W. Rollins, Richard D.
Squires, and Bernay C. Box. The Board of Directors appointed a special
litigation committee consisting of independent directors to investigate
plaintiff's derivative claims. The special litigation committee has engaged
counsel to assist the committee with its investigation.
Other Contingencies
The Company is not a party to any material pending legal proceedings other
than the foregoing. If the Company is not successful in the foregoing suits, it
is the opinion of the Company that any adverse judgments, other than certain
possible results of the litigation described above, would not have a material
adverse effect on the Company.
Potential Royalties Liability
In May 1993, the United States Department of the Interior's Minerals
Management Service ("MMS") stated a new position that royalties are payable on
gas contract settlement proceeds to resolve take-or-pay, buy-out, buy-down or
pricing disputes involving a federal government oil and gas lease. The Company
has complied with all filing requirements and disclosed the Texas Eastern
Settlement to the MMS. Relying on the holding by the Fifth Circuit in a case
styled Diamond Shamrock Exploration Co. v. Hodel and a prior rule of the MMS,
the Company paid a one-sixth royalty to the MMS on $5.8 million of the $69.6
million received in the Texas Eastern Settlement, which is all of the royalty
that the Company believes is due on the Texas Eastern Settlement proceeds. It is
uncertain whether the MMS will accept the Company's calculation of royalty on
the Texas Eastern Settlement. The ultimate outcome of these events or potential
claims made by the MMS against the Company, if any, cannot be determined at this
time.
NOTE 10. OIL AND GAS PROPERTIES (UNAUDITED)
Investments in oil and gas properties (all of which are in the United
States), including onshore fee lands, were as follows:
<TABLE>
<CAPTION>
At December 31,
1996 1995
----------------------------- ------------------------------
(In thousands)
Proved Unproved Total Proved Unproved Total
--------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Onshore $ 8,924 $3,502 $ 12,426 $ 2,781 $3,079 $ 5,860
Offshore 171,823 3,002 174,825 158,708 886 159,594
--------- ------- --------- --------- ------- ---------
180,747 6,504 187,251 161,489 3,965 165,454
Accumulated depreciation,
depletion and
amortization (112,648) - (112,648) (90,701) - (90,701)
--------- ------- --------- --------- ------- ---------
Net oil and gas
properties $ 68,099 $6,505 $ 74,603 $ 70,788 $3,965 $ 74,753
========= ======= ========= ========= ======= =========
</TABLE>
Expenditures for acquisition, exploration, development and production for
oil and gas properties incurred by the Company are summarized as follows:
For the years ended December 31,
1996 1995 1994
-------- -------- --------
(In thousands)
Acquisition costs $ 5,548 $ 3,215 $ 322
Exploration costs $27,811 $ 8,902 $ 4,495
Development costs $ 9,359 $ 11,597 $ 12,172
Production costs $ 3,825 $ 3,142 $ 2,839
The Company's net ownership interest in proved oil and gas reserves was as
follows:
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994
--------------- --------------- ----------------
(In thousands)
Natural Natural Natural
Oil Gas Oil Gas Oil Gas
MBbls MMcf MBbls MMcf MBbls MMcf
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 2,938 51,373 3,298 50,334 3,389 53,150
Revisions of previous
estimates 709 (8,162) 7 1,040 375 361
Extensions, discoveries and
other additions 585 4,340 472 5,866 190 3,105
Production (933) (8,219) (839) (5,867) (656) (6,282)
------ ------- ------ ------- ------ -------
End of period 3,299 39,332 2,938 51,373 3,298 50,334
====== ======= ====== ======= ====== =======
Proved developed reserves
Beginning of period 2,282 33,521 1,941 23,488 1,926 27,840
End of period 2,541 28,323 2,282 33,521 1,941 23,488
</TABLE>
The upward revision of oil reserves and downward revision in natural gas
in 1996 was primarily on South Pass Block 87.
The proved developed and undeveloped reserves and standardized measure of
discounted future net cash flows associated with South Pass Block 89 are
burdened by a 33% Net Profits expense. The reserves included herein for South
Pass Block 89 are stated before deduction of Net Profits expense, which is
treated as an operating expense rather than a reduction in proved reserves. At
December 31, 1996 proved reserves from South Pass Block 89 represented
approximately 40% and 40% of the total proved oil and natural gas reserves,
respectively.
Estimates of oil and gas reserves were prepared by the independent
engineering and consulting firm of Netherland, Sewell & Associates, Inc. The
determination of these reserves is a complex and highly interpretative process
which is subject to continued revision as additional information becomes
available. In most cases, a relatively accurate determination of reserves may
not be possible for several years due to the time necessary for development
drilling, testing and studies of the reservoirs.
The quantities of proved oil and gas reserves presented include only those
amounts which the Company reasonably expects to recover in the future from known
oil and gas reservoirs under existing economic and operating conditions.
Accordingly, proved reserves are limited to those quantities which are
recoverable commercially at current prices and costs, under existing regulatory
practices and technology. Therefore, any changes in future prices, costs
regulations, technology and unforeseen factors could significantly increase or
decrease proved reserve estimates.
The following tables include amounts determined in accordance with the
requirements of the SFAS No. 69 entitled "Disclosures About Oil and Gas
Producing Activities" with respect to estimated future net cash flows from oil
and gas reserves and the present worth of those estimated future net cash flows
discounted at 10% per annum.
In accordance with SFAS No. 69 methodology, specific assumptions were
applied in the computation of the reserve evaluation estimates. Under this
methodology, future net cash flows are determined by reducing estimated future
gross cash flows from oil and gas sales by the estimated costs to develop and
produce the underlying reserves, including the Net Profits expense on South Pass
Block 89.
Future cash inflows were based on year end prices of proved oil and gas
reserves as adjusted by known contractual pricing information assuming that the
Company will sell its future gas production from South Pass Block 89 at the
prices set forth in its existing long-term gas purchase contract for such gas.
Future production costs were based on costs as of the estimated date to produce
the proved oil and gas reserves. A significant portion of the proved reserves
are undeveloped and future development costs were calculated based on a
continuation of present economic conditions. Future net cash flows were then
discounted at 10% per annum to arrive at the standard measure of discounted
future net cash flows.
Due to the imprecise nature of the oil and gas reserves and the uncertainty
of future economic conditions, the Company makes no representation regarding
what interpretations may be made or what degree of reliance may be placed on
this method of evaluating proved oil and gas reserves. The following table
presents the standardized measures of discounted future net cash flows and
changes therein relating to proved oil and gas reserves:
At December 31,
1996 1995 1994
---------- ---------- ----------
(In thousands)
Future cash inflows $ 326,498 $ 335,199 $ 321,434
Future productions costs (26,971) (26,269 (21,368)
Future Net Profits expense (53,955) (64,988) (72,394)
Future development costs (17,756) (20,046) (20,972)
Future income tax expense (50,638) (50,027) (43,067)
---------- ---------- ----------
Future net cash flows 177,178 173,869 163,633
10% annual discount (31,165) (39,887) (39,143)
---------- ---------- ----------
Standardized measure of discounted
future net cash flows $ 146,013 $ 133,982 $ 124,490
========== ========== ==========
Following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
At December 31,
1996 1995 1994
----------- ----------- ----------
(In thousands)
Standardized measure of discounted
cash flows at beginning of year $ 133,982 $ 124,490 $ 124,002
Sales and transfers of oil and gas
produced, net of production costs
and Net Profits expense (47,810) (36,479) (38,458)
Net changes in prices and production
costs 37,764 12,300 (6,573)
Net changes in estimated development
costs (1,332) (3,229) (1,165)
Net changes in estimated Net Profits
expense 1,750 (8,990) (10,720)
Net changes in income tax expense (3,736) (6,175) 6,560
Extensions, discoveries and improved
recovery less related costs 16,060 25,042 9,681
Development costs incurred during the
year 9,359 11,597 12,172
Revisions of previous quantity
estimates (10,747) 15,048 21,565
Other changes (2,675) (12,071) (4,974)
Accretion of discount 13,398 12,449 12,400
----------- ----------- ----------
Standardized measure of discounted
future net cash flows $ 146,013 $ 133,982 $ 124,490
=========== =========== ==========
NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Period ended December 31, 1996
Revenues $ 19,073 $ 17,861 $ 15,823 $ 17,453
Gross margin $ 6,989 $ (643) $ 1,586 $ 1,661
Income (loss) before taxes $ 3,757 $ (5,270) $ (5,088) $ (2,831)
Net income (loss) $ 2,417 $ (3,473) $ (3,138) $ (3,468)
Primary income (loss) per share $ 0.12 $ (0.17) $ (0.15) $ (0.17)
Period ended December 31, 1995
Revenues $ 14,514 $ 12,557 $ 14,914 $ 17,508
Gross margin $ 4,738 $ 4,716 $ 6,228 $ 6,263
Income (loss) before taxes $ 840 $ 1,336 $ 2,691 $ 2,647
Net income (loss) $ 739 $ 838 $ 1,918 $ 1,897
Primary income (loss) per share $ 0.04 $ 0.04 $ 0.09 $ 0.09
</TABLE>
Gross margin includes revenues net of operating costs and expenses, Net
Profits Interest expense, exploration expense, dismantlement and abandonment,
and depreciation, depletion and amortization directly relating to oil and gas
activities.
NOTE 12. INDUSTRY SEGMENT INFORMATION
The Company is primarily engaged in one industry segment, crude oil and
natural gas exploration, development and production. The Company generally does
not operate oil and gas properties but owns interests in such properties as a
working interest owner.
The most significant customers of the Company during 1996, were and BayOil
(USA), Inc. and Texas Eastern Transmission Corporation which represented 18% and
51% of the total oil and natural gas revenues. The most significant customers
during 1995 and 1994 were Marathon Oil Company and Texas Eastern Transmission
Corporation, which represented 25% and 18%, and 70% and 63% , respectively, of
the Company's total oil and natural gas revenues.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company filed a Form 8-K during the quarter ended September 30, 1996
which reported the Company's dismissal of Coopers & Lybrand L.L.P. as
independent accountants and the retaining of Arthur Andersen LLP as the
Company's independent accountants for 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information with respect to persons who served
on the Company's Board of Directors (a "Director") or as an executive officer of
the Company during 1996. 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 By-Laws of the Company.
Several of the present and former Directors and several of the present and
former officers have been named as defendants in one or more legal actions.
See "--Litigation Involving Directors and Officers." Executive officers hold
their respective offices at the pleasure of the Board of Directors.
Name Age Position
---- --- --------
Glen Adams (2)(10) 58 Director
John F. Arning (1) Deceased Director
Bernay C. Box (2) 35 Director
Don D. Box (1)(11) 46 Chairman of the Board of
Directors, President and Chief
Executive Officer
Thomas D Box (1)(4) 41 Director, President and Chief
Executive Officer
Daryl L. Buchanan (1)(3)(9) 47 Director
Kent R. Hance, Sr. (1)(3) 54 Director
John L. Kelsey (2)(3) 71 Director
Thomas W. Rollins (1) 66 Director
Alan C. Shapiro (2)(3) 51 Director
Norman W. Smith (1)(2)(3) 54 Director
Richard D. Squires (1)(3) 39 Director
Ewell Doak Walker (1) 70 Director
Craig T. Scott (5) 50 Executive Vice President
Dennis A. Francis 44 Senior Vice
President/Operations
Jill M. Killam (6) 42 Vice President and Chief
Financial Officer
W. Jefferson Burnett (7) 38 General Counsel and Secretary
J. Burke Asher 56 Chief Accounting Officer and
Secretary
Edward V. Howard 34 Vice President, Controller and
Assistant Secretary
M. Carlisle Barker (8) 44 Vice President, Chief
Accounting Officer and
Assistant Treasurer
Rodney A. Madden 41 Vice President/Marketing and
Supply
Dorothy A. Knauf 76 Treasurer and Assistant
Secretary
- ----------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Thomas D. Box was removed as a Director effective July 30, 1996, and as
President and Chief Executive Officer effective August 7, 1996.
(5) 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.
(9) Daryl L. Buchanan resigned as a Director on January 23, 1997.
(10) Glen Adams resigned as a Director on January 24, 1997.
(11) On March 17, 1997, Don D. Box relinquished the office of President. He
remains Chairman and Chief Executive Officer.
The following is a brief description of the background and principal
occupation of each Director and executive officer of the Company. The periods
of service shown below for officers of the Company include service prior to the
Corporate Conversion, as officers of CKB & Associates, Inc., which served as the
corporate general partner of the Predecessor Partnership.
Glen Adams served as a Director from July 30, 1996 until January 24, 1997.
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.
John F. Arning (deceased) served as a Director of the Company from March,
1991 until July, 1996. Mr. Arning was a retired member of the law firm of
Sullivan & Cromwell, where he practiced law for substantially his entire career.
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 is the nephew of the late Cloyce K. Box and is the
first cousin of Don D. Box, Douglas D. Box, Gary D. Box and Thomas D. Box.
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. From March
1, 1994, until January 31, 1995, he served as the Company's Director of
Corporate Development. He served as President and Chief Executive Officer
from August 7, 1996 to March 17, 1997. On March 17, 1997, he relinquished the
office of President. He remains Chairman and Chief Executive Officer. He is a
Director and President of BBHC, and President of CKB & Associates, Inc.
("Associates"), CKB Petroleum, Inc. ("Petroleum"), and certain other affiliates
of BBHC. BBHC 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 the late Cloyce K. Box and the brother of Douglas D. Box, Gary D. Box and
Thomas D. Box, and the first cousin of Bernay C. Box. He is a co-executor of
the Estate of Cloyce K. Box.
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 Chief Executive 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, and served as Vice President and Secretary of
Associates. He has also served as a director and in various officer positions
in BBHC, Petroleum, Associates and other affiliates of BBHC. He no longer serves
as an officer or director of any of these entities. He is the son of the late
Cloyce K. Box and the brother of Don D. Box, Douglas D. Box and Gary D. Box,
and the first cousin of Bernay C. Box. He is a co-executor of the Estate of
Cloyce K. Box.
Daryl L. Buchanan served as a Director from July 30, 1996 until January 23,
1997. 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.
Kent R. Hance, Sr. served as a Director of the Company from March, 1991
until June, 1996. He has been a partner with the law firm of Hance, Scarborough,
Woodward & Wiesbart since mid-1994. He served as a partner in the law firm of
Hance & Gamble from 1990 until mid-1994.
John L. Kelsey served as a Director from July 1, 1993 until July, 1996.
Prior to his retirement in 1991 from PaineWebber Incorporated, a financial
services firm, Mr. Kelsey served as an Advisory Director in the investment
banking group of the firm for approximately three years. Prior to assuming
that position, he served as a Managing Director of the firm's investment banking
group for over five years. Mr. Kelsey is a general partner in Eastman Dillon Oil
& Gas Associates, a private investment partnership. Mr. Kelsey currently serves
on the Board of Directors of Standard Motor Products Corporation, an automobile
replacement parts company. During 1995 and until March 1996, Mr. Kelsey also
served on the Board of Directors of Federal Paper Board Company, Inc., a forest
products firm that was merged into another company in March 1996.
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.
Alan C. Shapiro has served as a Director since May 5, 1994. From 1993
through the present, Professor Shapiro has served as Chairman of the Department
of Finance and Business Economics in the Graduate School of Business
Administration of the University of Southern California. Since 1984, Professor
Shapiro has been a Professor of Finance and Business Economics at the University
of Southern California's Graduate School of Business. From 1991 to present,
Professor Shapiro has been the Ivadelle and Theodore Johnson Professor of
Banking and Finance at the school. In addition, Professor Shapiro has also
taught at the Wharton School of the University of Pennsylvania and at Carnegie
Mellon University. His visiting teaching appointments have included Yale
University and the University of California at Los Angeles.
Norman W. Smith served as a Director of the Company from March, 1991 until
July, 1996. He has served as President of Express Air Drilling, Inc. and
Chairman of Ozark Exploration, Inc., both oil and gas-related concerns, for over
five years.
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-based
real estate and high-yield securities investment firm. Mr. Squires also serves
as a director of Vista 2000, Inc. and American Consumer Products, Inc., a
subsidiary of Vista 2000, Inc., and as President of R3 Realty Corp. (formerly
Pace Membership Warehouse, Inc.).
Ewell Doak Walker served as a Director of the Company from March, 1991
until July, 1996. Prior to his retirement in 1991, Mr. Walker for over five
years served as Vice President of Corporate Sales of Fishbach Company, an
engineering and construction firm.
Craig T. Scott, an attorney and a Certified Public Accountant, served the
Company as Executive Vice President from July 1, 1993 and as an attorney from
1991 to 1993. The Company and Mr. Scott agreed to a termination of Mr. Scott's
employment effective as of October 2, 1996. 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 BBHC 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.
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. On March 3,
1997, Mr. Asher was elected to the Board of Directors of BBHC.
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. He was elected Assistant Secretary on October 1, 1997.
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." 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
James A. Watt was employed by the Company on March 17, 1997, as President
and Chief Operating Officer. Mr. Watt was a Vice President/Exploration of
Seagull Energy E&P, Inc. from 1993 to 1997. He was Vice President/Exploration &
Exploitation of Nerco Oil & Gas, Inc. from 1991 to 1993. Mr. Watt received a
Bachelor of Science in Physics from Rensselaer Polytechnic Institute. He is 47
years of age.
None of the Directors, except for Norman W. Smith and John L. Kelsey, have
significant personal interests in the exploration, development or production of
oil and gas. Express Air Drilling, Inc. and Ozark Exploration, Inc., of which
Mr. Smith is President and Chairman of the Board of Directors, respectively, are
engaged in exploration, development and production of oil and gas in West Texas.
Presently, the Company does conduct oil and gas activities in the same regions
of the United States as the affiliates of Mr. Smith. Because of this conflict,
Mr. Smith abstained on matters relating to the Company's activities in West
Texas. Eastman Dillon Oil & Gas Associates, of which Mr. Kelsey is a general
partner, is engaged in oil and gas production and development drilling in the
Hugoton basin in Kansas, an area in which the Company does not presently
conduct oil and gas activities.
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 BBHC. The Estate was substituted in the place of Cloyce K. Box in
the litigation after his death in October 1993. As a result of the Corporate
Conversion, the Company will receive all benefits, and will suffer all
detriments, if any, of the Predecessor Partnership in the litigation.
The plaintiffs made two types of claims in this case. First, plaintiffs
sought individual damages for alleged securities law violations and a
declaratory judgment regarding their voting rights. All of the plaintiffs'
claims for individual damages and voting rights were denied by the district
court at trial in October 1992.
Secondly, plaintiffs brought derivative claims on behalf of the Predecessor
Partnership alleging that the General Partners breached the limited partnership
agreement of the Predecessor Partnership ("the Partnership Agreement"), breached
fiduciary duties and violated an implied covenant of good faith and fair dealing
in relation to three transactions. The derivative defendants' motion that the
plaintiffs lacked standing on the derivative claims was rejected by the district
court. The first transaction was the 1985 purchase of an interest in an oil
pipeline by Petroleum. The second transaction involved the amount of general and
administrative expenses paid by the Predecessor Partnership prior to the
Corporate Conversion. The third transaction was a loan made by the Predecessor
Partnership to an unaffiliated individual.
The plaintiffs alleged actual damages of $20 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. 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, BBHC 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 BBHC 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
BBHC had no liability to the plaintiffs. BBHC's Plan of Reorganization was
approved by the bankruptcy court in April 1995, thus allowing BBHC 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 BBHC.
Thomas D. Box Lawsuits
On August 16, 1996, Thomas D. Box filed a lawsuit for direct and derivative
relief 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
BBHC 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 BBHC and Petroleum. On or about
September 20, 1996, a first amended petition was filed in this lawsuit adding
the Company as a defendant. On or about February 18, 1997, plaintiff filed a
second amended petition adding as defendants Alan C. Shapiro, Thomas W.
Rollins, Richard D. Squires, and Bernay C. Box. The Board of Directors
appointed a special litigation committee consisting of independent directors
to investigate plaintiff's derivative claims. The special litigation
committee has engaged counsel to assist the committee with its investigation.
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 BBHC, 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 BBHC.
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.
Box Control, LLC
On March 2, 1997 and March 6, 1997, BBHC and Box Control, LLC ("BCLC") and
others filed Schedule 13Ds disclosing that on February 26, 1997 the
Gary D. Box 1996 Trust ("GDBT") and the Don D. Box 1996 Trust "(DDBT") each
contributed 11 shares of voting stock of BBHC, representing all of their voting
stock in BBHC, to BCLC in exchange for non-voting interests in BCLC. On the
same date Don D. Box contributed three non-voting shares of BBHC common
stock to BCLC in exchange for the sole voting membership interest in BCLC. On
March 3, 1997, BCLC executed a Written Consent (the "BCLC Consent"), in
its capacity as the majority shareholder of BBHC, to remove the Board of
Directors of BBHC and replace it with a new Board. On March 4, 1997, Don D.
Box and BCLC filed an action in the Court of Chancery of the State of
Delaware, under 8 Del C. Sec. 225, asking the Court to declare the BCLC
Consent valid and enforceable and to declare that the old Board of BBHC
had been removed and replaced by the new Board (the "Delaware Action"). On
March 27, 1997, Douglas D. Box filed an answer in the Delaware Action
contesting the effectiveness of the actions taken by Don D. Box, Gary D. Box
and BCLC. On March 4, 1997, Douglas D. Box filed an action in Dallas County,
Texas, styled Douglas D. Box, individually and as next friend of Alisa D. Box,
a minor, and as settlor and co-trustee of the Douglas D. Box 1996 Trust, the
Gary D. Box 1996 Trust and the Don D. Box 1996 Trust v. Don D. Box and
Gary D. Box, individually and as trustees of The Don D. Box 1996 Trust, The
Gary D Box 1996 Trust and The Douglas D. Box 1996 Trust, and Steven J. Craig,
J. Burke Asher, Patricia Arvin, and Box Control, LLC, alleging that Don D. Box
and Gary D. Box have breached various fiduciary duties, requesting that they
be removed as the trustees from certain trusts, asking for the appointment of
a receiver for BBHC, and requesting an order restraining Don D. Box and others
from taking various actions with regard to BBHC (the "Texas Action"). The
application for temporary restraining order was denied at a hearing held on
March 7, 1997.
On March 20, 1997, the defendants in the Texas Action filed their answers
and Don D. Box filed a counterclaim against Douglas D. Box for attorney's fees.
On March 21, 1997, Douglas D. Box filed a Motion for Nonsuit requesting that
the Texas Action be dismissed without prejudice.
Section 16(a) Beneficial Ownership Reporting Compliance
J. Burke Asher, who became an Officer of the Company on September 3, 1996,
filed one late Form 3 on December 20, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company during
1994, 1995 and 1996 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 1996 exceeded $100,000 (collectively, the
"Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------
(a) (b) (c) (d) (e)
Other Annual
Salary Bonus Compensation
Name and Principal Position Year ($) ($) ($)
- --------------------------- ---- ------- ------ ------------
<S> <C> <C> <C> <C>
Thomas D. Box 1994 353,300 40,000 (2)
Chief Executive Officer 1995 355,500 25,000 (2)
and President (1) 1996 288,888 0 (2)
Don D. Box 1994 183,000 20,000 (2)
Chairman of the Board, 1995 19,300 0 (2)
President and Chief 1996 0 0 (2)
Executive Officer(6)
Craig T. Scott 1994 120,000 19,200 (2)
Executive Vice President(8) 1995 123,600 21,800 (2)
1996 114,772 0 (2)
Dennis A. Francis 1994 120,000 19,200 (2)
Senior Vice President/ 1995 123,600 21,700 (2)
Operations 1996 136,000 4,000 (2)
Jill M. Killam 1994 120,000 19,200 (2)
Vice President and 1995 123,600 21,000 (2)
Chief Financial Officer(10) 1996 104,284 0 (2)
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Awards Payouts
------------------------------ ----------------------
(a) (b) (f) (g) (h) (i)
Restricted Securities
Stock Underlying LTIP All Other
Award(s) Options/SAR's Payouts Compensation
Name and Principal Position Year ($) (#) ($) ($)
- --------------------------- ---- --------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Thomas D. Box 1994 0 0 0 400(5)
Chief Executive Officer 1995 0 50,000(3)(4) 0 400(5)
and President(1) 1996 0 0 0 102(5)
Don D. Box 1994 0 0 0 400(5)
Chairman of the Board and 1995 0 0 0 554,100(7)
Director of Corporate 1996 0 0 0 14,000(7)
Development(6)
Craig T. Scott 1994 0 0 0 400(5)
Executive Vice President(8) 1995 0 20,000(3)(9) 0 400(5)
1996 0 0 0 386,876(8)
Dennis A. Francis 1994 0 0 0 400(5)
Senior Vice President/ 1995 0 20,000(9) 0 400(5)
Operations 1996 0 0 0 102(5)
Jill M. Killam 1994 0 0 0 400(5)
Vice President and 1995 0 20,000(3)(9) 0 400(5)
Chief Financial Officer(10) 1996 0 0 0 318,102(10)
</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 $50,000 or 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) These amounts are 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. On March 17, 1997, he relinquished the office of
President, but remains Chairman and Chief Executive Officer.
(7) 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. For 1996, this amount is for Director's fees.
(8) Craig T. Scott and the Company agreed to the termination of Mr. Scott's
employment effective as of October 2, 1996. "All Other Compensation" for 1996
includes $178 for group term life insurance premiums paid by the Company and
$386,698 paid under the terms of his Severance Agreement.
(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) Jill M. Killam was removed as Vice President and Chief Financial Officer
effective August 7, 1996. "All Other Compensation" for 1996 includes $102 for
life insurance premiums paid by the Company and $318,000 paid under the terms of
her Severance Agreement.
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 Company 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
terminates on April 23, 2002. The primary purposes of the Incentive Plan are to
provide an additional inducement for those employees granted options to remain
with the Company and to continue to increase their efforts to make the Company
successful. The Incentive Plan is administered by those Directors serving on the
Compensation Committee. During 1996, the Compensation Committee granted options
to purchase a total of 37,500 (15,000 of which have since been forfeited) shares
of Class B Stock under the Incentive Plan. No stock options granted under the
Incentive Plan were exercisable prior to April 28, 1995. No stock option grants
were made in 1996 to Named Executive Officers (as defined).
Terms of the Incentive Plan include the following:
a. More than one option may be granted 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 more than 50,000
shares per year. In order to become effective, such amendment to the Incentive
Plan requires the approval of the holders of a majority of the Company's Class
A Stock (the "Stock Option Amendment"). The present Board of Directors is
reevaluating the Incentive Plan and has not submitted the Stock Option
Amendment to a vote of the stockholders.
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 covered by options being exercised. The shares
purchased through the exercise of options are to be paid for in cash or a
combination of cash and payments under an installment note payable to the
Company monthly plus interest over a period of up to five years. No options can
be exercised in the first three years after the date of grant; options can be
exercised for no more than 50% of the optioned shares after the third year but
before the fifth year after the date of grant, and the remaining 50% of the
optioned shares may be exercised no sooner than five years after the date of
grant.
d. All options terminate 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 a condition to the grant of an option, the optionee is required to
execute a written agreement to remain in the employment of the Company for one
year, subject to termination at will by the Company.
f. The number of shares of Class B Stock covered by options granted to
any individual under the Incentive Plan and the option prices are subject to
certain anti-dilution adjustments.
Option/SAR Grants In Last Fiscal Year
No stock option grants were made in 1996 to named Executive Officers.
Pension Plan
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 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.
The following table illustrates the annual pension for plan participants
that retire at "normal retirement age" in 1996:
Pension Plan Table
Average Years of Service(1)(3)(4)
Compensation(1)(2) 15 20 25 30 35
- ------------------ ------ ------ ------ ------ ------
($) ($) ($) ($) ($) ($)
125,000 53,305 56,490 59,675 62,860 66,045
150,000 64,493 68,490 72,488 76,485 80,483
175,000 64,493 68,490 72,488 76,485 80,483
200,000 64,493 68,490 72,488 76,485 80,483
225,000 64,493 68,490 72,488 76,485 80,483
250,000 64,493 68,490 72,488 76,485 80,483
300,000 64,493 68,490 72,488 76,485 80,483
400,000 64,493 68,490 72,488 76,485 80,483
450,000 64,493 68,490 72,488 76,485 80,483
500,000 64,493 68,490 72,488 76,485 80,483
- ----------
(1) As of December 31, 1996, 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, 1996 for the Named Executive
Officers is as follows: Thomas D. Box (13 years), Don D. Box (1 year), Craig T.
Scott (4 years), Dennis A. Francis (15 years), and Jill M. Killam (15 years).
(4) The normal form of payment is a life annuity for a single participant or a
50% joint and survivor annuity for a married participant.
Compensation of Directors
The Directors held eleven meetings in 1996. All Directors attended at least
75% of the 1996 meetings held during their respective tenures. With respect
to Director activities undertaken by a committee of Directors, a quorum of
committee members were present at each of the respective committee meetings.
Each Director was paid a fee of $16,000 per annum. This fee was increased to
$20,000 per annum beginning in the fourth quarter of 1996. 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 also provides the Directors
with directors' and officers' liability insurance. Further, the Company's
By-Laws provide for the Company's indemnification of Directors and officers in
certain situations. In addition, in the event of a change of control, any stock
option granted a Director will immediately vest.
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.
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 is 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 continue to
increase their efforts to make the Company successful. The Non-Qualified Plan is
administered by the Compensation Committee. On April 28, 1992, the Stock Options
Committee (now the Compensation Committee) granted each person then serving as
Director, the option to purchase 25,000 shares of the Company's Class B Stock
under the Non-Qualified Plan with an exercise price of $11.875 per share. On
August 18,1994, 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 option may be granted to an individual, but options for
no more than 50,000 shares may be granted under the Non-Qualified Plan to any
individual.
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.
c. Options may be exercised by the optionee only by written notice
stating the number of shares covered by options being exercised. The shares
purchased through the exercise of options are to be paid for in cash or a
combination of cash and payments under an installment note payable to the
Company monthly plus interest over a period of up to five years. No options
can be exercised in the first three years after the date of grant; options
can be exercised for no more than 50% of the optioned shares after the third
year but before the fifth year after the date of grant; and the remaining 50% of
the optioned shares may be exercised no sooner than five years after the date of
grant.
d. All options terminate upon a termination of an optionee's service as
a Director of the Company, other than as a result of his death. Options may not
be transferred by an optionee except by will or the laws of descent and
distribution.
e. The number of shares of the Company's Class B Stock covered by
options granted to any individual under the Non-Qualified Plan and the option
prices are subject to certain anti-dilution adjustments.
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 a 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 who comprised 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 BBHC Written 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.
On February 26, 1997, Box Control, LLC ("BCLC"), a Texas limited liability
company, acquired beneficial ownership of 56.7% of the Company's Class A
Stock. As a result, a change in control, as defined in the Severance
Agreements, occurred.
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, and for the lapsing of all restrictions on and full
vesting of any outstanding incentive awards, including stock options granted to
the employee. 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 the insurance benefits. The
Company's Incentive Plan provides that options granted thereunder must be
exercised only during the continuance of the optionee's employment by the
Company, except in cases of retirement, death or disability. Accordingly, any
options remaining unexercised when an employee's employment is terminated for
any other reason expire at the time of termination. Where applicable, as of
August 1,1996, the Severance Agreements entitle Thomas D. Box to a cash payment
of approximately $484,793.37, and Dennis A. Francis to a payment of $244,563.21.
In light of the change in control that occurred on February 26, 1997, the
Severance Agreements will remain in effect with respect to applicable
terminations through February 26, 1999. 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 Bank-Texas ("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.
On August 7, 1996, the Company terminated the employment of Jill M. Killam.
Under the terms of Ms. Killam's Severance Agreement, the Company paid Ms. Killam
$318,000, which amount included $47,000 additional consideration that the
Company paid Ms. Killam in exchange for her execution of an Agreement for
Severance Payment, Release and Non-Disclosure. In addition, pursuant to her
Severance Agreement, Ms. Killam is entitled to receive 18 months of continued
health insurance with an estimated cost to the Company of $13,546.
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, as of August 1, 1996, Mr. Box would receive approximately
$498,339. The cost of continuing health insurance for 18 months is estimated to
be $13,546 for Mr. Box.
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 which had been in place prior to the election of the present Board
on July 30, 1996 (the "Prior Committee"), developed an executive compensation
program which was designed to attract and retain such officers.
The Prior Committee retained the independent accounting firm of Coopers &
Lybrand to assist in this process and to develop a philosophy and approach
regarding executive compensation. The Prior Committee's resulting philosophy
was 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 developed by the Prior Committee 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.
Coopers & Lybrand assisted the Prior Committee in compiling data reflecting
the compensation practices of a broad range of organizations in the Company's
industry that are similar to the Company in size and performance. For both
the Base Salary and the Short-Term Annual Cash Incentives portions of
executive compensation discussed below, the Prior Committee adopted a
philosophy of paying the Chief Executive Officer at a level that is
competitive at approximately the seventy-fifth percentile of these
compensation survey data and paying the other executive officers at levels
that are competitive at approximately the median of these data.
Base Salary
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 Prior Committee's objective was to provide each executive officer a
base salary which is competitive at the desired level.
Short-Term Annual Cash Incentives
Coopers & Lybrand assisted the Prior Committee in developing a
performance-based annual cash incentive plan covering the Company's executive
officers and top managers. The objectives in designing the plan were to reward
participants for accomplishing objectives which are generally measurable and
increase shareholder value. Under the Company's annual incentive plan, the
Compensation Committee is to establish a "target" cash incentive award for
each executive officer that is payable for achieving highly challenging
performance objectives. The Prior Committee also determined that award levels
under the plan should be fiscally prudent and competitive at the desired levels
of compensation survey data.
The Prior Committee also established specific performance objectives for the
Company's Chief Executive Officer for each year which were 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.
Long-Term Stock-Based Incentives
The Company maintains a stock option plan for officers and other employees.
The philosophy is to award stock options to selected plan participants based
on their levels within the Company and upon individual merit. The plan 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 should consider 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.
The Present Committee
In connection with the changes to the Board of Directors that took place on
July 30, 1996, the Board appointed a new Compensation Committee (the "Present
Committee"). Members included Alan C. Shapiro, who had served on the Prior
Committee, Daryl L. Buchanan and Richard D. Squires. (Mr. Buchanan resigned
from the Board in January 1997.) The Present Committee reviewed and approved
the starting compensation levels of officers who joined the Company since
July 30, 1996. Under the Short-Term Annual Cash Incentives plan, no annual
incentive award was made to the Chief Executive Officer for 1996. A majority
of the Present Committee believes that the year-end awards paid to the other
executive officers for 1996 reflect individual performance for the year in
achieving plan objectives and are fiscally prudent.
The Present Committee has informed management that it intends to complete a
comprehensive review of all of the Company's compensation plans in 1997.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Daryl L. Buchanan
Alan C. Shapiro
Richard D. Squires
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 comprised of NASDAQ companies listed under the Standard
Industrial Classification Codes 1310-1319 for the Company's last five fiscal
years. Such 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, 1991, and that all
dividends were reinvested.
GRAPH HERE DEPICTING INFORMATION FROM TABLE BELOW
12/31/91(1) 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
BOXXA 100.00 182.61 452.17 243.47 189.13 160.87
BOXXB 100.00 167.39 219.56 186.95 150.00 158.69
NASDAQ U.S. 100.00 116.38 133.60 130.59 184.67 227.16
NASDAQ O&G 100.00 115.33 136.77 126.36 133.25 191.56
- ----------
(1) The closing price for depository 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Certain Beneficial Owners
As of March 20, 1997, the following persons held shares of the Company's
Class A (Voting) Common Stock in amounts totaling more than 5% of the total
shares of such class outstanding. This information was furnished to the Company
by such persons or statements filed with the Commission.
Number of
of Class A (Voting) Percent of
Name and Address Common Stock Class A (Voting)
of Beneficial Owner Beneficially Owned Common Stock
------------------- ------------------ ----------------
Box Brothers Holding Company
1105 North Market, Suite 1300
Wilmington, Delaware 19801 1,847,175(1) 57%
Box Control, LLC
8201 Preston Road
Dallas, Texas 75225 1,840,525(2) 57%
Basil Georges
200 Crescent Court, Suite 1800
Dallas, Texas 75201 442,500 14%
Pat Rutherford, Jr.
2550 Two Shell Plaza
Houston, TX 77002 292,500 9%
- ----------
(1) This amount includes 1,840,525 shares owned by Box Brothers Holding
Company. Two thirds of the voting shares of Box Brothers Holding Company are
owned by Box Control, LLC, of which Don D. Box is Sole Manager. One third of the
voting shares of Box Brothers Holding Company is owned by a trust established
for the benefit of Douglas D. Box and administered by Douglas D. Box, Gary D.
Box, and Don D. Box. The above amount also includes 3,325 shares individually
owned by Thomas D. Box and 3,325 shares individually owned by Douglas D. Box.
(2) This amount includes 1,840,525 shares owned by Box Brothers Holding
Company. Two thirds of the voting shares of Box Brothers Holding Company are
owned by Box Control, LLC of which Don D. Box is sole manager.
As of March 20, 1997, the following persons held shares of the Company's
Class B (non-Voting) Common Stock in amounts totaling more than 5% of the total
shares of such class outstanding. This information was furnished to the Company
by such persons or statements filed with the Commission.
Number of Shares of
Class B (Non-Voting)
Common Percent of Class B
Name and Address Stock Beneficially (Non-Voting) Common
of Beneficial Owner Owned Stock
------------------- ------------------- -------------------
J. R. Simplot
P.O. Box 27
Boise, Idaho 83707 2,575,100 15%
Ownership of Management
The number of shares of the Company's Class A (Voting) Common Stock and
Class B (non-Voting) Common Stock beneficially owned as of March 27, 1997 by
Directors of the Company, each Named Executive Officer and as a group comprised
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 B Percent of
Class A (Voting) Percent of (Non-Voting) Class B
Common Stock Class A Common Stock (Non-Voting)
Beneficially (Voting) Beneficially Common
Owned Common Stock Owned(1) Stock(1)
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Glen Adams 0 0 0 0
Bernay C. Box 0 0 0 0
Don D. Box(2) 1,840,525 56.6% 307,143 1.7%
Thomas D. Box(4) 3,325 <F1> 2,000 <F1>
Daryl L. Buchanan(3) 0 0 12,000 <F1>
Dennis A. Francis 0 0 5,000 <F1>
Kent R. Hance, Sr. 0 0 5,000 <F1>
John L. Kelsey 0 0 8,000 <F1>
Jill M. Killam(4) 1,000 <F1> 0 0
Thomas W. Rollins 0 0 2,000 <F1>
Craig T. Scott(4) 0 0 0 0
Alan C. Shapiro 0 0 0 0
Norman W. Smith 1,000 <F1> 0 0
Richard D. Squires 500 <F1> 2,000 <F1>
Ewell Doak Walker 0 0 0 0
All Directors and
executive officers
as a group
(19 persons) 1,849,600 56.9% 355,039 1.9%
- ------------
<FN>
<F1>
Less than 1% of the outstanding shares of this class.
</FN>
</TABLE>
(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 Don D. Box and Alan C. Shapiro, respectively. The
total shares of Class B Stock owned by Thomas D. Box, Craig T. Scott, Dennis A.
Francis, Jill M. Killam and W. Jefferson Burnett does not include their stock
options to purchase 70,000, 30,000, 30,000, 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 to purchase 82,500 shares, in the aggregate.
(2) The number of shares of both Class A Stock and Class B Stock 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 Holding Company, and 205,975 shares of the Class B
Stock held by Associates.
(3) 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.
(4) Options held by Thomas D. Box, Jill M. Killam and Craig T. Scott to acquire
70,000, 30,000, and 30,000 shares, respectively, ceased to be exercisable upon
termination of the option holders' employment with the Company. See "Change in
Control Arrangements."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Box Brothers Holding Company owns approximately 57% of outstanding shares of
the Class A (Voting) Stock of the Company and 94% of the outstanding shares of
both CKB 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 CKB Petroleum for
transporting crude oil from its South Pass blocks. Since March 1985, CKB
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 CKB Petroleum.
The amended judgment by the trial court in the Griffin, et al. v. Box, et al.
case imposed a constructive trust upon such pipeline interest in favor of the
Company, but this decision was later reversed on appeal to the Fifth Circuit.
See Item 10. "Directors and Officers of the Registrant - Litigation Involving
Directors and Executive Officers."
The Company bills CKB Petroleum and other related parties, including the
Estate of Cloyce K. Box (the "Estate"), CB Trust, Box Brothers Holding Company
and Box Brothers Realty Investments Co., 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. CKB
Petroleum billed the Company $2.8 million, $2.7 million and $2.2 million for
oil transportation expense in 1996, 1995 and 1994, respectively. In addition,
the Company billed related parties $81,000, $134,000 and $123,000 in 1996, 1995,
and 1994, respectively, for items such as rent, aircraft use, payroll and
overhead costs.
In March 1995, the Company's current Directors, two 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, et al. v. Box, et al. case. In addition, the Company's current
Directors have been named as defendants in two class action lawsuits filed in
the Delaware Chancery Court in Wilmington. See Item 10. "Directors and Officers
of the Registrant - Litigation Involving Directors and Executive Officers." In
accordance with the By-Laws 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, et al. v. Box, et al.
litigation 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 1996
and 1995 related to these cases was $60,000 and $583,000, respectively.
The trial court in the Griffin, et al. v. Box, et al. case entered its
amended final judgment in October 1994 with respect to certain related party
transactions on derivative claims against the General Partners and in favor of
the Company. Cloyce K. Box passed away in October 1993. The Company has filed a
claim against the Estate in the Probate Court for Collin County, Texas seeking
to recover the full amount of the judgment, including certain attorneys' fees
and costs as described below. The Partnership Agreement provided that the
General Partners were to be indemnified for litigation expenses in certain
situations in which they were sued in their capacity as general partners of the
Predecessor Partnership. Accordingly, the Predecessor Partnership, and later the
Company, paid the legal expenses and other defense costs of the General Partners
during a large portion of the Griffin case litigation. These payments were
required under the Partnership Agreement as a result of the General Partners'
execution of written undertakings to repay the Company for any such litigation
expenses advanced on their behalf if it was later determined that such
advancements were not subject to indemnification by the Company. The Company has
not paid the legal expenses and other defense costs of the General Partners
since 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statement included in Item 8:
(i) Independent Auditors' Reports
(ii) Balance Sheets as of December 31, 1996 and 1995
(iii) Statements of Income for years ended December 31, 1996, 1995
and 1994
(iv) Statement of Stockholders' Equity for years ended December 31,
1996, 1995 and 1994
(v) Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
(vi) Notes to Financial Statements
(vii) Supplemental Oil and Natural Gas Information (Unaudited)
2. Financial Statement Schedules
Financial statement schedules are omitted as they are not applicable,
not registered or the required information is included in the
financial statements or notes thereto.
(b) The Company filed a Form 8-K during the quarter ended September 30, 1996
which reported the Company's dismissal of Coopers & Lybrand L.L.P. as
independent accountants and the retaining of Arthur Andersen LLP as the
Company's independent accountants for 1996.
(c) Exhibits:
3.1* Certificate of Incorporation, as amended.
3.2 By-Laws as amended.
4.1* Form of Indenture Box Energy Corporation to United States Trust
Company of New York, Trustee, dated December 1, 1992, 8 1/4%
Convertible Subordinated Notes due December 1, 2002.
10.1* Amended and Restated Certificate and Articles of Limited Partnership
of OKC Limited Partnership.
10.2* Restatement and Amendment of Gas Purchase Contract dated July 15,
1982, as amended October 5, 1982 and December 21, 1982 and December
26, 1984.
10.3* Offshore Operating Agreement (SLAM Group), dated as of January 1,
1977, as amended.
10.4* Farmout Agreement with Aminoil USA, Inc., effective May 1, 1977,
dated May 9, 1977.
10.5* Assignment of Lease, dated May 26, 1977.
10.6* Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act dated July 1, 1967, covering all of Block 89, South
Pass Area, South and East Addition, by the United States of America,
as Lessor, dated July 1, 1967, said lease having been assigned to
Box Energy Corporation as of April 15, 1992.
10.7* Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act dated July 1, 1967, covering all of Block 86, South
Pass Area, South and East Addition, by the United States of America,
as Lessor, dated July 1, 1983, said lease having been assigned to
Box Energy Corporation as of April 15, 1992.
10.8* Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act dated July 1, 1967, covering all of Block 87, South
Pass Area, South and East Addition, by the United States of America,
as Lessor, dated September 1, 1985, said lease having been assigned
to Box Energy Corporation as of April 15, 1992.
10.9* Transportation Agreement with CKB Petroleum, Inc. dated March 1,
1985, as amended on April 19, 1989.
10.10* Agreement of Compromise and Amendment to Farmout Agreement, dated
July 3, 1989.
10.11* Settlement Agreement with Texas Eastern Transmission Corporation,
dated November 14, 1990.
10.12* Guarantee of Panhandle Eastern Corporation, dated November 21, 1990.
10.13* Bill of Sale and Assumption of Obligations from OKC Limited
Partnership, dated April 15, 1992.
10.14* Asset Purchase Agreement, dated April 15, 1992.
10.15* Sales Agreement with Marathon Oil Company, effective April 1, 1992,
dated June 2, 1992, with Amendment, effective June 1, 1992, dated
June 8, 1992.
10.16* Sales Agreement with Marathon Oil Company, effective April 1, 1992,
dated June 18, 1992.
10.17* 1992 Incentive Stock Option Plan of Box Energy Corporation.
10.18* 1992 Non-Qualified Stock Option Plan of Box Energy Corporation.
10.19** Pension Plan of Box Energy Corporation, effective April 16, 1992.
10.20# First Amendment to the Pension Plan of Box Energy Corporation dated
December 16, 1993.
10.21# Platform Sharing Agreement, effective December 10, 1993, regarding
Platform "D" in South Pass Block 87.
10.22## Secured Revolving Credit Loan Agreement by and between Box Energy
Corporation, as borrower, and Comerica Bank-Texas, as lender, dated
May 13, 1994.
10.23## Revolving Credit Note dated May 13, 1994, in the maximum principal
amount of $25.0 million executed by Box Energy Corporation, payable
to Comerica Bank-Texas.
10.24## Act of Mortgage and Security Agreement dated May 13, 1994 executed
by Box Energy Corporation in favor of Comerica Bank-Texas.
10.25## Second Amendment to the Pension Plan of Box Energy Corporation dated
December 31, 1994.
10.26+ Form of Executive Severance Agreement dated as of December 12, 1995
by and between Box Energy Corporation and key employees.
10.27+ Form of Letter Agreement regarding severance benefits dated as of
December 12, 1995 by and between Box Energy Corporation and
employees not covered by Executive Severance Agreements.
10.28+ First Amendment to Secured Revolving Credit Note Loan Agreement
dated May 13, 1995 by and between Box Energy Corporation and
Comerica-Texas.
10.29+ Renewal and Extension Revolving Credit Note dated May 13, 1995, in
the maximum principal amount of $25.0 million executed by Box Energy
Corporation, payable to Comerica Bank-Texas.
11.1 Computation of Earnings per Share.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
- ---------------
* Incorporated by reference to the Company's Registration Statement on
Form S-2 (file number 33-52156) filed with the Commission and
effective on December 1, 1992.
** Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1992 filed with the
Commission and effective on or about March 30, 1993.
# Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1993 filed with the
Commission and effective on or about March 30, 1994.
## Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1994 filed with the
Commission and effective on or about March 30, 1995.
+ Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1995 filed with the
Commission and effective on or about April 1, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOX ENERGY CORPORATION
Date: March 28, 1997 By: /S/ DON D. BOX
-----------------------------------
Don D. Box
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the date indicated.
DIRECTORS:
/S/ BERNAY C. BOX /S/ ALAN C. SHAPIRO
- ----------------------------------- -----------------------------------
Bernay C. Box Alan C. Shapiro
Director Director
/S/ DON D. BOX /S/ RICHARD D. SQUIRES
- ----------------------------------- -----------------------------------
Don D. Box Richard D. Squires
Director Director
/S/ THOMAS D. ROLLINS
- -----------------------------------
Thomas D. Rollins
Director
OFFICERS:
/S/ DON D. BOX /S/ J. BURKE ASHER
- ----------------------------------- -----------------------------------
Don D. Box J. Burke Asher
Chief Executive Officer Chief Accounting Officer and
Secretary
/S/ EDWARD V. HOWARD
- -----------------------------------
Edward V. Howard
Vice President and Controller and
Assistant Secretary
Date: March 28, 1997
INDEX TO EXHIBITS
Exhibit
Number Description of Document
3.1* Certificate of Incorporation, as amended.
3.2 By-Laws as amended.
4.1* Form of Indenture Box Energy Corporation to United States Trust
Company of New York, Trustee, dated December 1, 1992, 8 1/4%
Convertible Subordinated Notes due December 1, 2002.
10.1* Amended and Restated Certificate and Articles of Limited Partnership
of OKC Limited Partnership.
10.2* Restatement and Amendment of Gas Purchase Contract dated July 15,
1982, as amended October 5, 1982 and December 21, 1982 and December
26, 1984.
10.3* Offshore Operating Agreement (SLAM Group), dated as of January 1,
1977, as amended.
10.4* Farmout Agreement with Aminoil USA, Inc., effective May 1, 1977,
dated May 9, 1977.
10.5* Assignment of Lease, dated May 26, 1977.
10.6* Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act dated July 1, 1967, covering all of Block 89, South
Pass Area, South and East Addition, by the United States of America,
as Lessor, dated July 1, 1967, said lease having been assigned to
Box Energy Corporation as of April 15, 1992.
10.7* Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act dated July 1, 1967, covering all of Block 86, South
Pass Area, South and East Addition, by the United States of America,
as Lessor, dated July 1, 1983, said lease having been assigned to
Box Energy Corporation as of April 15, 1992.
10.8* Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act dated July 1, 1967, covering all of Block 87, South
Pass Area, South and East Addition, by the United States of America,
as Lessor, dated September 1, 1985, said lease having been assigned
to Box Energy Corporation as of April 15, 1992.
10.9* Transportation Agreement with CKB Petroleum, Inc. dated March 1,
1985, as amended on April 19, 1989.
10.10* Agreement of Compromise and Amendment to Farmout Agreement, dated
July 3, 1989.
10.11* Settlement Agreement with Texas Eastern Transmission Corporation,
dated November 14, 1990.
10.12* Guarantee of Panhandle Eastern Corporation, dated November 21, 1990.
10.13* Bill of Sale and Assumption of Obligations from OKC Limited
Partnership, dated April 15, 1992.
10.14* Asset Purchase Agreement, dated April 15, 1992.
10.15* Sales Agreement with Marathon Oil Company, effective April 1, 1992,
dated June 2, 1992, with Amendment, effective June 1, 1992, dated
June 8, 1992.
10.16* Sales Agreement with Marathon Oil Company, effective April 1, 1992,
dated June 18, 1992.
10.17* 1992 Incentive Stock Option Plan of Box Energy Corporation.
10.18* 1992 Non-Qualified Stock Option Plan of Box Energy Corporation.
10.19** Pension Plan of Box Energy Corporation, effective April 16, 1992.
10.20# First Amendment to the Pension Plan of Box Energy Corporation dated
December 16, 1993.
10.21# Platform Sharing Agreement, effective December 10, 1993, regarding
Platform "D" in South Pass Block 87.
10.22## Secured Revolving Credit Loan Agreement by and between Box Energy
Corporation, as borrower, and Comerica Bank-Texas, as lender, dated
May 13, 1994.
10.23## Revolving Credit Note dated May 13, 1994, in the maximum principal
amount of $25.0 million executed by Box Energy Corporation, payable
to Comerica Bank-Texas.
10.24## Act of Mortgage and Security Agreement dated May 13, 1994 executed
by Box Energy Corporation in favor of Comerica Bank-Texas.
10.25## Second Amendment to the Pension Plan of Box Energy Corporation dated
December 31, 1994.
10.26+ Form of Executive Severance Agreement dated as of December 12, 1995
by and between Box Energy Corporation and key employees.
10.27+ Form of Letter Agreement regarding severance benefits dated as of
December 12, 1995 by and between Box Energy Corporation and
employees not covered by Executive Severance Agreements.
10.28+ First Amendment to Secured Revolving Credit Note Loan Agreement
dated May 13, 1995 by and between Box Energy Corporation and
Comerica-Texas.
10.29+ Renewal and Extension Revolving Credit Note dated May 13, 1995, in
the maximum principal amount of $25.0 million executed by Box Energy
Corporation, payable to Comerica Bank-Texas.
11.1 Computation of Earnings per Share.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
- ---------------
* Incorporated by reference to the Company's Registration Statement on
Form S-2 (file number 33-52156) filed with the Commission and
effective on December 1, 1992.
** Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1992 filed with the
Commission and effective on or about March 30, 1993.
# Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1993 filed with the
Commission and effective on or about March 30, 1994.
## Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1994 filed with the
Commission and effective on or about March 30, 1995.
+ Incorporated by reference to the Company's Form 10-K (file number 0-
19967) for the fiscal year ended December 31, 1995 filed with the
Commission and effective on or about April 1, 1996.
Exhibit 3.2
BY-LAWS
AS AMENDED
OF
BOX ENERGY CORPORATION
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place either within or
without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may be
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Delaware as may be
stated in the notice of the meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5 Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required by law for any matter, the holders of a majority of
the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum to take action with respect to
that vote on that matter. Two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to vote together
as a single class at the meeting. In the absence of a quorum of the holders of
any class of stock entitled to vote on a matter, the holders of such class so
present or represented may, by majority vote, adjourn the meeting of such class
from time to time in the manner provided by Section 1.4 of these by-laws until
a quorum of such class shall be so present or represented. Shares of its own
capital stock belonging on the record date for the meeting to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock including, but not limited to its own stock, held by
it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman of the Board by the President, or in the absence of the President
by a Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Except as otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such stockholder by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power, regardless
of whether the interest with which it is coupled is an interest in the stock
itself or an interest in the Corporation generally. A stockholder may revoke
any proxy which is not irrevocable by attending the meeting and voting in person
or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and need not
be conducted by inspectors unless the holders of a majority of the outstanding
shares of all classes of stock entitled to vote thereon present in person or
represented by proxy at such meeting shall so determine. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. In all other matters, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, the affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
at the meeting and entitled to vote on the subject matter shall be the act of
the stockholders. Where a separate vote by class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class or classes, except as otherwise provided by law or by the
certificate of incorporation or these by-laws.
Section 1.8. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on which the meeting
is held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall not be more than sixty days prior to such action.
If no record date is fixed, the record date for determining stockholders for
any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 1.10. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the certificate of incorporation or by law, any action
required by law to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the Corporation by delivery to
(a) its registered office in the State of Delaware by hand or by certified mail
or registered mail, return receipt requested, (b) its principal place of
business, or (c) an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless, within sixty days of the earliest dated
consent delivered in the manner required by this by-law to the Corporation,
written consents signed by a sufficient number of holders to take action are
delivered to the Corporation by delivery to (a) its registered office in the
State of Delaware by hand or by certified or registered mail, return receipt
requested, (b) its principal place of business, or (c) an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
Section 2.1. Powers; Numbers; Qualifications. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of seven (7) members or such
other number, not less than one (1) or more than twelve (12), as may be fixed
from time to time by the Board. Directors need not be stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies.
Each director shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any director may
resign at any time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. Any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors. Unless otherwise provided in the certificate of incorporation or
these by-laws, vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class or from any other cause
may be filled by a majority of the directors then in office, although less than
a quorum, or by the sole remaining director.
Section 2.3. Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board may from time to time determine, and if so determined notice
thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board, if any, by the Vice Chairman of
the Board, if any, by the President or by any two directors. Reasonable notice
thereof shall be given by the person or persons calling the meeting.
Section 2.5. Participation in Meetings by Conference Telephone Permitted.
Unless otherwise restricted by the certificate of incorporation or these
by-laws, members of the Board of Directors, or any committee designated by the
Board, may participate in a meeting of the Board or of such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors one-third of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall be present.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in their absence
by a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.9. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation or these by-laws, the Board of Directors shall
have the authority to fix the compensation of directors.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors or in these by-laws,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other
class or classes of stock of the Corporation or fix the number of shares of
any series of stock or authorize the increase or decrease of the shares of any
series), adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, removing or
indemnifying directors or amending these by-laws; and, unless the resolution,
these by-laws or the certificate of incorporation expressly so provides, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Officers; Election. As soon as practicable after the annual
meeting of stockholders in each year, the Board of Directors shall elect a
President and a Secretary, and it may, if it so determines, elect from among its
members a Chairman of the Board and a Vice Chairman of the Board. The Board may
also elect one or more Vice Presidents, one or more Assistant Vice Presidents,
one or more Assistant Secretaries, a Treasurer and one or more Assistant
Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person unless the certificate of incorporation or these by-laws otherwise
provide.
Section 4.2 Term of Office; Resignation; Removal; Vacancies. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance
of such resignation shall be necessary to make it effective. The Board may
remove any officer with or without cause at any time. Any such removal shall
be without prejudice to the contractual rights of such officer, if any, with
the Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. Powers and Duties. The officers of the Corporation shall
have such powers and duties in the management of the Corporation as shall be
stated in these by-laws or in a resolution of the Board of Directors which is
not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Secretary shall have the duty to record the proceedings of the
meetings of the stockholders, the Board of Directors and any committees in a
book to be kept for that purpose. The Board may require any officer, agent or
employee to give security for the faithful performance of his or her duties.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, of the Corporation, representing the
number of shares of stock in the Corporation owned by such holder. If such
certificate is manually signed by one officer or manually countersigned by a
transfer agent or by a registrar, any other signature on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
So long as the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided by law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal which shall
have the name of the Corporation inscribed thereon and shall be in such form as
may be approved from time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
Section 6.4. Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify to the full extent permitted by law any person made
or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. Expenses,
including attorneys' fees, incurred by any such person in defending any such
action, suit or proceeding shall be paid or reimbursed by the Corporation
promptly upon receipt by it of an undertaking of such person to repay such
expenses if it shall ultimately be determined that such person is not entitled
to be indemnified by the Corporation. The rights provided to any person by this
by-law shall be enforceable against the Corporation by such person who shall be
presumed to have relied upon it in serving or continuing to serve as a director,
officer or employee as provided above. No amendment of this by-law shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment. For purposes of this by-law, the term "Corporation"
shall include any predecessor of the Corporation and any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include any
corporation, partnership, joint venture, trust or employee benefit plan;
service "at the request of the Corporation" shall include service as a director,
officer or employee of the Corporation which imposes duties on, or involves
services by, such director, officer or employee with respect to an employee
benefit plan, its participants or beneficiaries; any excise taxes assessed on
a person with respect to an employee benefit plan shall be deemed to be
indemnifiable expenses; and action by a person with respect to an employee
benefit plan which such person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be action not
opposed to the best interests of the Corporation.
Section 6.5. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purposes, if: (1) the material facts as to his or
her relationship or interest and as to the contract or transaction are disclosed
or are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
BOX ENERGY CORPORATION
COMPUTATION OF INCOME PER SHARE
Exhibit 11.1
(In thousands, except per share amounts)
For the year ended December 31, 1996
------------------------------------
Net income (loss for primary
income (loss) per share $ (7,662) $ 5,392
Interest expense on 8 1/4%
convertible subordinated notes 4,544 4,544
Income tax effect (assumed to
be 35% (1,590) (1,590)
------------ -----------
Net income (loss) for
fully-diluted income (loss)
per share $ (4,708) $ 8,346
============ ===========
Primary income (loss) per share $ (0.37) $ 0.26
============ ===========
Fully-diluted income (loss)
per share $ (0.18) $ 0.32
============ ===========
Calculation of weighted average
shares
Class A (Voting) Common Stock 3,250 3,250
Class B (Non-voting) Common
Stock 17,553 17,553
Stock options considered
common stock equivalents 0 0
------------ -----------
Total shares used for
primary income (loss)
per share 20,803 20,803
Contingent shares from remaining
stock options granted 302 312
Contingent shares from 8 1/4%
convertible subordinated notes 5,007 5,007
------------ -----------
Total shares used for
fully-diluted income
(loss) per share 26,112 26,122
============ ===========
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Box Energy Corporation on Form S-4 (File No. 0-19967) of our report dated
March 27, 1997 on our audits of the financial statements of Box Energy
Corporation as of December 31, 1996 and for the year ended December 31, 1996.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 28, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Box Energy Corporation on Form S-4 (File No. 0-19967) of our report dated
March 5, 1996 on our audits of the financial statements of Box Energy
Corporation as of December 31, 1995 and for the years ended December 31, 1995
and 1994, which report is included in the Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BOX ENERGY CORPORATION'S FORM 10-K FOR THE ANNUAL PERIOD ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874992
<NAME> BOX ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2997
<SECURITIES> 32678
<RECEIVABLES> 8549
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46185
<PP&E> 190477
<DEPRECIATION> 116371
<TOTAL-ASSETS> 136599
<CURRENT-LIABILITIES> 7166
<BONDS> 55077
0
0
<COMMON> 20803
<OTHER-SE> 53553
<TOTAL-LIABILITY-AND-EQUITY> 136599
<SALES> 65606
<TOTAL-REVENUES> 70210
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<TOTAL-COSTS> 74747
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<INTEREST-EXPENSE> 4895
<INCOME-PRETAX> (9432)
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<CHANGES> 0
<NET-INCOME> (7662)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
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