UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-10376
EDISTO RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-0883077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2401 Fountain View Drive, Suite 700
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713/782-0095
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock ($.01 Par Value) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [_]
At March 14, 1997, there were 14,034,674 outstanding shares of Common
Stock, and the aggregate value of the voting stock held by nonaffiliates was
approximately $68.1 million.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table identifies the directors and executive officers of
the Company:
Director or
Name Age Position(s) (1) Officer Since
---- --- --------------- -------------
Michael Y. McGovern 45 Chairman of the Board and July 1993
Chief Executive Officer
Timothy J. Andrews (2)(3) 37 Director June 1993
John Graham(2)(3) 58 Director June 1993
Vernon T. Jones, Sr. (2)(3) 67 Director June 1993
Leonard B. Rosenberg (2)(3) 69 Director May 1994
Steven G. Ives 34 Vice President, Controller January 1997
and Chief Accounting Officer
- ---------------------------------------
(1) Directors of the Company are elected annually at the annual meeting of
stockholders and serve until their successor is elected and qualified. The
executive officers of the Company are elected annually by, and serve at the
pleasure of, the Board of Directors for one year or until their successors
are elected and qualified.
(2) Member of the Audit Committee of the Board of Directors of which Mr. Graham
is the Chairman.
(3) Member of the Compensation Committee of the Board of Directors of which Mr.
Jones is the Chairman.
Set forth below is a brief description of the business experience of
the directors and executive officers of the Company.
DIRECTORS
MICHAEL Y. MCGOVERN has been Chairman of the Board and Chief Executive
Officer of the Company since July 1, 1993. Mr. McGovern has served as a director
since November 1994, and as the Chairman and Chief Executive Officer since June
1995, of Convest Energy Corporation ("Convest"), an oil and gas exploration and
production company and an affiliate of the Company. Mr. McGovern previously
served as the President and Chief Executive Officer, and as a director, of
American National Petroleum Company ("ANPC"), a Houston-based oil and gas
exploration and production company and natural gas marketer, from December 1989
until its sale in July 1993. Mr. McGovern served as a director from March 1992
to December 1995 of Ironstone Group, Inc. ("Ironstone"), the majority
shareholder of ANPC prior to its sale, and was the President of Ironstone from
January 1993 to July 1993.
TIMOTHY J. ANDREWS has been a director of the Company since June 1993
and a director of Convest since November 1994. Since April 1995, Mr. Andrews has
been a Senior Vice President of Oaktree Capital Management, LLC ("Oaktree"), an
investment management firm. From June 1989 to April 1995, Mr. Andrews was a Vice
President of TCW Asset Management Company, an affiliate of The TCW Group, Inc.
The TCW Group, Inc. and its affiliates (collectively, "TCW") are investment
managers of funds and accounts which beneficially own approximately 52% of the
outstanding Common Stock of the Company. Oaktree provides investment analytical
support to certain TCW funds and accounts that hold Edisto Common Stock. TCW has
requested that Mr. Andrews continue to serve as its
-2-
representative on the Board of Directors of the Company. He is currently a
member of the Audit and Compensation Committees of the Board.
JOHN G. GRAHAM has been a director of the Company since June 1993. Mr.
Graham has been Senior Vice President and Chief Financial Officer of GPU, Inc.
("GPUI"), an electric utility based in Parsippany, New Jersey, since 1989 and
has been employed in other capacities for GPUI since 1976. Mr. Graham oversees
financial control, accounting, budgeting, treasury, strategic planning and
related operations for GPUI. Mr. Graham also serves as a director of certain
GPUI subsidiaries which include Jersey Central Power and Light Company,
Metropolitan Edison Company and Pennsylvania Electric Company. From 1965 to
1971, Mr. Graham was an Associate Professor of Law and Assistant Dean at Rutgers
Law School. Mr. Graham was a partner in the Newark, New Jersey law firm of
Ruprecht and Graham from 1970 to 1976. He is currently Chairman of the Audit
Committee and a member of the Compensation Committee.
VERNON T. JONES, SR. has been a director of the Company since June 1993
and a director of Convest since November 1994. Mr. Jones retired in 1992 as Vice
Chairman of the Williams Companies of Tulsa, Oklahoma, where he held numerous
offices from 1979 to 1993, including President of Williams Pipeline Company and
President and Chief Operating Officer of the Williams Companies. Mr. Jones also
served as Chairman of the KERN River Pipeline Partnership and Chairman of
Wiltel, a telecommunications affiliate of the Williams Companies, from 1985 to
1992. He is currently Chairman of the Compensation Committee and a member of the
Audit Committee.
LEONARD B. ROSENBERG has been a director of the Company since May 1994
and a director of Convest since June 1995. Mr. Rosenberg is a private investor
and attorney. Since 1993, he has been "Of Counsel" to the Houston, Texas law
firm of Snell & Smith, P.C. and for the four years prior was "Of Counsel" to the
Houston law firm of Butler & Binion L.L.P. Mr. Rosenberg is a director of
General Homes Corporation and Enterprise Products Company, as well as of the
University of Houston Law Foundation, a non-profit corporation. He is currently
a member of the Audit and Compensation Committees of the Board.
EXECUTIVE OFFICER WHO IS NOT A DIRECTOR
STEVEN G. IVES. Mr. Ives joined Edisto as Vice President, Controller
and Chief Accounting Officer in January 1997, at which time he also began
serving as Assistant Controller - Finance and Treasurer of Convest. From July
1996 until December 1996, Mr. Ives served as Vice President of Encap Investments
L.C., a Houston, Texas based investment banking firm. From June 1990 until July
1996, Mr. Ives served in various accounting capacities with Convest, including
Assistant Controller from February 1996 to June 1996.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE.
Set forth below is information regarding the compensation for the years
ended December 31, 1996, 1995 and 1994 of the Company's Chairman of the Board
and Chief Executive Officer and two former executive officers who would have
been among the Company's four most highly compensated executive officers but for
the fact that neither of them were serving as an executive officer at the end of
1996 (collectively, the "Named Executive Officers"). As of December 31, 1996,
Michael Y. McGovern, the Company's Chairman and Chief Executive Officer, was the
sole executive officer and employee of the Company.
-3-
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
------------------------------------------------ -----------
Other Securities All Other
Name and Annual Underlying Compen-
Principal Position Year Salary Bonus Compensation(1) Options (#) Sation
------------------ ---- ------ ----- --------------- ----------- -------
MICHAEL Y. MCGOVERN ......... 1996 $132,917(2) $210,000(3) $ -- -- $11,237(4)
Chairman of the Board ..... 1995 $206,250(2) $275,000 $ -- 100,000 $22,466
and Chief Executive ..... 1994 $274,992 $ -- $ -- 140,000 $32,544
Officer
DAVID J. TUDOR .............. 1996 $155,834 $170,000(5) $ -- -- $14,752(6)
Former Senior Vice ........ 1995 $170,000 $125,000 $ -- 47,247 $35,977
President; .............. 1994 $153,333 $ -- $ -- 31,498 $13,080
Former Chairman and
President of discontinued
gas marketing subsidiary
GRANT A. FARRIS
Former Senior Vice ........ 1996 $110,000 $ 75,000(7) $ -- -- $11,132(8)
President of discontinued 1995 $109,675 $ 34,967 $ -- 22,933 $ 7,470
gas marketing subsidiary 1994 * * * * *
- --------------------
* Not considered an Executive Officer during this year.
(1) Excludes perquisites and other personal benefits unless the aggregate
amount of such compensation exceeded the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for the Named Executive Officer.
(2) Michael Y. McGovern became Chairman and Chief Executive Officer of Convest
effective June 26, 1995. From July 1995 to November 1996, Mr. McGovern's
annual base salary $(275,000) and benefits were shared equally between
Edisto and Convest. Effective December 1, 1996, after Edisto sold its gas
marketing operations, Mr. McGovern's base salary and benefits have been
apportioned 70% to Convest and 30% to Edisto.
(3) $100,000 of Mr. McGovern's bonus was awarded in connection with the sale of
the Company's gas marketing operations and $110,000 was awarded as an
additional bonus for 1996. Mr. McGovern's $110,000 bonus was paid 50% in
cash and 50% in Edisto Common Stock (5,714 shares of Common Stock issued
effective April 15, 1997).
(4) Mr. McGovern's total for 1996 includes life insurance premium payments of
$7,492 and Company contributions to the Company's 401(k) Plan of $3,745.
(5) Mr. Tudor was awarded a bonus of $170,000 in connection with the sale of
the Company's gas marketing operations.
(6) Mr. Tudor's total for 1996 includes life insurance premium payments of
$6,013 and Company contributions to the Company's 401(k) Plan of $8,739.
(7) Mr. Farris was awarded a bonus of $75,000 in connection with the sale of
the Company's gas marketing operations.
(8) Mr. Farris' total for 1996 includes life insurance premium payments of
$468, Company contributions to the Company's 401(k) Plan of $8,739 and
payment for accrued unused vacation of $1,925.
-4-
STOCK OPTION GRANTS IN 1996
The Company's 1993 Stock Option Plan (the "Plan") became effective on
July 1, 1993 and was subsequently amended effective November 7, 1994. 1,200,000
shares of Common Stock are reserved for issuance under the Plan. The expiration
date of any option issued under the Plan is ten years from the date of grant.
Options issued under the Plan may be either "Incentive Stock Options" as defined
in Section 422 of the Internal Revenue Code of 1986 or non-qualified stock
options.
The Plan is administered by the Compensation Committee ("Committee") of
the Board of Directors. All determinations of the Committee are made by a quorum
of Committee members, each of whom must be a disinterested person. The Committee
has sole and complete authority and discretion to select participants and grant
options; determine the terms and conditions upon which options are granted;
determine whether an option is an incentive stock option or a non-qualified
stock option; and make all determinations deemed necessary or advisable for the
administration of the Plan. The Committee may, within certain prescribed limits,
modify, extend or renew outstanding options or accept the surrender of
outstanding options and authorize the grants of new options in substitution
therefor.
During the year ended December 31, 1996, no options to acquire shares
of Common Stock were granted to the Named Executive Officers in the Summary
Compensation Table.
1996 OPTION EXERCISES AND YEAR-END OPTION HOLDINGS
The following table sets forth, with respect to the Named Executive
Officers in the Summary Compensation Table, information concerning the exercise
of stock options during the year ended December 31, 1996, and the year-end value
of unexercised options.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Shares Number of Unexercised Value of Unexercised
Acquired Value Options Held at In-the-Money Options at
Name On Exercise Realized December 31, 1996 December 31, 1996(1)
- ------------------- ----------- ----------- ------------------------ ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Michael Y. McGovern -- -- 126,667 113,333 $ 275,353 $ 244,527
David J. Tudor .... -- -- 78,745(2) -- $ 169,853 $ --
Grant A. Farris ... -- -- 39,661(2) -- $ 85,917 $ --
- -----------------
(1) An option is "in-the-money" if the market value of the Common Stock exceeds
the exercise price of the option. The values of the options set forth in
these columns are based upon the difference between the closing price of
$8.375 on the American Stock Exchange on December 31, 1996 and any lesser
exercise price.
(2) The options issued to Messrs. Tudor and Farris vested in full upon the
closing of the Company's sale of its gas marketing subsidiary. These
options are exercisable until December 10, 1997.
COMPENSATION OF DIRECTORS
Non-employee directors receive $16,000 annually and $1,000 per meeting
attended. Directors who are members of committees of the Board receive $500 for
each committee meeting attended ($750 in the case of a committee chairman). In
addition, the Company reimburses directors for reasonable expenses incurred in
connection with attending meetings. Timothy J. Andrews has relinquished his
rights to compensation, but is reimbursed for reasonable expenses incurred with
attending meetings. In addition, non-employee directors are eligible to receive
-5-
$1,000 per day plus expenses when retained at the request of the Chairman of the
Board. The total of such fees was $5,000 during 1996.
Non-employee directors also are eligible to receive stock options
granted under the 1993 Director Stock Option Plan (the "Director Plan"). Under
the Director Plan, each non-employee director is automatically granted options
to purchase 6,000 shares of Common Stock on January 1 of each year in which the
non-employee director is still serving as a director. These options vest 331/3%
six months after issuance and an additional 331/3% on the first and second
anniversary dates after issuance. The term of the options is ten years. Mr.
Andrews has declined to participate in the Director Plan.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Mr. McGovern
dated as of July 1, 1993 which was subsequently amended on March 27, 1995. In
the event of a change in control of the Company or termination of Mr. McGovern
for any reason other than cause, Mr. McGovern shall be entitled to (i) receive a
lump sum cash payment equal to one year of salary (but not less than $275,000),
(ii) participate in the Company's health insurance and other benefit programs,
or receive comparable benefits, for one year after such termination, and (iii)
have all of his unvested stock options vest immediately and be exercisable for a
period of one year thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Vernon T. Jones, Sr.,
Timothy J. Andrews, John G. Graham and Leonard B. Rosenberg. None of these
members was an officer or employee of the Company during the year ended December
31, 1996 or was formerly an officer of the Company. Mr. Jones also serves on the
Compensation Committee of Convest.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 28, 1997, the ownership of
Common Stock by (i) any person or group known by the Company to be the
beneficial owner of 5% or more of the Common Stock of the Company, (ii) each
director of the Company, (iii) the Chief Executive Officer, (iv) the named
Executive Officers set forth in the Summary Compensation Table, and (v) all
executive officers and directors of the Company as a group. Under the rules of
the Securities and Exchange Commission, a person is deemed to own beneficially
all securities as to which that person owns or shares voting or investment
power, as well as all securities which such person may acquire within sixty days
through the exercise of currently available conversion rights, warrants or
options. Except as otherwise indicated, the stockholders listed in the table
below have sole voting and investment power with respect to the shares
indicated.
-6-
Amount and Nature of
Beneficial Ownership
-------------------- Percentage
Name Capacities in Which Served Direct Options(3) of Class
---- -------------------------- ------ ---------- --------
The TCW Group, Inc. and its N/A 7,322,276 -- 51.9%
affiliates(1)
865 South Figueroa Street, #1800
Los Angeles, California 90017
Dimensional Fund Advisors Inc.(2) N/A 704,600 -- 5.0%
1299 Ocean Avenue, 11th Fl.
Santa Monica, CA 90401
Michael Y. McGovern Chairman of the Board and 14,614 126,667 1.0%
Chief Executive Officer
Timothy J. Andrews (1) Director 2,000 -- *
John G. Graham Director 600 16,000 *
Vernon T. Jones, Sr.(4) Director 2,000 16,000 *
Leonard B. Rosenberg Director 1,000 13,000 *
David J. Tudor Former Senior Vice President; -- 32,247 *
Former Chairman and President
of Energy Source, Inc.
Grant A. Farris Former Senior Vice President of 7,700 19,661 *
Energy Source, Inc.
All executive officers and
directors as a group
(8 individuals) N/A 27,914 223,575 1.8%
- ---------------------
* Less than 1%.
(1) The TCW Group, Inc. and its affiliates (collectively, "TCW") act as general
partner of certain limited partnerships, investment manager of certain
third party accounts and trustee of certain trusts which hold 7,322,276
aggregate shares of Common Stock of the Company. Robert Day is an
individual who may be deemed to control TCW. TCW has voting and dispositive
power over such shares of Common Stock as a fiduciary on behalf of the
separate accounts and trusts and the general partner of the limited
partnerships. TCW may be deemed to be a beneficial owner of such shares for
purposes of the reporting requirements of the Securities Exchange Act of
1934; however, TCW expressly disclaims beneficial ownership of these
shares. Timothy J. Andrews, who is serving as a director of the Company at
the request of TCW, is a Senior Vice President of Oaktree Capital
Management, LLC, which provides investment analytical support to certain
TCW funds and accounts that hold Edisto Common Stock. To the extent Mr.
Andrews participates in the process to vote or dispose of the shares of
Common Stock of the Company, he may be deemed under certain circumstances
to be the beneficial owner of such shares for the purpose of Section 13(d)
of the Securities Exchange Act of 1934. Mr. Andrews disclaims beneficial
ownership of these shares.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 704,600 shares of Common
Stock of the Company as of March 31, 1997, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors, Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(3) Includes Company stock options that are presently exercisable or will
become exercisable by June 28, 1997.
(4) The shares for Vernon T. Jones, Sr. are held in a trust of which he is the
sole trustee and sole beneficiary during his lifetime.
-7-
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock, to file with the Securities and Exchange Commission
reports of ownership and changes in ownership of Common Stock of the Company.
Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on a review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during the 1996 fiscal year, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Leonard B. Rosenberg is "Of Counsel" to the law firm of Snell & Smith,
P.C., which provided legal services to the Company in 1996 and will provide such
services to the Company in the future. The total amount of fees paid in 1996 to
Snell & Smith, P.C. was approximately $211,500.
RELATIONSHIP WITH CONVEST ENERGY CORPORATION
Edisto is the largest shareholder of Convest with 7,598,771 shares, or
approximately 73%, of Convest's Common Stock. The Company is a party to a number
of agreements and arrangements with Convest, the material terms of which are
summarized below.
HISTORICAL RELATIONSHIP
On November 17, 1994, the Company acquired a 31% interest in Convest
Energy Corporation ("Convest"), an independent oil and gas company based in
Houston, Texas and listed on the American Stock Exchange. Immediately after such
purchase, three of Edisto's directors, Michael Y. McGovern, Vernon T. Jones, Sr.
and Timothy J. Andrews, joined the Convest Board of Directors.
On June 26, 1995, Edisto sold its oil and gas subsidiary, Edisto
Exploration and Production Company ("Edisto E&P"), to Convest in exchange for
6,185,400 newly issued shares of Convest Common Stock and $10,000 in cash. The
newly issued shares of Convest Common Stock increased Edisto's interest in
Convest from 31% to 72%. Upon the closing of this transaction, Convest's Board
was restructured so that (i) Leonard B. Rosenberg, an existing Edisto director,
joined the Convest Board, and (ii) Edisto's nominees constituted a majority of
Convest's Board of Directors. Also, Michael Y. McGovern became the Chairman and
Chief Executive Officer of Convest.
In March 1996, the Board of Directors of Edisto authorized the open
market purchase of up to 1,160,000 shares of Common Stock of Convest from time
to time. The timing and amounts of purchases is governed by applicable SEC rules
and market conditions. The purpose of the stock purchase is to increase Edisto's
ownership percentage of Convest to over 80% (on a fully diluted basis) to allow
Edisto and Convest to consolidate for tax purposes. Edisto has existing net
operating loss carryforwards that may be beneficial to Convest if the two
companies are consolidated for tax purposes. In April 1996, Edisto purchased
92,000 shares of Convest Common Stock, but has not purchased any additional
shares since that time.
OTHER AGREEMENTS BETWEEN EDISTO AND CONVEST
In connection with the transaction with Convest in June 1995, Convest
granted registration rights to Edisto for the 7,506,771 shares of Convest Common
Stock owned by Edisto at that time.
-8-
In the transaction with Convest, Edisto retained the tax benefits of
the net operating loss carryforwards ("NOLs") of Edisto E&P. The tax benefits
included a $3.3 million NOL usable for regular taxable income and a g$3.6
million NOL usable for alternative minimum taxable income. Based on projections
of Convest's future taxable income, it was determined that the remaining NOLs of
Edisto E&P would be a valuable asset that could be utilized by Convest in the
future. Accordingly, in March 1996, Edisto allowed Convest to utilize the NOLs
of Edisto E&P in consideration for the payment by Convest of $550,000.
Since January 1995, Convest has had a gas marketing agreement with
Energy Source, Inc. ("Energy Source"), which until December 1996 was a
wholly-owned subsidiary of Edisto. This agreement provided for Energy Source to
market a substantial portion of Convest's gas production and perform certain
related administrative duties. Energy Source marketed approximately 84% of
Convest's 1996 gas production. During 1996, Convest received a minimum price of
98% of the index price for the applicable pipeline.
In December 1996, Energy Source was sold by Edisto to an unrelated
third party. In connection with the sale, Convest and Energy Source agreed to
extend the gas marketing agreement to December 31, 1997. Effective January 1,
1997, the gas marketing agreement with Energy Source was amended to increase the
minimum price received by Convest from 98% to 100% of the index price for the
applicable pipeline.
Prior to the sale of Energy Source, Edisto had provided Convest with
access to an AS400 computer system to run its accounting system and had provided
MIS support. The monthly cost to Convest was approximately $12,555 per month. In
connection with the sale of Energy Source, Edisto sold the AS400 computer system
and its MIS personnel became employees of the Energy Source purchaser. Since
Convest needs an AS400 computer system to run its accounting system, the Energy
Source purchaser agreed to provide Convest with access to the AS400 computer
system and MIS support through December 31, 1997. The cost to Convest is $12,645
per month. This agreement may be terminated by Convest at any time after June
30, 1997 upon 90 days notice.
Energy Source also executed trades of futures contracts on the New York
Mercantile Exchange on behalf of Convest. In this regard, Energy Source acted
solely in a ministerial capacity to purchase or sell the futures contracts at
price levels directed by Convest's management. Energy Source charged a
commission of $.0025 per Mcf of gas or barrel of crude oil for each trade
executed to cover Energy Source's administrative costs to perform such service.
Edisto and Convest have a directors' and officers' fiduciary insurance
policy that covers both companies. During 1996, the annual insurance premium was
allocated 68% to Edisto, for a cost of $204,000 based on the relative percentage
that Edisto's assets bear to the total assets of both Edisto and Convest.
Effective July 1, 1995, Edisto and Convest agreed to share certain
administrative costs to reduce the overall cost that would otherwise be incurred
by each of them in the absence of such an arrangement. Under the arrangement,
certain costs associated with shareholder communication services and certain
administrative staff who perform duties on behalf of both entities are shared by
Convest and Edisto based on their respective utilization.
Michael Y. McGovern became Chairman and Chief Executive Officer of
Convest in June 1995. From July 1995 to November 1996, Mr. McGovern's base
salary ($275,000) and benefits were shared equally between Edisto and Convest.
When Edisto sold its gas marketing operations effective November 30, 1996, all
Edisto employees other than Mr. McGovern became employees of the purchaser.
Subsequently, Edisto's corporate headquarters were moved to Convest's offices,
and Mr. McGovern and four other employees of Convest have divided their time
between Edisto and Convest. Effective December 1, 1996, after Edisto sold its
gas marketing operations, Mr. McGovern's base salary and related benefits have
been apportioned 70% to Convest and 30% to Edisto. The base salary and benefits
of the other Convest employees who perform work for Edisto are also apportioned
based on the approximate amount of time they work for each company.
-9-
Each of the affiliated party transactions described above was approved
by either a special committee of Convest's Board, which was composed of outside
directors with no affiliation to Edisto, or the unanimous consent of Convest's
Board.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
EDISTO RESOURCES CORPORATION
(Registrant)
Date: April 30, 1997 By: /S/ STEVEN G. IVES
STEVEN G. IVES
Vice President, Controller and
Chief Accounting Officer
(Principal Financial and
Accounting Officer)
-10-