<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-3880
TOM BROWN, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1949781
------------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P. O. BOX 2608
500 EMPIRE PLAZA BLDG.
MIDLAND, TEXAS 79701
--------------------------------------- ---------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
915-682-9715
------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 11, 1995.
CLASS OF COMMON STOCK OUTSTANDING AT AUGUST 11, 1995
--------------------- ------------------------------
$.10 PAR VALUE 15,556,279
<PAGE> 2
TOM BROWN, INC. AND SUBSIDIARIES
QUARTERLY REPORT FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I. Financial Information (Unaudited):
Consolidated Balance Sheets,
June 30, 1995 and December 31, 1994 4
Consolidated Statements of Operations,
Three Months and Six Months ended
June 30, 1995 and 1994 6
Consolidated Statements of Cash Flows,
Six Months ended June 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
</TABLE>
2
<PAGE> 3
TOM BROWN, INC.
P. O. Box 2608
500 Empire Plaza Bldg.
Midland, Texas 79701
______________________
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FORM 10-Q
_______________________
PART I OF TWO PARTS
FINANCIAL INFORMATION
3
<PAGE> 4
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1995 1994
------ ---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,415,000 $ 19,147,000
Accounts receivable, net of allowance for
doubtful accounts of $3,000 at June 30,
1995 and $428,000 at December 31, 1994 7,939,000 7,293,000
Accounts receivable -
Wind River-Pavillion, Inc. 549,000 1,038,000
Inventories 536,000 1,132,000
Other 213,000 178,000
----------- -----------
Total current assets 15,652,000 28,788,000
----------- -----------
Property and equipment, at cost:
Gas and oil properties, based on the
successful efforts accounting method 187,803,000 214,451,000
Other equipment 11,442,000 10,954,000
----------- -----------
199,245,000 225,405,000
Less: Accumulated depreciation
and depletion 113,458,000 139,217,000
----------- -----------
Net property and equipment 85,787,000 86,188,000
----------- -----------
Senior gas indexed notes 51,093,000 -
Deferred income taxes, net 13,967,000 -
Other assets, net 108,000 116,000
----------- -----------
$ 166,607,000 $ 115,092,000
=========== ===========
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities and Stockholders' Equity 1995 1994
------------------------------------ ---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 6,143,000 $ 9,161,000
Accrued expenses 1,663,000 3,062,000
----------- -----------
Total current liabilities 7,806,000 12,223,000
----------- -----------
Commitments and contingencies
Long-term debt 51,000,000 -
Stockholders' equity:
Common stock, $.10 par value.
Authorized 30,000,000 shares;
Outstanding 15,537,529 shares and
15,522,129 shares, respectively. 1,554,000 1,552,000
Additional paid-in capital 177,477,000 177,350,000
Accumulated deficit (71,230,000) (76,033,000)
----------- -----------
Total stockholders' equity 107,801,000 102,869,000
----------- -----------
$ 166,607,000 $ 115,092,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months and Six Months ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Gas and oil sales $5,187,000 $4,213,000 $10,121,000 $ 9,031,000
Marketing, gathering and
processing 3,708,000 3,090,000 7,980,000 7,533,000
Other 267,000 437,000 489,000 712,000
---------- -------- ---------- ----------
Total revenues 9,162,000 7,740,000 18,590,000 17,276,000
---------- -------- ---------- ----------
Costs and expenses:
Gas and oil production 1,189,000 1,052,000 2,280,000 2,086,000
Taxes on gas and oil
production 476,000 464,000 1,048,000 1,124,000
Cost of gas sold 3,129,000 2,643,000 6,858,000 6,406,000
Exploration costs 380,000 105,000 1,948,000 333,000
Impairments of leasehold
costs 198,000 126,000 344,000 537,000
General and administrative 999,000 714,000 1,968,000 1,675,000
Option plan compensation 19,000 44,000 58,000 121,000
Depreciation, depletion
and amortization 2,386,000 1,756,000 4,706,000 3,508,000
Writedown of properties - - 8,368,000 -
Interest expense 27,000 22,000 27,000 22,000
---------- -------- ---------- ----------
Total costs
and expenses 8,803,000 6,926,000 27,605,000 15,812,000
---------- -------- ---------- ----------
Income (loss) before income
taxes 359,000 814,000 (9,015,000) 1,464,000
Income tax provision:
Recognition of deferred
tax asset - - 13,967,000 -
Income tax expense 86,000 83,000 149,000 159,000
---------- -------- ---------- ----------
Net income $ 273,000 $ 731,000 $ 4,803,000 $ 1,305,000
========== ======== ========== ==========
Weighted average number of
common shares outstanding 15,536,860 15,452,624 16,311,850 15,448,350
========== ========== ========== ==========
Net income per common share $ .02 $ .05 $ .29 $ .08
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
Six Months ended
June 30,
---------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,803,000 $ 1,305,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 4,706,000 3,508,000
Loss (gain) on sales of assets (102,000) (71,000)
Option plan compensation 58,000 121,000
Exploration costs 1,948,000 333,000
Impairments of leasehold costs 344,000 537,000
Writedown of properties 8,368,000 -
Deferred tax asset recognition (13,967,000) -
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable 463,000 223,000
Decrease (increase) in inventories 596,000 165,000
Decrease (increase) in other
current assets (35,000) 16,000
Increase (decrease) in accounts
payable (727,000) 596,000
Increase (decrease) in accrued
expenses (366,000) (90,000)
Decrease in other non-current
assets - -
--------- ---------
Net cash provided by operating activities $ 6,089,000 $ 6,643,000
--------- ---------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
Six Months ended
June 30,
----------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sales of assets $ 460,000 $ 207,000
Capital and exploration expenditures (19,275,000) (8,652,000)
Purchase of notes (51,093,000) -
---------- ----------
Net cash used in investing activities (69,908,000) (8,445,000)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt 51,000,000 -
Proceeds from exercise of stock
options 87,000 195,000
---------- ----------
Net cash provided by (used in) financing
activities 51,087,000 195,000
---------- ----------
Net increase (decrease) in cash and
cash equivalents (12,732,000) (1,607,000)
---------- ----------
Cash and cash equivalents at beginning
of period $ 19,147,000 $ 28,503,000
---------- ----------
Cash and cash equivalents at end of
period $ 6,415,000 $ 26,896,000
========== ==========
Cash paid during the period for:
Interest $ - $ 114,000
Taxes 38,000 37,000
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months and Six Months ended June 30, 1995 and 1994
(Unaudited)
(1) During interim periods, Tom Brown, Inc. follows the accounting policies
set forth in its Annual Report to Stockholders and its Report on Form 10-K
filed with the Securities and Exchange Commission. Users of financial
information produced for interim periods are encouraged to refer to the
footnotes contained in the Annual Report to Stockholders when reviewing interim
financial results.
In the opinion of management, the accompanying interim financial
statements contain all material adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation. Certain
reclassifications have been made to amounts reported in previous periods to
conform to the 1995 presentation.
(2) Debt
The Company and a bank ("Bank") entered into a letter agreement
("Agreement") which provided for a $51 million unsecured loan. The loan is
evidenced by the Company's promissory note dated June 28, 1995. The note is
payable on demand by the Bank and bears interest at either the Bank's prime
lending rate or, at the Company's option, the Bank's eurodollar loan rate plus
three-fourths of one percent. Interest is payable on the last day of each
month or on the last day of each interest period. The interest rate on June
30, 1995 was 9%, the Bank's prime lending rate, and on July 7, 1995, was
changed to 6.8%, the eurodollar loan rate as defined. The note is unsecured,
and other than the Company's agreements to indemnify the Bank for certain
matters and reimburse the Bank for its costs and expenses incurred in
connection with the Agreement and the Company's agreement that it will not
create or incur any other indebtedness for borrowed money without the Bank's
prior consent, there are no covenants or compliance requirements associated
with the Agreement.
The Company is negotiating an agreement in principle with the Bank for a
definitive long term debt agreement. Such agreement is expected to be
completed during the third quarter and will supersede the Agreement.
(3) Senior Gas Indexed Notes
On June 28, 1995, the Company purchased approximately $56 million
principal amount of the outstanding $100 million principal amount of Senior Gas
Indexed Notes due 2002 ("GINs") of Presidio Oil Company ("Presidio") for
approximately $51 million, including accrued interest. Presidio was unable to
meet the interest payment on the GINs due on May 15, 1995 and is therefore in
default under terms of the GINs. The Company purchased the GINs as part of its
efforts to acquire Presidio. The purchase of the GINs was funded by the $51
million bank note.
The GINs have been categorized as available for sale in accordance with
Statement of Financial Accounting Standards No. 115 and recorded at historical
cost which approximates fair market value.
9
<PAGE> 10
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Writedown of Properties
The Company recorded a charge against earnings in the amount of
$8,368,000 due to the early adoption of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets...",
which generally requires a separate assessment for potential impairment of each
of the Company's producing property cost centers, in contrast to the Company's
prior policy of evaluating the producing property accounts for impairment in
total. The $8.4 million charge reduced the carrying value of a portion of the
Company's non-core properties to their estimated fair values, which management
has determined to be the discounted future net cash flows of the properties.
(5) Income Taxes
In 1992, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (the
"Statement"). The Statement was adopted by the Company effective as of January
1, 1993. The Statement requires a balance sheet approach to the calculation of
deferred income taxes. The Statement provides for, among other things, the
recognition of deferred tax assets under certain circumstances. The Company
has significant net operating loss carryforwards and, therefore, calculated a
net deferred tax asset upon adoption of the Statement. However, due to the
Company's history of net operating losses, a valuation allowance was recorded
equal to the amount of the net deferred tax asset.
Based on recent additions to the Company's oil and gas reserves and the
resulting increases in anticipated future income and the absence of significant
option plan compensation charges to future income, the Company now expects to
realize a major portion of the future benefit of its net operating loss
carryforwards prior to their expiration. Accordingly, that portion of the
valuation allowance was reversed in the first quarter. A valuation allowance
of approximately $10.0 million will be retained against the Company's deferred
tax assets, primarily because the Company's investment tax credit carryforwards
are still not expected to be realized in future periods.
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Net operating loss carryforwards.................... $ 24,397,000 $ 24,397,000
Gas and oil acquisition, exploration and development
costs deducted for tax purposes in excess of book.. (9,889,000) (12,734,000)
Investment tax credit carryforwards................. 6,183,000 6,183,000
Option plan compensation............................ 1,494,000 1,474,000
Other............................................... 1,649,000 1,649,000
---------- ----------
Net deferred tax asset............................ 23,834,000 20,969,000
Valuation allowance................................. (9,867,000) (20,969,000)
---------- ----------
Recognized net deferred tax asset................. $ 13,967,000 $ -
========== ==========
</TABLE>
10
<PAGE> 11
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At June 30, 1995, the Company had investment tax credit carryforwards of
approximately $6.2 million and net operating loss carryforwards of
approximately $71.8 million. The carryforwards will expire between 1995 and
2004. Additionally, the Company has approximately $3.7 million of statutory
depletion carryforwards and $.25 million of AMT credit carryforwards that may
be carried forward indefinitely.
11
<PAGE> 12
TOM BROWN, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The factors which most significantly affect the Company's results of
operations are (1) the sales prices of natural gas and crude oil, (2) the level
of total sales volumes and (3) the level and success of exploration and
development activity.
Selected Operating Data
<TABLE>
<CAPTION>
Three Months Six Months
ended ended
June 30, June 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (in thousands):
Natural gas sales.................. $ 3,273 $ 2,957 $ 6,686 $ 6,835
Crude oil sales.................... 1,914 1,256 3,435 2,196
Marketing, gathering and
processing....................... 3,708 3,090 7,980 7,533
Other.............................. 267 437 489 712
----- ----- ------ ------
Total revenues............... $ 9,162 $ 7,740 $18,590 $17,276
===== ===== ====== ======
Net income (in thousands)............. $ 273 $ 731 $ 4,803 $ 1,305
Natural gas production (MMcf)......... 2,781 1,876 5,330 3,924
Crude oil production (MBbls).......... 106 71 200 143
Average natural gas sales
price ($/Mcf)...................... $ 1.18 $ 1.58 $ 1.25 $ 1.74
Average crude oil sales
price ($/Bbl)...................... $ 18.06 $ 17.69 $ 17.18 $ 15.36
</TABLE>
Revenues
During the three month period ended June 30, 1995, revenues from natural
gas and oil production increased $1.0 million to $5.2 million compared to the
same period in 1994. An increase in natural gas sales volumes of 48% increased
revenues by approximately $1.1 million; however, a decrease in average natural
gas prices received by the Company from $1.58 per Mcf to $1.18 per Mcf
decreased revenues by approximately $.8 million. An increase in oil sales
volumes of 49% increased revenues by approximately $.6 million for the three
months ended June 30, 1995. An increase in average crude oil sales prices from
$17.69 to $18.06 per barrel increased revenues $.1 million.
During the six month period ended June 30, 1995, revenues from natural
gas and oil production increased $1.1 million to $10.1 million compared to the
same period in 1994. An increase in natural gas sales volumes of 36% increased
revenues by approximately $1.8 million. A decrease in average natural gas
prices received by the Company from $1.74 per Mcf to $1.25 per Mcf decreased
revenues by approximately $1.9 million. An increase in oil sales volumes of
40% increased revenues by approximately
12
<PAGE> 13
TOM BROWN, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
$1.0 million for the six months ended June 30, 1995. An increase in the
average crude oil sales price from $15.36 per Bbl to $17.18 per Bbl increased
revenues by approximately $.2 million for the six months ended June 30, 1995.
The increase in gas and oil sales volumes for the three months and six
months ended June 30, 1995 as compared to the same periods in 1994 is due
primarily to increased production in the Company's Val Verde Basin of Texas.
Marketing, gathering and processing revenues increased $.6 million and
$.4 million for the three and six month periods ended June 30, 1995,
respectively, as a result of the increased activity in the Company's natural
gas marketing operations and increased revenues from the Company's Wind River
pipeline in the Wind River Basin of Wyoming.
Costs and Expenses
Costs and expenses for the three months ended June 30, 1995 increased
approximately 28% to $8.8 million as compared to the same period in 1994.
Natural gas and oil production expense increased $.1 million as a result of the
addition of several wells in the Val Verde Basin. Although gas and oil sales
increased, taxes on gas and oil production remained relatively unchanged as
lower-taxed production from Texas accounted for the increased sales.
Cost of sales increased as higher volumes of gas were purchased by the
Company's marketing subsidiary during the three months ended June 30, 1995.
Exploration costs increased $.3 million as a result of 3-D seismic costs on the
Company's exploration efforts in the Wind River Basin of Wyoming. General and
administrative expenses increased $.3 million due to additional costs to
explore and develop the Company's Wind River Basin and Val Verde Basin.
Depreciation, depletion and amortization increased 36% due to the addition of
Val Verde Basin.
Costs and expenses for the six months ended June 30, 1995 increased to
$27.6 million from $15.8 million for the same period in 1994, primarily as a
result of an $8.4 million writedown of non-strategic properties due to the
early adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets...", which generally
requires a separate assessment for potential impairment of each of the
Company's producing property cost centers, in contrast to the Company's prior
policy of evaluating the producing property accounts for impairment in total.
The $8.4 million charge reduced the carrying value of a portion of the
Company's non-core properties to their estimated fair values.
The Company recognized in the first quarter of 1995 a net deferred tax
asset in the amount of $13,967,000 and corresponding credit to deferred income
tax expense. Deferred tax assets (related primarily to the Company's net
operating loss and investment tax credit carryforwards) were initially recorded
in 1993, but these tax assets had been reserved entirely by a valuation
allowance up until 1995. Based on recent additions to the Company's oil and
gas reserves, the resulting increases in
13
<PAGE> 14
TOM BROWN, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
anticipated future income and the absence of significant option plan
compensation charges to future income, the Company now expects to realize a
major portion of the future benefit of its net operating loss carryforwards
prior to their expiration. Accordingly, that portion of the valuation
allowance was reversed in the first quarter. A valuation allowance of
approximately $10.0 million will be retained against the Company's deferred tax
assets, primarily because the Company's investment tax credit carryforwards are
still not expected to be realized in future periods. The deferred tax assets
and related valuation allowance will be monitored for potential adjustments as
future events so indicate, although management does not expect such adjustments
to be significant in the near term.
Capital Expenditures: Liquidity
On June 28, 1995, the Company purchased approximately $56 million
principal amount of the $100 million principal amount outstanding of the Senior
Gas Indexed Notes due 2002 ("GINs") of Presidio Oil Company ("Presidio") for
approximately $51 million, including accrued interest. Presidio was unable to
meet the interest payment on the GINs due on May 15, 1995 and is therefore in
default in accordance with the terms of the GINs. The Company purchased the
GINs as part of its efforts to acquire Presidio. The purchase of the GINs was
funded by the $51 million bank note.
The Company and a bank ("Bank") entered into a letter agreement
("Agreement") which provided for a $51 million unsecured loan. The loan is
evidenced by the Company's promissory note dated June 28, 1995. The note is
payable on demand by the Bank and bears interest at either the Bank's prime
lending rate or, at the Company's option, the Bank's eurodollar loan rate plus
three-fourths of one percent. Interest is payable on the last day of each
month or on the last day of each interest period. The interest rate on June
30, 1995 was 9%, the Bank's prime lending rate, and on July 7, 1995, was
changed to 6.8%, the eurodollar loan rate as defined. The note is unsecured,
and other than the Company's agreements to indemnify the Bank for certain
matters and reimburse the Bank for its costs and expenses incurred in
connection with the Agreement and the Company's agreement that it will not
create or incur any other indebtedness for borrowed money without the Bank's
prior consent, there are no covenants or compliance requirements associated
with the Agreement.
The Company is negotiating an agreement in principle with the Bank for a
definitive long term debt agreement. Such agreement is expected to be
completed during the third quarter and will supersede the Agreement.
The Company's capital expenditures for the three and six month periods
ended June 30, 1995 were approximately $7.9 million and $14.9 million,
respectively, as compared to $3.4 million and $8.3 million, respectively, in
the same periods in 1994. The capital expenditures for the three and six month
periods ended June 30, 1995 includes approximately $7.2 million and
approximately $13.3 million, respectively, in further development of the
Company's Wind River and Val Verde Basins.
14
<PAGE> 15
TOM BROWN, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company has historically funded capital expenditures and working
capital requirements with internally generated cash and borrowings. During the
six month period ended June 30, 1995, net cash provided by operating activities
was $6.1 million as compared to $6.6 million for the same period of 1994.
15
<PAGE> 16
TOM BROWN, INC.
P. O. Box 2608
500 Empire Plaza Bldg.
Midland, Texas 79701
__________________________
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FORM 10-Q
__________________________
PART II OF TWO PARTS
OTHER INFORMATION
16
<PAGE> 17
TOM BROWN, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 17, 1995.
At the meeting, the following persons were elected to serve as Directors of the
Company until the 1996 annual meeting of stockholders and until their
respective successors are duly qualified and elected: (1) Thomas C. Brown, (2)
Donald L. Evans,(3) William R. Granberry,(4) Henry Groppe, (5) Edward W.
LeBaron, Jr., (6) James B. Wallace and (7) Robert H. Whilden, Jr.
Set forth below is a tabulation of votes with respect to each nominee
for Director:
<TABLE>
<CAPTION>
Votes Votes
Cast Cast Votes Broker
Name For Against Withheld Abstentions Non-Votes
---- ----- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Thomas C. Brown 12,812,725 102,798 - - -
Donald L. Evans 12,812,822 102,701 - - -
William R. Granberry 12,812,762 102,761 - - -
Henry Groppe 12,812,577 102,946 - - -
Edward W. LeBaron, Jr. 12,812,592 102,931 - - -
James B. Wallace 12,812,577 102,946 - - -
Robert H. Whilden, Jr. 12,812,752 102,771 - - -
</TABLE>
An amendment to authorize an additional 400,000 shares of Common Stock
for issuance under the Company's 1989 Stock Option Plan was adopted at the
annual meeting of stockholders on May 17, 1995.
Set forth below is a tabulation of votes with respect to this amendment:
<TABLE>
<CAPTION>
Votes Votes
Cast Cast Votes Broker
For Against Withheld Abstentions Non-Votes
----- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
10,811,508 2,019,144 -0- 84,871 -
</TABLE>
17
<PAGE> 18
TOM BROWN, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Description
-------- -----------
Exhibit No. 10.1 Letter Agreement dated as of June 27, 1995 and
Demand Promissory Note dated as of June 28,
1995.
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K
On June 27, 1995, the Registrant filed Form 8-K announcing its
intention to purchase approximately $54 million principal amount of
the $100 million principal amount outstanding of the Senior Gas
Indexed Notes due 2002 of Presidio Oil Company for an aggregate
purchase price of approximately $50 million, including accrued
interest.
18
<PAGE> 19
TOM BROWN, INC. AND SUBSIDIARIES
OTHER INFORMATION
Pursuant to the requirements 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.
TOM BROWN, INC.
------------------------------------------
(Registrant)
August 11, 1995 /s/ Kim Harris
-------------- ------------------------------------------
Date Kim Harris
Controller
(Mr. Harris is the Chief Financial Officer
and is duly authorized to sign on behalf
of the Registrant)
19
<PAGE> 20
INDEX TO EXHIBITS
Exhibit 10.1 Letter Agreement
Exhibit 27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
June 27, 1995
Tom Brown, Inc.
Corporate Headquarters
508 W. Wall, Suite 500
Midland, Texas 79702
Dear Sirs:
Pursuant to the request of Tom Brown, Inc. (the "Borrower"), Chemical Bank
(the "Bank") will make a demand loan (the "Loan") in the principal amount of
$51,000,000 to the Borrower on June 28, 1995 to provide funds to the Borrower
to purchase non-convertible debt instruments of a Delaware corporation
separately identified to the Bank by the Borrower. The Loan will be evidenced
by a promissory note of the Borrower (the "Note") in substantially the form
annexed hereto as Exhibit A.
Interest on the Note will, at the Borrower's option, be (i) the Bank's
Prime Rate (as defined in the Note) or (ii), to the extent available, the
Eurodollar Rate for 7-day, 14-day, 21-day or one-month interest periods plus
.75% per annum. Elections for the interest rate to be a Eurodollar Rate and
the length of the interest period must be made at least three business days
prior to the commencement of each interest period. For purposes hereof:
(i) "Eurodollar Rate" with respect to each day during each
interest period, shall mean a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
Eurodollar Base Rate
-----------------------------------------
1.00 - Eurocurrency Reserve Requirements;
"Eurocurrency Reserve Requirements" shall mean, for any day the
aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or
other governmental authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) maintained by a member bank of such System; and
"Eurodollar Base Rate" shall mean, with respect to each day
during each interest period, the rate per annum equal to the rate at which
the Bank is offered Dollar deposits at or about 10:00 A.M., New York City
time, two business days prior to the beginning of such interest period in
the interbank eurodollar market where the eurodollar and foreign currency
and exchange operations in respect of its eurodollar loans are then being
conducted for delivery on the first day of such interest period for the
number of days comprised therein and
<PAGE> 2
TOM BROWN, INC. -2- June 27, 1995
in an amount comparable to the amount of the Loans to be outstanding during
such interest period.
Interest at the Prime Rate shall be paid (i) on the last day of each month
(commencing with July 31, 1995), (ii) upon conversion of a Prime Rate Loan (as
hereinafter defined) to a Eurodollar Loan (as hereinafter defined), and (iii)
on maturity. Interest based on the Eurodollar Rate shall be paid on the last
day of each interest period and on maturity and shall be calculated on a
360-day basis. In the event that any change in any law, rule or regulation or
in the interpretation or application thereof or compliance by the Bank with any
request or directive (whether or not having the force of law) from any central
bank or other governmental authority made subsequent to the date hereof:
(i) shall subject the Bank to any tax of any kind whatsoever
with respect to this Letter Agreement, or the Note, or change the basis of
taxation of payments to the Bank in respect thereof (except for changes in
the rate of tax on the overall net income of the Bank);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of the Bank which is not otherwise included in the determination of
the Eurodollar Rate hereunder; or
(iii) shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, converting into,
continuing or maintaining the Loan based on the Eurodollar Rate or to reduce
any amount receivable hereunder in respect thereof then, in any such case, the
Borrower shall promptly pay the Bank, upon its demand, any additional amounts
necessary to compensate the Bank for such increased cost or reduced amount
receivable. A certificate of the Bank as to any additional amounts (including
calculations of any such additional amounts in reasonable detail) shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Letter Agreement and the payment of the Note and all other
amounts payable hereunder.
If the Loan shall at any time bear interest at the Prime Rate (a "Prime
Rate Loan"), the Borrower may elect to convert the Loan to bear interest based
on the Eurodollar Rate (a "Eurodollar Loan") by giving the Bank timely notice
of such election as provided in the second paragraph of this Letter Agreement.
Absent the giving of such a notice in respect of any period during which the
Loan shall be outstanding, the Loan shall be a Prime Rate Loan during such
period.
The Borrower agrees to indemnify the Bank and to hold the Bank harmless
from any loss or expense which the Bank may sustain or incur as a consequence
of (a) default
<PAGE> 3
TOM BROWN, INC. -3- June 27, 1995
by the Borrower in payment when due of the principal amount of or interest on
the Loan and (b) the making of a prepayment of the Loan, if the same shall be
a Eurodollar Loan, on a day which is not the last day of an interest period
with respect thereto, including, without limitation, in each case, any such
loss or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate the deposits from which such funds were obtained.
This covenant shall survive the termination of this Letter Agreement and the
payment of the Note and all other amounts payable hereunder.
In order to induce the Bank to make the Loan, the Borrower by its signature
below hereby represents and warrants to the Bank that: (i) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) it has the corporate power and
authority, and the legal right, to make, deliver and perform this Letter
Agreement and the Note and has taken all necessary action to authorize the
borrowing on the terms and conditions of this Letter Agreement and the Note,
(iii) no consent or authorization of, filing with or other act by or in respect
of, any governmental authority or any other entity is required in connection
with such borrowing, (iv) the execution, delivery and performance of this
Letter Agreement and the Note and the borrowing hereunder and the use of the
proceeds thereof will not violate any law, rule or regulation applicable to the
Borrower or any contractual obligation of the Borrower or of any of its
subsidiaries, (v) no litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Borrower, threatened by or against the Borrower or any of its subsidiaries or
against any of its or their respective properties or revenues (a) with respect
to this Letter Agreement or the Note or any of the transactions contemplated
hereby or thereby or (b) which could reasonably be expected to be adversely
determined and, if adversely determined, could reasonably be expected to have a
material adverse effect on the Borrower, (vi) the proceeds of the Loans will be
used as set forth in the first sentence of this Letter Agreement, and no part
of the proceeds of the Loan will be used for "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System, (vii) the
consolidated balance sheet of the Borrower and its consolidated subsidiaries as
at December 31, 1994 and the related consolidated statement of income and
consolidated statement of cash flows for the fiscal year ended on such date,
reported on by Arthur Andersen LLP, copies of which have heretofore been
furnished to the Bank, are complete and correct and present fairly the
consolidated financial condition of the Borrower and its consolidated
subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended and (viii)
since December 31, 1994 there has been no development or event nor any
prospective development or event, which has had a material adverse effect on
the business, financial or other condition or property of the Borrower.
In order to induce the Bank to make the Loan, the Borrower hereby agrees
that so long as the Loan is outstanding it will not incur or create any other
indebtedness for borrowed money without the consent of the Bank.
<PAGE> 4
TOM BROWN, INC. -4- June 27, 1995
In addition to the expenses covered in the Note, the Borrower hereby agrees
(a) to pay or reimburse the Bank for all its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification (requested by the Borrower)
to, this Letter Agreement, the Note and any other documents prepared in
connection herewith or therewith, including, without limitation, the reasonable
fees and disbursements of counsel to the Bank and (b) to pay, indemnify, and
hold the Bank harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this Letter
Agreement, the Note and any such other documents and the transactions
contemplated hereby (all the foregoing, collectively, the "indemnified
liabilities"), provided, that the Borrower shall have no obligation hereunder
to the Bank with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Bank.
This Letter Agreement may be executed in any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
This Letter Agreement represents the agreement of the Borrower and the Bank
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Bank relative to the subject
matter hereof not expressly set forth or referred to herein or in the Note.
THIS LETTER AGREEMENT AND THE NOTE AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS LETTER AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
The Borrower irrevocably consents to the in personam jurisdiction of the
federal and/or state courts located within the State of New York over
controversies arising from or relating to this Letter Agreement and the Note
and irrevocably waives trial by jury and the right to impose any counterclaim
or offset of any nature in any such litigation.
<PAGE> 5
TOM BROWN, INC. -5- June 27, 1995
If the foregoing correctly sets forth your understanding of the agreement
between the Borrower and the Bank, please execute a copy of this Letter
Agreement in the space provided below whereupon it shall become a binding
agreement between the Bank and the Borrower as of the date first above written.
Very truly yours,
CHEMICAL BANK
By: /s/ Ronald Potter
-----------------------------
Name: Ronald Potter
Title: Managing Director
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
TOM BROWN, INC.
By: /s/ Peter R. Scherer
---------------------------
Peter R. Scherer
Executive Vice President
<PAGE> 6
DEMAND PROMISSORY NOTE
$51,000,000.00 New York, N.Y.
June 28, 1995
On DEMAND, for value received, the undersigned hereby promises to pay
to the order of CHEMICAL BANK (hereinafter the "Bank") at its offices at 270
Park Avenue, New York, NY, FIFTY-ONE MILLION DOLLARS ($51,000,000) with
interest (a) payable on the last day of each month, upon conversion of the loan
evidenced hereby to a loan bearing interest based on the Eurodollar Rate, and
at maturity, at a per annum rate equal to the Bank's Prime Rate (which shall be
the rate of interest as is publicly announced at the Bank's principal office
from time to time as its Prime Rate), adjusted as of the date of each such
change or (b) at the option of the undersigned, at a per annum rate based upon
the Eurodollar Rate as provided in the letter agreement dated June 27, 1995
(the "Letter Agreement") between the Bank and the undersigned, payable on the
last day of each interest period described therein (and at maturity). Interest
at the Prime Rate shall be computed on the basis of a 365- or 366-day year and
actual days elapsed, and interest based upon the Eurodollar Rate shall be
computed for the actual number of days elapsed on the basis of a 360-day year,
but in either case in no event shall be higher than the maximum permitted under
applicable law. Interest on any past due amount, whether at the due date
thereof or by acceleration, shall be paid at a rate of one percent per annum in
excess of the above stated rate, but in no event higher than the maximum
permitted under applicable law. Time for payment extended by law shall be
included in the computation of interest.
The undersigned hereby grants to the Bank a lien on, security interest
in and right of set-off against all moneys, securities and other property of
the undersigned and the proceeds thereof now or hereafter delivered to remain
with or in transit in any manner to the Bank, its correspondents or its agents
from or for the undersigned, whether for safekeeping, custody, pledge,
transmission, collection or for any other purpose, or coming into possession,
control or custody of the Bank, Chemical Securities, Inc., or any other
affiliate of the Bank in any way, and, also, any balance of any deposit account
and credits of the undersigned with, and any other claims of the undersigned
against, the Bank, Chemical Securities, Inc., or any other affiliate of the
Bank at any time existing (all of which are hereinafter collectively called
"Collateral"), as collateral security for the payment of this note and all
other liabilities and obligations now or hereafter owed by the undersigned to
the Bank, contracted with or acquired by the Bank, whether joint, several,
direct, indirect, absolute, contingent, secured, unsecured, matured or
unmatured (all of which are hereafter collectively called "Liabilities"),
hereby authorizing the Bank at any time or times, without notice or demand, to
apply any such Collateral or any proceeds thereof to any of such Liabilities in
such amounts as it in its sole discretion may select, either contingent,
unmatured or otherwise and whether any other collateral security therefor is
deemed adequate or not. Undersigned authorizes the Bank to deliver to others a
copy of this note as written notification of the undersigned's transfer of a
security interest in the Collateral. The Bank further is authorized at any
time or times, without demand or notice to the undersigned, to transfer to or
register in the name of its nominee or nominees all or any part of the
Collateral and
<PAGE> 7
2
exercise any and all rights, power and privileges (expect that prior to an
Event of Default the Bank shall not have the right to vote or to direct the
voting of any Collateral). The collateral security and other rights described
herein shall be in addition to any other collateral security described in any
separate agreement executed by the undersigned.
In the event of: appointment of a receiver, conservator, rehabilitator
or similar officer for the undersigned, or for any property of the undersigned;
calling of a meeting of creditors, assignment for the benefit of creditors or
bulk sale or notice thereof; filing of a petition in bankruptcy, commencement
of any proceeding under any bankruptcy or debtor's law (or similar law
analogous in purpose or effect) for the relief, reorganization, composition,
extension, arrangement or readjustment of any of the obligations by or against
the undersigned; then, and in any of those events (each, an "Event of
Default"), all Liabilities, although otherwise unmatured or contingent, shall
forthwith become due and payable without notice or demand and notwithstanding
anything to the contrary contained herein or in any other instrument. Further,
acceptance of any payments shall not waive or affect any prior demand for
payment of the Liabilities, and each such payment made shall be applied first
to the payment of accrued interest, then to the aggregate unpaid principal or
otherwise as determined by the Bank in its sole discretion. The undersigned
hereby irrevocably consents to the in personam jurisdiction of the federal
and/or state courts located within the State of New York over controversies
arising from or relating to this note or the Liabilities and irrevocably waives
trial by jury and the right to interpose any counterclaim or offset of any
nature in any such litigation. The undersigned further irrevocably waives
presentment, protest, notice of dishonor and all other notices or demands of
any kind (except for demand for payment as hereinabove provided) in connection
with this note or any Liabilities.
The Bank may, at its option, at any time when in the judgment of the
Bank the Collateral is inadequate or the Bank deems itself insecure, or upon or
at any time after the occurrence of an Event of Default, proceed to enforce
payment of the same and exercise any of or all the rights and remedies afforded
the Bank by the Uniform Commercial Code (the "Code") or otherwise possessed by
the Bank. Any requirement of the Code for reasonable notice to the undersigned
shall be deemed to have been complied with if such notice is mailed, postage
prepaid, to the undersigned and such other persons entitled to notice, at the
addresses shown on the records of the Bank at least four (4) days prior to the
time of sale, disposition or other event requiring notice under the Code.
The undersigned agrees to pay the Bank, as soon as incurred, all costs
and expenses incidental to the care, preservation, processing, sale or
collection of or realization upon any of or all the Collateral or incurred in
connection with the enforcement or collection of this note, or in any way
relating to the rights of the Bank hereunder, including reasonable outside
counsel fees and expenses. Each and every right and remedy hereby granted to
the Bank or allowed to it by law shall be cumulative and not exclusive and each
may be exercised by the Bank from time to time and as often as may be
necessary. The undersigned shall have the sole responsibility for notifying
the Bank in writing that the undersigned wishes to take advantage of any
<PAGE> 8
3
redemption, conversion or other similar right with respect to any of the
Collateral. The Bank may release any party without notice to the undersigned,
whether as co-makers, endorsers, guarantors, sureties, assigns or otherwise,
without affecting the liability of the undersigned.
Upon any transfer of this note, the Bank may deliver the Collateral or
any part thereof to the transferee who shall thereupon become vested with all
the rights herein or under applicable law given to the Bank with respect
thereto and the Bank shall thereafter forever be relieved and fully discharged
from any liability or responsibility in the matter in respect of matters
occurring thereafter; but the Bank shall retain all rights hereby given to it
with respect to any Liabilities and Collateral not so transferred. No
modification or waiver of any of the provisions of this note shall be effective
unless in writing, signed by the Bank, and only to the extent therein set
forth; nor shall any such waiver be applicable except in the specific instance
for which given. This note and the Letter Agreement hereinabove referred to
set forth the entire understanding of the parties, and the undersigned
acknowledges that no oral or other agreements, conditions, promises,
understandings, representations or warranties exist in regard to the
obligations hereunder, except those specifically set forth herein and therein.
Each reference herein to the Bank shall be deemed to include its
successors, endorsees, and assigns, in whose favor the provisions hereof shall
also inure. Each reference herein to the undersigned shall be deemed to
include the successors and assigns of the undersigned, all of whom shall be
bound by the provisions hereof.
The provisions of this note shall be construed and interpreted and all
rights and obligations hereunder determined in accordance with the laws of the
State of New York, and, as to interest rates, applicable Federal law.
TOM BROWN, INC.
By: /s/ Peter R. Scherer
--------------------------------
Peter R. Scherer
Executive Vice President
508 W. Wall, Suite 500
Midland, Texas 79702
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 6,415
<SECURITIES> 0
<RECEIVABLES> 8,491
<ALLOWANCES> 3
<INVENTORY> 536
<CURRENT-ASSETS> 15,652
<PP&E> 199,245
<DEPRECIATION> 113,458
<TOTAL-ASSETS> 166,607
<CURRENT-LIABILITIES> 7,806
<BONDS> 0
<COMMON> 1,554
0
0
<OTHER-SE> 106,247
<TOTAL-LIABILITY-AND-EQUITY> 166,607
<SALES> 10,121
<TOTAL-REVENUES> 18,590
<CGS> 10,186
<TOTAL-COSTS> 27,605
<OTHER-EXPENSES> 2,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (9,015)
<INCOME-TAX> (13,818)
<INCOME-CONTINUING> 4,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,803
<EPS-PRIMARY> .29
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</TABLE>
