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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 [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
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COMMISSION FILE NUMBER 0-3880
TOM BROWN, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1949781
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(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
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
915-682-9715
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
--------------------------------
(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 the Registrant's Common Stock held by
non-affiliates (based upon the last sale price of $18.00 per share as quoted on
the NASDAQ National Market System) on March 24, 1997 was approximately
$430,993,000.
As of March 24, 1997, there were 23,944,044 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for the 1997 Annual
Meeting of Stockholders to be held on May 21, 1997 are incorporated by
reference into Part III.
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TOM BROWN, INC.
FORM 10-K
CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1. Business.............................................. 3
Item 2. Properties............................................ 13
Item 3. Legal Proceedings..................................... 16
Item 4. Submission of Matters to a Vote of
Security Holders............................... 16
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................ 17
Item 6. Selected Financial Data............................... 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations.................................. 20
Item 8. Financial Statements and Supplementary Data........... 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 55
PART III
Item 10. Directors and Executive Officers of the
Registrant..................................... 55
Item 11. Executive Compensation................................ 55
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................... 55
Item 13. Certain Relationships and Related Transactions........ 55
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K........................ 56
Signatures.............................................................. 61
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Tom Brown, Inc. (the "Company") was organized as a Nevada corporation in
1931 under the name Gold Metals Consolidated Mining Company. The name of the
Company was changed to Tom Brown Drilling Company, Inc. in 1968 and to Tom
Brown, Inc. in 1971. In April 1987, the Company changed its state of
incorporation from Nevada to Delaware. The executive offices of the Company are
located at 500 Empire Plaza, Midland, Texas 79701 and its telephone number at
that address is (915) 682-9715. Unless the context otherwise requires, all
references to the "Company" include Tom Brown, Inc. and its subsidiaries.
The Company is engaged primarily in the domestic exploration for, and
the acquisition, development, production, marketing, and sale of, natural gas
and crude oil in the United States. The Company's activities are conducted
principally in the Wind River and Green River Basins of Wyoming, the Piceance
Basin of Colorado, the Val Verde Basin of west Texas and the Permian Basin of
west Texas and southeastern New Mexico. The Company also, to a lesser extent,
conducts exploration and development activities in other areas of the
continental United States.
The Company's industry segments are (i) the exploration for, and the
acquisition, development and production of natural gas and crude oil, and (ii)
the marketing, gathering, processing and sale of natural gas, primarily through
Wildhorse Energy Partners, L. L. C. ("Wildhorse").
Except for its gas and oil leases with domestic governmental entities
and other third parties who enter into gas and oil leases or assignments with
the Company in the regular course of its business, the Company has no material
patents, licenses, franchises or concessions which it considers significant to
its gas and oil operations.
The nature of the Company's business is such that it does not maintain
or require a substantial amount of products, customer orders or inventory.
The Company's gas and oil operations are not subject to renegotiation
of profits or termination of contracts at the election of the federal
government.
The Company has not been a party to any bankruptcy, receivership,
reorganization or similar proceeding, except in connection with the
reorganization of Presidio Oil Company as described in Note 3 to Notes to
Consolidated Financial Statements.
BUSINESS STRATEGY
Since 1985, the Company's principal business strategy has been to
obtain and develop long-lived reserves (having a reserve life in excess of the
industry average which is currently 15 years) in areas where the Company has
knowledge and operations expertise. Accordingly, the Company has primarily
invested in natural gas-prone basins which the Company believes will provide the
opportunity to accumulate significant reserves at attractive prices.
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The principal benefits of the Company's strategy include the ability
to:
* Increase reserves at lower-than-average costs,
* Acquire large tracts of contiguous acreage with high working
interests,
* Develop economies of scale in its operations, and
* Control development and marketing decisions relating to its
properties.
In pursuing its strategic goals, the Company focuses on the following
objectives:
Maintaining a strong balance sheet
The Company emphasizes maintaining a strong balance sheet in order to
enhance its operating and financing flexibility.
Achieving critical mass in core areas
The Company has assembled additional acreage since 1986 in natural
gas-prone basins, primarily in the Wind River, Green River, and Piceance
Basins, where the Company can utilize its geological and technical expertise
and its control of operations for the further development and expansion of
these areas. The Company has leases, or options to lease, approximately
1,754,000 gross (1,059,000 net) developed and undeveloped acres in these areas.
Increasing reserves
The Company replaced its production over 8 times during the period from
January 1, 1994 through December 31, 1996. During this period, the Company's
proved reserves increased by approximately 109% to 433 billion cubic feet
("Bcf") of natural gas equivalents.
Increasing production
The Company increased its net average daily production of natural gas
and oil to 55 million cubic feet ("MMcf") of natural gas equivalents in 1996,
an increase of approximately 129% as compared with its production in 1994. At
the end of 1996, with the acquisition of Presidio, the Company's net average
daily production of gas and oil was approximately 103 MMcfe.
Enhancing gas marketing
Since 1991, the Company has strengthened its ability to control and
market its production by accumulating natural gas gathering assets and
increasing its marketing efforts in its core areas of activity.
Making strategic acquisitions
The Company plans to continue to selectively pursue acquisitions of gas
and oil properties in its core areas of activity and, in connection therewith,
the Company from time to time will be involved in evaluations of, or
discussions with, potential acquisition candidates. The consideration for any
such acquisition might involve the
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payment of cash and/or the issuance of equity or debt securities.
Notwithstanding the Company's historical ability to implement the above
strategy, there can be no assurance that the Company will be able to continue
to successfully implement its strategy in the future.
AREAS OF ACTIVITY
The following discussion focuses on areas the Company considers to be
its core areas of operations and those which offer the Company the greatest
opportunities for further exploration and development activities.
Wind River, Green River, and Piceance Basins
The Wind River and Green River Basins of Wyoming, and Piceance Basin of
Colorado account for a major portion of the Company's current and anticipated
exploration and development activities with approximately 41% of the Company's
proved reserves at December 31, 1996. The Company operates 467 wells out of
a total of 733 producing wells in these basins that averaged net daily
production of 26 million cubic feet of natural gas equivalents ("MMCFE") at
December 31, 1996. The Company has approximately 218,000 gross developed acres
and 1,536,000 gross undeveloped acres in these basins. Additionally, the Company
has options to lease approximately 966,000 gross undeveloped acres in the Wind
River Basin. The Company's interest in the options to lease are subject to the
Company performing certain 3-D seismic operations and drilling certain
exploratory wells.
Although the Wind River Basin has experienced limited natural gas
transportation capacity, market forces are working to correct this capacity
constraint. In January 1996, KN Energy, Inc. announced that it reached an
agreement to acquire an 850-mile oil pipeline owned by Amoco Pipeline Company,
which extends from the Wind River Basin southwest to Kansas City, Missouri with
scheduled interconnects to interstate pipelines owned by Northern Natural Gas
Company, ANR Pipeline Company, Natural Gas Pipeline Company of America, and
Panhandle Eastern Pipe Line Company. When converted to transport natural gas,
the pipeline, known as Pony Express, will have an initial capacity of
approximately 250 MMCF of natural gas per day and with additional compression,
up to 350 MMCF per day. The Company expects Pony Express to generate
significant opportunities for Wildhorse, which has initially contracted for
firm transportation of 30 MMCF of natural gas per day on this line.
Val Verde Basin
The Val Verde Basin accounted for approximately 12% of the Company's
proved reserves at December 31, 1996. The Company holds a 50% working interest
in approximately 51,500 gross acres in this basin. As of December 31, 1996
there were 24 producing wells averaging 22 MMCFE per day of natural gas net
to the Company's interest.
Permian Basin
The Permian Basin contains significant oil reserves for the Company and
accounted for approximately 8% of the Company's proved reserves as of December
31, 1996. The Company's properties in the Permian Basin are located primarily
in the Spraberry Field. The Company operates 110 wells and has approximately
23,700 net developed and undeveloped acres in this basin.
East Texas Basin
In January 1996 the Company began an exploration program in the Cotton
Valley Pinnacle Reef Trend of the East Texas Basin. At year end, it had
accumulated approximately 50,000 gross (24,000 net) acres in three prospect
areas containing over 40 2-D anomalies. At year end, the Company was completing
data acquisition on a 77-square mile 3-D survey in one of the prospect areas.
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SIGNIFICANT DEVELOPMENTS IN 1996
Acquisition of KN Production Company
Pursuant to a letter of intent entered into in December 1995, the
Company and KN Energy, Inc. ("KNE") closed certain transactions on January 31,
1996 which resulted in (i) the Company's acquisition of all of the issued and
outstanding stock of KN Production Company ("KNPC"), a wholly owned subsidiary
of KNE, and (ii) Wildhorse being formed by the Company and KNE for the purpose
of providing gas gathering, processing, marketing, field and storage services,
(collectively the "KNPC Acquisition"). The price paid to KNE in connection with
the KNPC Acquisition was determined to be $36.25 million, of which $25 million
was paid in the form of 1,000,000 shares of the Company's $1.75 Convertible
Preferred Stock, Series A (the "Preferred Stock") and the remaining $11,250,000
was paid in the form of 918,367 shares of the Company's Common Stock, based on a
price per share of $12.25. The KNPC Acquisition has been recorded under the
purchase method of accounting.
As a result of the KNPC Acquisition, the Company acquired interests in
624 gross producing wells in Colorado and Wyoming, of which the Company became
operator of 308. The properties acquired by the Company included approximately
243,000 net undeveloped acres in Colorado, Wyoming, Kansas and Nebraska and
approximately 64,000 net developed acres located in Colorado and Wyoming.
An integral part of the KNPC Acquisition was the formation of
Wildhorse, which is owned fifty-five percent (55%) by KNE and forty-five
percent (45%) by the Company. The business and affairs of Wildhorse are managed
by KNE under the direction of an operating team consisting of two
representatives appointed by the Company and two representatives appointed by
KNE. The Company dedicated a significant amount of its Rocky Mountain gas
reserves to Wildhorse and KNE contributed gas marketing contracts.
The Company also acquired a natural gas storage facility in western
Colorado which was simultaneously contributed to Wildhorse.
The principal purpose of Wildhorse is to provide for the furnishing of
services related to natural gas including gathering, processing and storage
services and marketing services.
Acquisition of Presidio Oil Company
On December 23, 1996, the Company completed the acquisition of Presidio
Oil Company and its subsidiaries (the "Presidio Acquisition"), following the
issuance by the U.S. Bankruptcy Court, District of Delaware, on December 10,
1996, of an Order confirming Presidio Oil Company's reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The purchase price was approximately
$206.6 million consisting of approximately $105 million in cash and 2.71
million shares of the Company's Common Stock valued at $17.125 per share,
including the assumption of certain liabilities. Such amount does not include
2.64 million shares of the Company's Common Stock which were not issued due to
the Company's ownership of $56.15 million principal amount of Presidio Oil
Company's Senior Gas Indexed Notes (the "GINs"). The GINs were purchased in June
1995 for approximately $51 million. The Presidio Acquisition has been accounted
for using the purchase method. The cash portion of the Presidio Acquisition was
funded by borrowings under the Company's loan
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agreement with its bank lender. The assets acquired consist of primarily proved
oil and gas properties and approximately 865,000 gross (403,000 net) developed
and undeveloped acres located primarily in Wyoming, North Dakota, Oklahoma and
Louisiana. The Wyoming properties are concentrated in the Green River and
Powder River Basins.
Joint Ventures
In December 1994 and December 1995, the Company and the Shoshone and
Northern Arapaho Tribes (the "Tribes") finalized the negotiations of six gas
and oil option agreements, which in addition to one option acquired earlier in
1993, encompass approximately 666,000 gross acres (400,000 net acres) in the
Wind River Basin of Fremont County, Wyoming. The agreements, which were
approved by the Bureau of Indian Affairs, grant the Company the right to
explore for and develop gas and oil reserves on the option acreage over a ten
year period of time once the options are exercised.
In June 1996, the Company and the Tribes entered into an Exploration
License Agreement covering in excess of 300,000 gross acres in the Wind River
Basin of Wyoming. The agreement provided the Company the opportunity over the
next twelve months to enter into two Exploration Option Agreements covering a
minimum of 100,000 gross acres and a maximum of 150,000 gross acres each.
The Company has a 50% working interest in this agreement.
On October 28, 1996, the Company and Louisiana Land and Exploration
Company ("LL&E") announced the execution of a letter of intent to form a joint
exploration alliance in connection with the Exploration License Agreement that
the Company entered into with the Tribes. At December 31, 1996, the Company had
leases or options to lease approximately 1,072,000 gross (631,000 net) acres in
the Wind River Basin. Upon execution of a definitive participation agreement and
receipt of tribal and regulatory agency approval, the Company will operate the
jointly held interest and have a fifty percent (50%) working interest. LL&E will
have a forty percent (40%) working interest with the remaining ten percent (10%)
being held by a third party.
On December 5, 1996, the Company and American Exploration Company
("American") announced the execution of a definitive agreement to form an
exploration joint venture that covers approximately 50,000 gross (40,000 net)
acres of the Company's Lost Prairie and Lake Tyler Prospects in Anderson,
Cherokee and Smith Counties of east Texas located in the Cotton Valley Pinnacle
Reef Trend. In exchange for a forty percent (40%) working interest ownership,
American has agreed to invest approximately $7.3 million for the acquisition of
land and a 3-D seismic survey. The Company retained the remaining sixty percent
(60%) working interest and serves as operator of the properties.
Acquisition of Williams Field Services
On November 4, 1996 Wildhorse completed the acquisition of the Williams
Field Services' gathering and processing assets in western Colorado and eastern
Utah. The acquired assets access existing production of the Company and others,
as well as approximately 170,000 gross acres of undeveloped leasehold held by
the Company in the Piceance Basin. Such assets will also provide gathering to
undeveloped third-party acreage throughout
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the Piceance and Vinta Basins. The assets acquired include approximately 955
miles of natural gas gathering lines, two processing plants, a carbon dioxide
treatment plant and a dew point control plant. These facilities process and
treat more than 55 MMCFD of natural gas from more than 700 wells. The
acquisition has provided a significant upstream position in an area of the
Rocky Mountains that has a great potential for developing additional natural
gas reserves and deliverability.
MARKETS
The Company's gas production has historically been sold under
month-to-month contracts with marketing companies. During 1996 and early 1997,
there was a significant amount of volatility in the prices received for natural
gas. Monthly closing gas prices as measured on the New York Mercantile Exchange
("NYMEX") varied from a high of $3.90 per million British thermal unit
("Mmbtu") in December, 1996 to a low of $1.85 per Mmbtu in September, 1996.
Additionally, as of January 1997, the Company produces approximately 60% of its
gas production in the Rocky Mountain area where the price of gas varies as
compared to NYMEX prices (the "Basis Differential"). The Basis Differential for
Rocky Mountain gas varied from $2.19 per Mmbtu below NYMEX prices in January,
1996 to $.19 per Mmbtu above NYMEX prices in January, 1997.
The Company markets most of its oil production with independent
third-party resellers and refiners at market ("posted") prices. These posted
prices generally reflect the prices determined by the trading of West Texas
Intermediate ("WTI") oil futures contracts on the NYMEX, with adjustments due
to Basis Differential and for the quality of oil produced.
NYMEX prices for both gas and oil are influenced by seasonal demand,
levels of storage, production levels and a variety of political and economic
factors over which the Company has no control.
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PRODUCTION VOLUMES, UNIT PRICES AND COSTS
The following table sets forth certain information regarding the
Company's volumes of production sold and average prices received associated
with its production and sales of natural gas and crude oil for each of the
years ended December 31, 1996, 1995 and 1994 as well as pro forma amounts for
the year ended December 31, 1996.
<TABLE>
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Years ended December 31,
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Pro Forma (1) Historical
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1996 1996 1995 1994
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Production:
Natural Gas (MMcf) 29,068 16,762 10,585 7,087
Crude Oil (MBbls) 1,292 545 387 276
Net Average Daily
Production Volumes:
Natural Gas (Mcf) 79,421 45,798 29,000 19,416
Crude Oil (Bbls) 3,530 1,489 1,060 756
Average Sales Prices:
Natural Gas (per Mcf) $ 1.83 $ 1.77 $ 1.31 $ 1.62
Crude Oil (per Bbl) $19.89 $20.45 $16.80 $15.73
Average Production
Cost (per Mcfe) (2) $ .58 $ .49 $ .53 $ .69
</TABLE>
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(1) The pro forma amounts assume the Presidio Acquisition was completed
January 1, 1996.
(2) Includes production costs and taxes on production. (Mcfe means one
thousand cubic feet of natural gas equivalent, calculated on the basis of six
barrels of oil to one Mcf of gas.)
COMPETITION
The Company encounters strong competition from major oil companies and
independent operators in acquiring properties and leases for the exploration
for, and the development and production of, natural gas and crude oil.
Competition is particularly intense with respect to the acquisition of
desirable undeveloped gas and oil leases. The principal competitive factors in
the acquisition of undeveloped gas and oil leases include the availability and
quality of staff and data necessary to identify, investigate and purchase such
leases, and the financial resources necessary to acquire and develop such
leases. Many of the Company's competitors have financial resources, staffs and
facilities substantially greater than those of the Company. In addition, the
producing, processing and marketing of natural gas and crude oil is affected by
a number of factors which are beyond the control of the Company, the effect of
which cannot be accurately predicted.
The principal raw materials and resources necessary for the exploration
and development of natural gas and crude oil are leasehold prospects under
which gas and oil reserves may be discovered, drilling rigs and related
equipment to drill for and produce such reserves and knowledgeable personnel to
conduct all phases of gas and oil operations. The Company must compete for such
raw materials and resources with
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both major oil companies and independent operators.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company at March 24, 1997 were as
follows:
<TABLE>
<CAPTION>
Executive Officer
Name Age Position with Company Since
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Donald L. Evans 50 Chairman of the Board and
Chief Executive Officer 1976
William R. Granberry 54 President, Chief Operating
Officer and Director 1996
Peter R. Scherer 40 Executive Vice President 1986
Clifford C. Drescher 44 Vice President - Operations 1991
Thomas E. Klauss 53 Vice President - Exploration -
Southern Division 1995
Christopher E. Mullen 36 Vice President - Exploration -
Northern Division 1995
Richard B. Porter 41 Vice President - Land 1995
R. Kim Harris 40 Controller 1986
B. Jack Reed 47 Treasurer 1990
James M. Alsup 60 Secretary 1973
</TABLE>
Each executive officer is elected annually by the Company's Board of
Directors to serve at the Board's discretion.
EMPLOYEES
At December 31, 1996, the Company had 129 employees. None of the
Company's employees are represented by labor unions or covered by any
collective bargaining agreement. The Company considers its relations with its
employees to be satisfactory.
REGULATION
Regulation of Gas and Oil Production
Gas and oil operations are subject to various types of regulation by
state and federal agencies. Legislation affecting the gas and oil industry is
under constant review for amendment or expansion. Also, numerous departments
and agencies, both federal and state, are authorized by statute to issue rules
and regulations binding on the gas and oil industry and its individual members,
some of which carry substantial penalties for failure to comply. The regulatory
burden on the gas and
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oil industry increases the Company's cost of doing business and, consequently,
affects its profitability.
Gas Price Controls
Prior to January 1993, certain natural gas sold by the Company was
subject to regulation by the Federal Energy Regulatory Commission ("FERC")
under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978
("NGPA"). The NGPA prescribed maximum lawful prices for natural gas sales
effective December 1, 1978. Effective January 1, 1993, natural gas prices were
completely deregulated and sales of the Company's natural gas are now made at
market prices. The majority of the Company's gas sales contracts either contain
decontrolled price provisions or already provide for market prices.
In April 1992, FERC issued Order 636, a rule designed to restructure
the interstate natural gas transportation and marketing system to remove
various barriers and practices that have historically limited non-pipeline gas
sellers, including producers, from effectively competing with pipelines. The
restructuring process was implemented on a pipeline-by-pipeline basis through
negotiations in individual pipeline proceedings. Since the issuance of Order
636, FERC has issued several orders making minor modification to Order 636.
Several parties have already filed for judicial review of the Order. Because
the restructuring requirements that emerge from the lengthy administrative and
judicial review process may be significantly different from those currently in
effect, and because implementation of the restructuring may vary by pipeline,
it is not possible to predict what, if any, effect the restructuring resulting
from Order 636 will have on the Company.
When it issued Order 636, FERC recognized that in an effort to enable
non-pipeline gas sellers to compete more effectively with pipelines, it should
not allow pipelines to be penalized by their existing contracts which require
the pipelines to pay above-market prices for natural gas. FERC recognized that
it did not have authority to nullify these contracts, and instead encouraged
pipelines and producers to negotiate in good faith to terminate or amend these
contracts to conform them with market conditions. Under Order 636, a pipeline
company is permitted to pass through to certain of its customers the costs
incurred by the pipeline in terminating or amending these agreements as
"transition costs". Order 636 allows customers to challenge these costs, in
which case the pipeline will be permitted to pass through costs only to the
extent the pipeline established at a FERC hearing, among other things, that the
contract was prudent at the time it was entered into, that the costs incurred
in the settlement were prudent and that the costs were incurred solely in
response to Order 636.
Oil Price Controls
Sales of crude oil, condensate and gas liquids by the Company are not
regulated and are made at market prices.
State Regulation of Gas and Oil Production
States in which the Company conducts its gas and oil activities
regulate the production and sale of natural gas and crude oil, including
requirements for obtaining drilling permits, the method of developing new
fields, the spacing and operation of
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wells and the prevention of waste of gas and oil resources. In addition, most
states regulate the rate of production and may establish maximum daily
production allowables for wells on a market demand or conservation basis.
Environmental Regulation
The Company's activities are subject to federal and state laws and
regulations governing environmental quality and pollution control. The
existence of such regulations has had no material effect on the Company's
operations and the cost of such compliance has not been material to date.
However, the Company believes that the gas and oil industry may experience
increasing liabilities and risks under the Comprehensive Environmental
Response, Compensation and Liability 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
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.
Rocno Corporation, a wholly-owned subsidiary of the Company, was named
as a defendant in a Complaint filed by the United States on behalf of the
Environmental Protection Agency ("EPA") and has, along with approximately 117
other defendants, entered into a Consent Decree with the United States,
pursuant to which the defendant companies will carry out a clean-up plan. See
Item 3, Legal Proceedings.
Indian Lands
The Company's Muddy Ridge and Pavillion Fields are located on the Wind
River Indian Reservation. The Shoshone and Northern Arapaho Tribes regulate
certain aspects of the production and sale of natural gas and crude oil,
drilling operations, and the operation of wells and levy taxes on the
production of hydrocarbons. The Bureau of Indian Affairs and the Minerals
Management Service of the United States Department of the Interior perform
certain regulatory functions relating to operation of Indian gas and oil
leases. The Company owns interests in three leases in the Pavillion Field which
were issued pursuant to the provisions of the Act of August 21, 1916, for
initial terms of 20 years each, with a preferential right by the lessee to
renew the leases for subsequent ten-year terms. The leases were renewed for
ten-year terms in 1992, effective as of June 1, 1993.
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ITEM 2. PROPERTIES
GAS AND OIL PROPERTIES
The principal properties of the Company consist of developed and
undeveloped gas and oil leases. Generally, the terms of developed gas and oil
leaseholds are continuing and such leases remain in force by virtue of, and so
long as, production from lands under lease is maintained. Undeveloped gas and
oil leaseholds are generally for a primary term, such as five or ten years,
subject to maintenance with the payment of specified minimum delay rentals or
extension by production.
TITLE TO PROPERTIES
As is customary in the gas and oil industry, the Company makes only a
cursory review of title to undeveloped gas and oil leases at the time they are
acquired by the Company. However, before drilling commences, the Company causes
a thorough title search to be conducted, and any material defects in title are
remedied prior to the time actual drilling of a well on the lease begins. The
Company believes that it has good title to its gas and oil properties, some of
which are subject to immaterial encumbrances, easements and restrictions. The
gas and oil properties owned by the Company are also typically subject to
royalty and other similar non-cost bearing interests customary in the industry.
The Company does not believe that any of these encumbrances or burdens
materially affect the Company's ownership or use of its properties.
ACREAGE
The following table sets forth the gross and net acres of developed and
undeveloped gas and oil leases held by the Company at December 31, 1996.
Excluded from the table are approximately 966,000 gross (580,000 net) acres in
Wyoming under gas and oil option agreements acquired from certain Indian
tribes.
<TABLE>
<CAPTION>
Developed Undeveloped
------------------ -------------------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
Colorado 116,458 58,909 293,415 199,626
Louisiana 12,253 3,810 16,389 4,618
Mississippi 576 336 16,449 1,825
Montana 2,028 642 158,307 26,443
Nebraska 640 -- 48,730 44,477
New Mexico 18,411 4,307 2,320 1,206
North Dakota 5,163 4,014 15,046 7,382
Oklahoma 32,633 11,416 5,845 2,598
Texas 90,844 29,609 123,116 46,146
West Virginia 73,671 973 155,835 79,880
Wyoming 150,903 53,912 550,684 386,316
Other 3,241 2,009 11,021 10,281
------- ------- --------- -------
Total 506,821 169,937 1,397,157 810,798
======= ======= ========= =======
</TABLE>
"Gross" acres refers to the number of acres in which the Company owns a
working interest. "Net" acres refers to the sum of the fractional working
interests owned by the Company in gross acres.
-13-
<PAGE> 14
GAS AND OIL RESERVES
Estimates of the Company's gas and oil reserves at December 31, 1996,
1995 and 1994 including future net revenues and the present value of future net
cash flows, were made by Williamson Petroleum Consultants, Inc. and by Ryder
Scott at December 31, 1996, (both are independent petroleum consultants), in
accordance with guidelines established by the Securities and Exchange
Commission (the "SEC"). Estimates of gas and oil reserves and their estimated
values require numerous engineering assumptions as to the productive capacity
and production rates of existing geological formations and require the use of
certain SEC guidelines as to assumptions regarding costs to be incurred in
developing and producing reserves and prices to be realized from the sale of
future production. Accordingly, estimates of reserves and their value are
inherently imprecise and are subject to constant revision and change and should
not be construed as representing the actual quantities of future production or
cash flows to be realized from the Company's gas and oil properties or the fair
market value of such properties.
Certain additional unaudited information regarding the Company's
reserves, including the present value of future net cash flows, is set forth in
Note 13 of the notes to consolidated financial statements included herein.
The Company has no gas and oil reserves or production subject to
long-term supply or similar agreements with foreign governments or authorities.
Estimates of the Company's total proved gas and oil reserves have not
been filed with or included in reports to any federal authority or agency other
than the SEC.
PRODUCTIVE WELLS
The following table sets forth the gross and net productive gas and oil
wells in which the Company owned an interest at December 31, 1996.
<TABLE>
<CAPTION>
Productive Wells
---------------------------------
Gross Net
------------ ---------------
Gas Oil Gas Oil
--- --- --- ---
<S> <C> <C> <C> <C>
Colorado 427 62 127.32 31.82
Louisiana 49 38 13.19 13.93
New Mexico 35 28 7.32 12.15
North Dakota 6 38 2.13 34.82
Oklahoma 128 35 31.37 10.16
Texas 98 323 39.95 109.12
West Virginia 51 -- 16.74 --
Wyoming 417 144 132.99 39.09
Other 17 15 4.65 1.99
----- ----- ------ ------
1,228 683 375.66 253.08
===== ===== ====== ======
</TABLE>
A "gross" well is a well in which the Company owns a working interest.
"Net" wells refer to the sum of the fractional working interests owned by the
Company in gross wells.
-14-
<PAGE> 15
GAS AND OIL DRILLING ACTIVITY
The following table sets forth the Company's gross and net interests in
exploratory and development wells drilled during the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------
1996 1995 1994
------------- ------------- -------------
Type of well Gross Net Gross Net Gross Net
------------ ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Gas - - - - 1 .3
Oil - - - - - -
Dry 5 2.8 3 1.1 1 .5
-- ---- -- --- -- ---
5 2.8 3 1.1 2 .8
== ==== == === == ===
Development
Gas 14 3.9 34 9.7 19 8.2
Oil - - 3 1.5 2 1.0
Dry 5 1.7 10 3.9 2 1.0
-- ---- -- ---- -- ---
19 5.6 47 15.1 23 10.2
== ==== == ==== == ====
</TABLE>
At December 31, 1996, 5 gross (2.6 net) development wells were in
various stages of drilling and completion in Texas and Wyoming.
All of the Company's drilling activities are conducted on a contract
basis with independent drilling contractors. The Company owns no drilling
equipment.
OTHER PROPERTIES
The Company leases its home office facilities in Midland, Texas. The
lease covers approximately 29,000 square feet for a term of five years and
expires December 31, 1997.
The Company owns a 3,200 square foot office building located on a 2.94
acre tract in Midland, Texas. The facility is used primarily for storage of
pipe and oilfield equipment.
The Company also leases two office facilities in Denver, Colorado. At
the Lakewood location, the Company leases approximately 21,000 square feet for a
term of five years which expires on June 30, 1997. In Englewood, the Company
leases approximately 38,000 square feet with a term of five years expiring March
31, 1999; however, as of March 1997, the Company subleased one-half of their
Englewood square footage and has an agreement to sublease the entire square
footage beginning in July. The Company plans to combine personnel from these
locations in downtown Denver in July.
-15-
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several routine legal proceedings
incidental to its business which the Company believes will not have a
significant effect on its consolidated financial position or results of
operations.
In addition to routine legal proceedings incidental to the Company's
business, Rocno Corporation ("Rocno"), a wholly-owned subsidiary of the
Company, is a defendant in a Complaint filed by the United States of America
which, among other things, alleges that Rocno arranged for the disposal of
"hazardous materials" (within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act) in Waller County, Texas (the
"Sheridan Superfund Site"). In addition to Rocno, approximately 117 other
companies were named as defendants in the same matter with similar allegations
by the Government of the release by them of hazardous materials at the Sheridan
Superfund Site. Effective August 31, 1989, Rocno and thirty-six other
defendants executed the Sheridan Site Trust Agreement (the "Trust") for the
purpose of creating a trust to perform agreed upon remedial action at the
Sheridan Superfund Site. In connection with the establishment of the Trust, the
parties to the Trust have agreed to the terms of a Consent Decree entered
December 3, 1991 in the United States District Court, Southern District of
Texas, Houston Division, Civil Action No. H-91-3529, pursuant to which the
defendants joining the Consent Decree will carry out the clean-up plan
prescribed by the Consent Decree. The Consent Decree has not yet been approved
by the court. The estimate of the total clean-up cost is approximately $30
million. Under terms of the Trust, each party is allocated a percentage of
costs necessary to fund the Trust for clean-up costs. Rocno's proportionate
share of the estimated clean-up costs is 0.33% or $99,000, of which $16,000 has
been paid, and the remainder was accrued in the Company's consolidated
financial statements at December 31, 1996. If the clean-up costs exceed the
projected amount, Rocno will be required to pay its pro rata share of the
excess clean-up costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders in
the fourth quarter of the year ended December 31, 1996.
-16-
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
appears on the NASDAQ National Market System under the symbol "TMBR". The
following table sets forth the range of high and low closing quotations for
each quarterly period during the past two fiscal years as reported by NASDAQ
National Market System. The quotations are inter-dealer prices without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Closing Sale Price
------------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
March 31, 1995 15 1/2 10 7/8
June 30, 1995 15 3/4 13 7/8
September 30, 1995 16 5/8 13 1/8
December 31, 1995 15 3/8 11
March 31, 1996 15 3/8 12 1/8
June 30, 1996 17 7/8 12 7/8
September 30, 1996 19 1/4 14 1/4
December 31, 1996 22 3/8 16 7/8
</TABLE>
On March 24, 1997 the last sale price of the Company's Common Stock, as
reported by the NASDAQ National Market System, was $18.00 per share.
The transfer agent for the Company's Common Stock is Boston EquiServe,
Canton, Massachusetts.
On December 31, 1996, the outstanding shares of the Company's Common
Stock (23,898,431 shares) were held by approximately 4,300 holders of record.
The Company has never declared or paid any cash dividends to the
holders of Common Stock and has no present intention to pay cash dividends to
the holders of Common Stock in the future. Under the terms of the Company's
Credit Agreement, the Company is prohibited from paying cash dividends to the
holders of Common Stock without the written consent of the bank lenders.
Additionally, the Company's ability to declare and pay dividends on its Common
Stock is further restricted by the rights of the holder of the Series A
Preferred Stock.
On December 23, 1996, the Company completed the acquisition of Presidio
Oil Company and its subsidiaries (collectively, "Presidio"), following the
issuance by the U.S. Bankruptcy Court, District of Delaware, on December 10,
1996, of an order confirming Presidio's reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The Company issued 2,711,137 shares of its Common Stock
to creditors and shareholders of Presidio pursuant to Section 1145 of the
United States Bankruptcy Code.
On March 1, 1991, the Board of Directors adopted a Rights Plan designed
to help assure that all stockholders receive fair and equal treatment in the
event of a
-17-
<PAGE> 18
hostile attempt to take over the Company, and to help guard against abusive
takeover tactics. The Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock.
The dividend was distributed on March 15, 1991 to the shareholders of record on
that date. Each Right entitles the registered holder to purchase, for the $20
per share exercise price, shares of Common Stock or other securities of the
Company (or, under certain circumstances, of the acquiring person) worth twice
the per share exercise price of the Right.
The Rights will be exercisable only if a person or group acquires 20%
or more of the Company's Common Stock or announces a tender offer which would
result in ownership by a person or group of 20% or more of the Common Stock.
The date on wich the above occurs is to be known as the ("Distribution Date").
The Rights will expire on March 15, 2001, unless extended or redeemed earlier
by the Company.
At the time the Rights dividend was declared, the Board of Directors
further authorized the issuance of one Right with respect to each share of the
Company's Common Stock that shall become outstanding between March 15, 1991 and
the earlier of the Distribution Date or the expiration or redemption of the
Rights. Until the Distribution Date occurs, the certificates representing
shares of the Company's Common Stock also evidence the Rights. Following the
Distribution Date, the Rights will be evidenced by separate certificates.
The provisions described above may tend to deter any potential
unsolicited tender offers or other efforts to obtain control of the Company
that are not approved by the Board of Directors and thereby deprive the
stockholders of opportunities to sell shares of the Company's Common Stock at
prices higher than the prevailing market price. On the other hand, these
provisions will tend to assure continuity of management and corporate policies
and to induce any person seeking control of the Company or a business
combination with the Company to negotiate on terms acceptable to the then
elected Board of Directors.
-18-
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial information for the
Company for each of the years shown.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------
1996(1) 1995(1) 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues (2) $ 66,720 $ 41,053 $ 29,071 $ 28,708 $ 18,597
======== ======== ======== ======== ========
Net income (loss) 6,263 5,785 (160) (2,318) (2,987)
======== ======== ======== ======== ========
Weighted average
number of common
shares outstanding 22,223 16,852 15,464 11,898 7,515
======== ======== ======== ======== ========
Net income (loss)
per common share .28 .34 (.01) (.19) (.40)
=== === ==== ==== ====
Total assets 406,374 164,174 115,092 108,084 76,866
======== ======== ======== ======== ========
Long-term debt,
net of current
maturities 119,000 - - - 9,650
======== ======== ======== ======== ========
</TABLE>
- -------------------
(1) See Note 3 to the Consolidated Financial Statements for pro forma amounts
assuming the Presidio and KNPC Acquisitions occurred on January 1, 1995.
(2) Certain reclassifications have been made to amounts reported in previous
years to conform to the 1996 presentation.
The following tables set forth selected information for the Company's
gas and oil sales volumes and proved reserves for each of the years shown.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales:
Gas (MMcf) 16,762 10,585 7,087 7,041 4,393
Oil (MBbls) 545 387 276 317 377
Proved reserves
at period end:
Gas (MMcf) 359,167 163,303 180,306 130,995 104,955
Oil (MBbls) 12,306 4,068 4,522 3,300 3,803
</TABLE>
-19-
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's historical results of operations have been materially
affected by the substantial increase in the Company's size as a result of the
KNPC Acquisition, making comparisons of individual line items between 1996 and
1995 difficult. In addition, the Presidio Acquisition, which closed on December
23, 1996, will have a significant impact on the Company's future results of
operations.
Revenues
During 1996, revenues from gas and oil production increased 100% to
$40.8 million as compared to $20.4 million in 1995. Such increase in gas and
oil revenues was the result of an increase in (i) average gas prices received
by the Company from $1.31 per Mcf to $1.77 per Mcf which increased revenues by
approximately $4.9 million, (ii) gas sales volumes of 58% which increased
revenues by approximately $10.9 million, (iii) average oil prices received from
$16.80 per barrel to $20.45 per barrel which increased revenues by
approximately $1.4 million and, (iv) oil sales volumes of 41% which increased
revenues by approximately $3.2 million. The increase in gas and oil production
levels was primarily due to the KNPC Acquisition and to a lesser extent,
successful drilling results primarily in the Val Verde Basin of west Texas.
During 1995, revenues from gas and oil production increased by $4.6
million to a total of $20.4 million as compared to $15.8 million in 1994. A
decrease in average gas prices received by the Company from $1.62 per Mcf to
$1.31 per Mcf, decreased revenues by approximately $2.2 million. However; this
was more than offset by an increase in (i) gas sales volumes of 49% which
increased revenues by approximately $4.6 million, (ii) average oil prices from
$15.73 per bbl. to $16.80 per bbl. which increased revenues by approximately
$.3 million and, (iii) oil sales volumes of 40% which increased revenues by
approximately $1.9 million. Natural gas and oil sales volumes increased
dramatically as the Company increased its deliverability through successful
development drilling in 1995.
The following table reflects the Company's revenues, average prices
received for gas and oil, and amount of gas and oil production in each of the
years shown:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenues:
Natural gas sales ......................... $ 29,639 $ 13,883 $ 11,451
Crude oil sales ........................... 11,150 6,502 4,341
Gain on sales of gas and oil
properties .............................. 267 4,402 13
Marketing, gathering and processing ....... 25,122 15,572 11,876
Interest income and other ................. 542 694 1,390
-------- -------- --------
Total revenues .................... $ 66,720 $ 41,053 $ 29,071
======== ======== ========
Net income (loss) ........................... $ 7,935 $ 5,785 $ (160)
======== ======== ========
</TABLE>
-20-
<PAGE> 21
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Natural gas production sold (MMcf) .......... 16,762 10,585 7,087
Crude oil production (MBbls) ................ 545 387 276
Average natural gas sales price ($/Mcf) .... $ 1.77 1.31 1.62
Average crude oil sales price ($/Bbl) ....... $ 20.45 16.80 15.73
</TABLE>
The Company had no significant property sales during 1996 and 1994
whereas in 1995 the Company sold all of its properties in Arkansas, resulting
in a gain of $4.1 million.
Marketing, gathering and processing revenues increased 61% in 1996 as
compared to 1995 and 31% in 1995 as compared to 1994. Such increase is due to
higher gas prices and higher volumes of gas marketed due to the Company's
increased production and marketing of additional third party gas.
Costs and Expenses
Expenses related to gas and oil production, production taxes, and
depreciation, depletion and amortization have increased in each of the last two
years due to increased production and revenue levels resulting from successful
drilling operations as well as the KNPC Acquisition in January 1996. On an Mcfe
basis, the Company's costs have continually decreased during the past two years
as a result of operating efficiencies obtained by the Company. Costs of gas and
oil production declined to $.33 per Mcfe in 1996, as compared to $.37 per Mcfe
and $.47 per Mcfe in 1995 and 1994, respectively. Taxes on gas and oil
production, which are generally calculated as a percentage of gas and oil
sales, have also decreased during the last two years. Taxes on gas and oil
production have declined to 8% of gas and oil sales in 1996 as compared to 10%
and 12% of gas and oil sales during 1995 and 1994, respectively. Such decline
is due to the increase of natural gas and oil produced in the Val Verde Basin
where the Company experiences lower production tax rates as compared to its
other areas of operation.
The Company's depletion, depreciation and amortization rate remained
relatively unchanged on an mcfe basis totaling $.76 per mcfe in 1996 and $.77
per Mcfe in 1995. The Company's depletion, depreciation and amortization rate
dropped from $.83 per Mcfe in 1994 to $.77 per Mcfe in 1995 due to the
Company's $8.4 million writedown of gas and oil properties in the first quarter
of 1995.
The cost of gas sold in connection with the Company's marketing,
gathering and processing operations has increased in each of the last two years,
consistent with the increases in the associated revenues. The gross profit
percentage increased slightly to 18% of revenues in 1996 as compared to 16% in
1995 and 1994.
Costs associated with exploration activities and impairments of
leasehold costs remained relatively unchanged in 1996 as compared to 1995.
General and administrative expenses increased in each of the last two
years as a result of the Company's significantly higher level of operations.
The Company
-21-
<PAGE> 22
has benefitted from the economies of scale in its growth, resulting in a
decrease in general and administrative expenses on an Mcfe of production basis
to $.29 in 1996 as compared to $.32 and $.41 per Mcfe of production in 1995 and
1994, respectively.
Interest expense increased in 1995 as compared to 1994 as a result of
the debt incurred in connection with the purchase of the Presidio GINs in June
1995. Interest expense then decreased in 1996 as such debt was repaid in
November 1995 with the proceeds from the sale of 4.6 million shares of the
Company's Common Stock.
The Company incurred a current tax liability in the amount of $290,000,
$77,000 and $24,000 in 1996, 1995 and 1994, respectively, as a result of the
application of the alternate minimum tax rules as provided under the Internal
Revenue Code. The Company had not paid, prior to the year ended December 31,
1990, Federal income taxes for the past seven years due to its net operating
loss carryforward. At December 31, 1996, such carryforward for tax purposes was
approximately $53.4 million.
The Company reduced its net deferred tax asset to $2,865,000 in 1996
due primarily to the recording of an additional deferred tax liability in
connection with the KNPC Acquisition. Deferred tax assets (related primarily to
the Company's net operating loss and investment tax credit carryforwards) were
initially recorded in 1993 with the adoption of SFAS No. 109, but these tax
assets had been reserved entirely by a valuation allowance until 1995. Based on
recent additions to the Company's gas and oil reserves and the resulting
increases in anticipated future income, the Company now expects to realize
the future benefit of its net operating loss carryforwards prior to their
expiration. A valuation allowance of approximately $7.6 million has been
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 adjusted as future events so warrant.
CAPITAL RESOURCES AND LIQUIDITY
Growth and Acquisitions
The Company's total assets have grown from $115 million at December 31,
1994 to $406 million at December 31, 1996. During this period, the Company's
proved gas and oil reserves increased from 207 Bcfe to 433 Bcfe. Most of the
growth of the Company resulted from the KNPC Acquisition and the Presidio
Acquisition; and, to a lesser extent, from the Company's successful
development drilling in recent years.
The Company continues to pursue opportunities which will add value by
increasing its reserve base and presence in significant natural gas areas, and
further developing the Company's ability to control and market the production
of natural gas. As the Company continues to evaluate potential acquisitions and
property development opportunities, it will benefit from its financing
flexibility and the leverage potential of the Company's overall capital
structure.
Wildhorse, which was created to provide gathering, processing,
marketing, storage and field services to Rocky Mountain gas and oil producers
will also pursue the construction or acquisition of gathering, processing and
storage areas of
-22-
<PAGE> 23
the Rocky Mountain region. Wildhorse is jointly owned by the Company (45
percent) and KNE (55 percent). Wildhorse is operated by KNE under the direction
of an operating team with equal representation from KNE and the Company.
The Company has dedicated significant amounts of its Rocky Mountain gas
production to Wildhorse for gathering, processing and marketing. KNE
contributed gas marketing contracts and storage assets in western Colorado.
Capital Expenditures
The Company's capital expenditures increased to $281.0 million, ($34.0
million excluding the KNPC and Presidio acquisitions) for the year ended
December 31, 1996 as compared to capital expenditures of $26.0 million and
$23.0 million for the years ended December 31, 1995 and 1994, respectively. The
Company anticipates capital expenditures of approximately $65 million in 1997.
The timing of most of the Company's capital expenditures is discretionary and
there are no material long-term commitments associated with the Company's
capital expenditure plans. Consequently, the Company is able to adjust the
level of its capital expenditures as circumstances warrant. The level of
capital expenditures by the Company will vary in future periods depending on
energy market conditions and other related economic factors.
Historically, the Company has funded capital expenditures and working
capital requirements with both internally generated cash and borrowings. Net
cash flow provided by operating activities increased to $24.9 million for 1996
as compared to $8.8 million and $7.6 million for 1995 and 1994, respectively.
Net cash flow provided by operating activities for 1997 is expected to
increase over 1996 as a result of the Presidio Acquisition.
Markets and Prices
The Company's revenues and associated cash flows are significantly
impacted by changes in gas and oil prices. All of the Company's gas and oil
production is currently market sensitive as no amounts of the Company's future
gas and oil production have been sold at contractually specified prices. During
1996, the average prices received for gas and oil by the Company were $1.77 per
Mcf and $20.45 per barrel, respectively, as compared to $1.31 Mcf and $16.80
per barrel in 1995 and $1.62 per Mcf and $15.73 per barrel in 1994.
Recent Accounting Pronouncements
In October 1996 the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 96-1 ("SOP 96-1") which provides
authoritative guidance intended to improve and narrow the manner in which
existing accounting literature is applied to the recognition, measurement,
display, and disclosure of environmental remediation liabilities arising
pursuant to existing federal, state and local laws and regulations. SOP 96-1
addresses the nature of items that are to be included in the measurement of a
company's liability related to any environmental remediation efforts it is
currently undertaking or required to complete in the future. In this regard,
SOP 96-1 requires that all incremental direct third party costs, as well as any
internal compensation costs (including benefits) for employees expected to
devote a significant amount of time directly to remediation efforts, should be
included in the determination of the estimated liability. The term "remediation
effort" is defined in SOP 96-1 to include such things as remedial risk
assessment, feasibility studies and operations and maintenance associated with
corrective actions. SOP 96-1 must be adopted in the first quarter of 1997. The
adoption of SOP 96-1 is not expected to have a material impact on the Company's
financial position, results of operations or liquidity.
-23-
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements Page
------------------------------------------ ----
<S> <C>
Report of Independent Public Accountants 25
Consolidated Balance Sheets,
December 31, 1996 and 1995 26
Consolidated Statements of Operations,
Years ended December 31, 1996, 1995 and 1994 28
Consolidated Statements of Changes in Stockholders' Equity,
Years ended December 31, 1996, 1995 and 1994 29
Consolidated Statements of Cash Flows,
Years ended December 31, 1996, 1995 and 1994 30
Notes to Consolidated Financial Statements 32
</TABLE>
-24-
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Tom Brown, Inc.:
We have audited the accompanying consolidated balance sheets of Tom Brown, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tom Brown, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 28, 1997
-25-
<PAGE> 26
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- -----
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,504 $ 4,982
Accounts receivable 33,080 7,470
Inventories 1,374 246
Other 889 190
-------- --------
Total current assets 55,847 12,888
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Gas and oil properties, successful
efforts method of accounting 436,879 186,624
Other 35,216 12,056
-------- --------
Total 472,095 198,680
Less: Accumulated depreciation,
depletion and amortization 124,834 112,695
-------- --------
Net property and equipment 347,261 85,985
-------- --------
OTHER ASSETS:
Investment in securities -- 51,093
Deferred income taxes, net 2,865 13,170
Other assets 401 1,038
-------- --------
Total other assets 3,266 65,301
-------- --------
$406,374 $164,174
======== ========
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
-26-
<PAGE> 27
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- -----
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 25,033 $ 5,979
Accrued expenses 10,562 1,536
--------- ---------
Total current liabilities 35,595 7,515
--------- ---------
BANK DEBT 119,000 --
--------- ---------
OTHER NON-CURRENT LIABILITIES 5,643 --
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.10 par value
Authorized 2,500,000 shares;
Outstanding 1,000,000 shares with a
liquidation preference of $25,000,000 100 --
Common Stock, $.10 par value
Authorized 40,000,000 shares;
Outstanding 23,898,431 shares and
20,180,902 shares, respectively 2,390 2,018
Additional paid-in capital 307,631 224,889
Accumulated deficit (63,985) (70,248)
--------- ---------
Total stockholders' equity 246,136 156,659
--------- ---------
$ 406,374 $ 164,174
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-27-
<PAGE> 28
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES:
Gas and oil sales $ 40,789 $ 20,385 $ 15,792
Marketing, gathering and
processing 25,122 15,572 11,876
Gain on sales of gas
and oil properties 267 4,402 13
Interest income and other 542 694 1,390
-------- -------- --------
Total revenues 66,720 41,053 29,071
-------- -------- --------
COSTS AND EXPENSES:
Gas and oil production 6,576 4,834 4,130
Taxes on gas and oil production 3,258 2,043 1,869
Cost of gas sold 20,496 13,146 10,022
Exploration costs 3,471 3,644 1,184
Impairments of leasehold costs 331 582 910
General and administrative 5,786 4,184 3,546
Depreciation, depletion and
amortization 15,140 9,994 7,288
Writedown of properties -- 8,368 --
Interest expense 389 1,369 20
-------- -------- --------
Total costs and expenses 55,447 48,164 28,969
-------- -------- --------
Income (loss) before income
taxes 11,273 (7,111) 102
INCOME TAX BENEFIT (PROVISION):
Recognition of deferred tax
asset -- 13,170 --
Income tax expense (3,338) (274) (262)
-------- -------- --------
Net income (loss) 7,935 5,785 (160)
Preferred stock dividends (1,672) -- --
-------- -------- --------
Net income (loss) attributable
to common stock $ 6,263 $ 5,785 $ (160)
======== ======== ========
Weighted average number of common
shares outstanding 22,223 16,852 15,464
======== ======== ========
Net income (loss) per common share $ .28 $ .34 $ (.01)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-28-
<PAGE> 29
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-in Accumulated Stockholders'
Stock Stock Capital Deficit Equity
----- ----- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AS OF
DECEMBER 31, 1993 $ - $ 1,544 $ 176,705 $ (75,873) $ 102,376
Stock options exercised - 7 304 - 311
Property acquisition - 1 134 - 135
Option plan compensation - - 207 - 207
Net loss - - - (160) (160)
-------- -------- -------- ------- --------
BALANCE AS OF
DECEMBER 31, 1994 - 1,552 177,350 (76,033) 102,869
Stock options exercised - 6 255 - 261
Common stock issuance - 460 47,472 - 47,932
Stock issuance costs - - (285) - (285)
Option plan compensation - - 97 - 97
Net income - - - 5,785 5,785
-------- -------- -------- ------- --------
BALANCE AS OF
DECEMBER 31, 1995 - 2,018 224,889 (70,248) 156,659
Stock issuance for
KNPC Acquisition 100 92 36,058 - 36,250
Stock options exercised - 9 510 - 519
Common stock issuance for
Presidio Acquisition - 271 46,157 - 46,428
Stock issuance costs - - (5) - (5)
Option plan compensation - - 22 - 22
Net income - - - 6,263 6,263
--------- -------- -------- -------- --------
BALANCE AS OF
DECEMBER 31, 1996 $ 100 $ 2,390 $ 307,631 $ (63,985) $ 246,136
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-29-
<PAGE> 30
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,263 $ 5,785 $ (160)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 15,140 9,994 7,288
Gain on sales of assets (267) (4,402) (53)
Writedown of properties -- 8,368 --
Use (Recognition) of deferred tax asset 2,701 (13,170) --
Option plan compensation 22 97 207
Exploration costs 3,471 3,644 1,184
Impairments of leasehold costs 331 582 910
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable (15,408) 990 (1,682)
Decrease (increase) in
inventories 75 886 (410)
Decrease (increase) in
other current assets 220 (12) 4
Increase (decrease) in accounts
payable and accrued expenses 9,919 (3,050) 306
Decrease (increase) in other
assets 2,406 (922) 2
-------- -------- -------
Net cash provided by operating
activities $ 24,873 $ 8,790 $ 7,596
-------- -------- -------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
-30-
<PAGE> 31
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1995 1994
----- ---- ----
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets $ 593 $ 9,044 $ 295
Investment in securities -- (51,093) --
KNPC and Presidio Acquisitions (95,529) -- --
Capital and exploration expenditures (33,929) (28,814) (17,558)
--------- -------- --------
Net cash used in investing activities (128,865) (70,863) (17,263)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 47,932 --
Borrowings of long-term bank debt 119,000 51,000 --
Repayments of long-term bank debt -- (51,000) --
Proceeds from exercise of stock options 519 261 311
Stock issuance costs (5) (285) --
--------- -------- --------
Net cash provided by financing activities 119,514 47,908 311
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 15,522 (14,165) (9,356)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 4,982 19,147 28,503
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,504 $ 4,982 $ 19,147
========= ======== ========
Cash paid during the year for:
Interest $ 136 $ 1,369 $ 20
Income taxes 190 77 141
</TABLE>
See accompanying notes to consolidated financial statements
-31-
<PAGE> 32
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 31, 1996, 1995 and 1994
(1) NATURE OF OPERATIONS
Tom Brown, Inc and its wholly-owned subsidiaries ("the Company") is an
independent energy company engaged in the domestic exploration for, and the
acquisition, development, marketing, production and sale of, natural gas and
crude oil. The Company's industry segments are (i) the exploration for, and the
acquisition, development and production of, natural gas and crude oil, and (ii)
the marketing, gathering and processing of natural gas, primarily through
Wildhorse Energy Partners, L. L. C. ("Wildhorse"). All of the Company's
operations are conducted in the United States. The Company's operations are
presently focused in the Wind River and Green River Basins of Wyoming, the
Piceance Basin of Colorado, the Val Verde Basin of west Texas and the Permian
Basin of west Texas and southeastern New Mexico. The Company also, to a lesser
extent, conducts exploration and development activities in other areas of the
continental United States.
Substantially all of the Company's production is sold under
market-sensitive contracts. The Company's revenue, profitability and future
rate of growth are substantially dependent upon the price of, and demand for,
oil, natural gas and natural gas liquids. Prices for natural gas and oil are
subject to wide fluctuation in response to relatively minor changes in their
supply and demand as well as market uncertainty and a variety of additional
factors that are beyond the control of the Company. These factors include the
level of consumer product demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
political conditions in foreign countries, the foreign supply of natural gas
and oil and the price of foreign imports and overall economic conditions. The
Company is affected more by fluctuations in natural gas prices than oil prices
because a majority of its production (84 percent in 1996 on a volumetric
equivalent basis) was natural gas.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company. The Company's proportionate share of assets, liabilities,
revenues and expenses associated with certain interests in gas and oil
partnerships and the Company's 45% ownership in Wildhorse are consolidated
within the accompanying financial statements. All significant intercompany
accounts and transactions have been eliminated. Certain reclassifications have
been made to amounts reported on previous years to conform to the 1996
presentation.
Inventories
Inventories consist of pipe and other production equipment. Inventories are
stated at the lower of cost (principally first-in, first-out) or estimated net
-32-
<PAGE> 33
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
realizable value.
Property and Equipment
The Company accounts for its natural gas and crude oil exploration and
development activities under the successful efforts method of accounting. Under
such method, costs of productive exploratory wells, development dry holes and
productive wells and undeveloped leases are capitalized. Gas and oil lease
acquisition costs are also capitalized. Exploration costs, including geological
and geophysical expenses and delay rentals for gas and oil leases, are charged
to expense as incurred. Exploratory drilling costs are initially capitalized,
but charged to expense if and when the well is determined not to have found
reserves in commercial quantities
Maintenance and repairs are charged to expense; renewals and
betterments are capitalized to the appropriate property and equipment accounts.
Upon retirement or disposition of assets, the costs and related accumulated
depreciation are removed from the accounts with the resulting gains or losses,
if any, reflected in results of operations.
Unproved properties with significant acquisition costs are assessed
quarterly on a property-by-property basis and any impairment in value is
charged to expense. Unproved properties whose acquisition costs are not
individually significant are aggregated, and the portion of such costs
estimated to be nonproductive, based on historical experience, is amortized
over the average holding period. If the unproved properties are determined to
be productive, the related costs are transferred to proved gas and oil
properties.
During 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets..."
("SFAS 121"). SFAS 121 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. As a result, the Company recorded an $8.4
million non-cash charge during 1995 which reduced the carrying value of certain
of the Company's non-core properties to their estimated fair values.
The provision for depreciation, depletion and amortization of oil and
gas properties is calculated on a field-by-field basis using the
unit-of-production method. Included in such calculations are estimated future
dismantlement, restoration and abandonment costs, net of estimated salvage
values.
Other property and equipment is recorded at cost and depreciated using
the straight-line method based on estimated useful lives.
-33-
<PAGE> 34
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Natural Gas Revenues
The Company utilizes the accrual method of accounting for natural gas
revenues whereby revenues are recognized as the Company's entitlement share of
gas is produced based on its working interests in the properties. The Company
records a receivable (payable) to the extent it receives less (more) than its
proportionate share of gas revenues. At December 31, 1996, the Company had net
gas balancing liabilities of approximately $3,427,000 associated with
approximately 2.1 billion cubic feet ("Bcf") of gas.
Income Taxes
The Company provides for income taxes using the asset and liability
method under which deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax laws or tax rates is recognized in
income in the period such changes are enacted.
Stock-Based Compensation
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees". Accordingly, adoption of
SFAS No. 123, "Accounting for Stock-Based Compensation" had no effect on the
Company's results of operations but proforma disclosure is made of the effect
on Net Income had the accounting recommended by SFAS No. 123 been implemented
(See Note 7) in 1996.
Use of Estimates
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 and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates with regard to these financial
statements include the estimate of proved oil and gas reserve volumes and the
related present value of estimated future net revenues to be received therefrom
(see Note 13), as well as the valuation allowance for deferred taxes (see Note
5).
Net Income (Loss) Per Common Share
Net income per common share for the years 1996 and 1995 was calculated
based on the weighted average number of common shares and common equivalent
shares outstanding. For fiscal years prior to 1995, common stock equivalents
were antidilutive for purposes of calculating the net loss per common share.
-34-
<PAGE> 35
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Consolidated Statements of Cash Flows
The Company considers investments purchased with an original maturity
of three months or less to be cash equivalents. During the year ended December
31, 1996 the Company (i) issued 1.0 million shares of Preferred Stock and .9
million shares of Common Stock in connection with the KNPC Acquisition (see
Note 3), and (ii) issued 2.71 million shares of the Company's Common Stock and
converted its $51 million investment in Presidio GINs, purchased in June 1995,
into equity ownership, both in connection with the Presidio Acquisition (see
Note 3). Insofar as such transactions are non-cash, they are not reflected in
the Consolidated Statements of Cash Flows.
(3) ACQUISITIONS AND DIVESTITURES
Acquisition of KN Production Company
Pursuant to a letter of intent entered into in December 1995, the
Company and KN Energy, Inc. ("KNE") closed certain transactions on January 31,
1996 which resulted in (i) the Company's acquisition of all of the issued and
outstanding stock of KN Production Company ("KNPC"), a wholly owned subsidiary
of KNE, and (ii) Wildhorse being formed by the Company and KNE for the purpose
of providing gas gathering, processing, marketing, field and storage services,
(collectively the "KNPC Acquisition"). The price paid to KNE in connection with
the KNPC Acquisition was determined to be $36.25 million, of which $25 million
was paid in the form of 1,000,000 shares of the Company's $1.75 Convertible
Preferred Stock, Series A (the "Preferred Stock") and the remaining $11,250,000
was paid in the form of 918,367 shares of the Company's Common Stock, based on
a price per share of $12.25. The KNPC Acquisition has been recorded under the
purchase method of accounting.
As a result of the KNPC Acquisition, the Company acquired interests in
624 gross producing wells in Colorado and Wyoming, of which the Company became
operator of 308. The properties acquired by the Company include approximately
243,000 net undeveloped acres in Colorado, Wyoming, Kansas and Nebraska and
approximately 64,000 net developed acres located in Colorado and Wyoming.
An integral part of the KNPC Acquisition was the formation of
Wildhorse, which is owned fifty-five percent (55%) by KNE and forty-five
percent (45%) by the Company. The business and affairs of Wildhorse are managed
by KNE under the direction of an operating team consisting of two
representatives appointed by the Company and two representatives appointed by
KNE. The Company dedicated a significant amount of its Rocky Mountain gas
reserves to Wildhorse and KNE contributed gas marketing contracts.
The Company also acquired a natural gas storage facility in western Colorado
which was simultaneously contributed to Wildhorse.
The principal purpose of Wildhorse is to provide for the furnishing of
services related to natural gas, natural gas liquids and other natural gas
products, including gathering, processing and storage services, marketing
services and field services.
-35-
<PAGE> 36
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Acquisition of Presidio Oil Company
On December 23, 1996, the Company completed the acquisition of Presidio
Oil Company and its subsidiaries (collectively, "Presidio"), following the
issuance by the U.S. Bankruptcy Court, District of Delaware, on December 10,
1996, of an Order confirming Presidio's reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The purchase price was approximately $206.6 million
consisting of approximately $105 million in cash and 2.71 million shares of the
Company's Common Stock valued at $17.125 per share, including the assumption of
certain liabilities. Such amount does not include 2.64 million shares of the
Company's Common Stock which were not issued due to the Company's ownership of
$56.15 million principal amount of Presidio's Senior Gas Indexed Notes (the
"GINs"). The GINs were purchased in June 1995 for approximately $51 million as a
strategic part of the Company's efforts to acquire Presidio Oil Company. The
Presidio Acquisition has been accounted for using the purchase method. The cash
portion of the Presidio Acquisition was funded by borrowings under the Company's
loan agreement with its bank lender. The assets acquired consist primarily of
proved oil and gas properties and undeveloped acreage located in Wyoming, North
Dakota, Oklahoma and Louisiana. The Wyoming properties are concentrated in the
Green River and Powder River Basins of Wyoming.
Pro Forma Information
The following table presents the unaudited pro forma revenues, net
income and net income per share of the Company for the years ended December 31,
1996 and 1995 assuming that the KNPC Acquisition and the Presidio Acquisition
both occurred on January 1, 1995.
<TABLE>
<CAPTION>
Years ended
------------------
1996 1995
---- ----
(in thousands, except for per share amounts)
<S> <C> <C>
Revenues $106,009 $ 84,821
======= ======
Net income 8,184 5,026
====== ======
Net income available to common
shareholders 6,512 3,276
====== ======
Net income per common share .26 .13
====== ======
Sale of Arkoma Assets
</TABLE>
In September 1995, the Company sold its properties in the Arkoma Basin
in western Arkansas for $9.0 million. As a result of this sale, the Company
realized an after-tax book gain of $3.0 million. Proceeds from the sale of
these properties were used to repay a portion of the Company's outstanding
indebtedness under its Credit Facility.
-36-
<PAGE> 37
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(4) BANK DEBT
In September 1995, the Company entered into a bank credit agreement.
The credit agreement provided for a $65 million revolving credit facility (the
"Credit Facility") maturing in September 1998. Borrowings under the Credit
Facility are unsecured and bear interest, at the election of the Company, at a
rate equal to (i) the greater of the agent bank's prime rate or the federal
funds effective rate plus 1/2 of 1% or (ii) the agent bank's Eurodollar rate
plus a margin ranging from .75% to 1.00%. Interest on amounts outstanding under
the Credit Facility is due on the last day of each month in the case of loans
bearing interest at the prime rate or federal funds rate and, in the case of
loans bearing interest at the Eurodollar rate, interest payments are due on the
last day of each applicable interest period of one, two, three or six months,
as selected by the Company at the time of borrowing.
On November 13, 1995, the Company repaid the $51 million outstanding
under the Credit Facility primarily with funds generated from the Company's
public stock offering (see Note 6). At December 31, 1995, there was no
outstanding balance under the Credit Facility.
In connection with the Presidio Acquisition, on December 23, 1996, the
Company and its lenders entered into a Credit Agreement providing for a $125
million revolving credit facility, maturing December 1999. Pursuant to this
agreement, the Company repaid the existing indebtedness under the prior facility
with borrowings under the new Credit Agreement. The terms and conditions of the
new Credit Facility are substantially the same as the Credit Facility. At
December 31, 1996, the outstanding balance was $119 million at an interest rate
of 8.25%.
Financial covenants of the Credit Facility require the Company to
maintain a minimum consolidated tangible net worth of not less than $223 million
as of December 31, 1996. The Company is also required to maintain a ratio of (i)
earnings before interest expense, state and federal taxes and depreciation,
depletion and amortization to (ii) consolidated fixed charges, as defined in the
credit agreement, of not less than 2.5:1. Additionally, the Company is required
to maintain a ratio of consolidated debt to consolidated total capitalization of
less than 0.45:1 and a current ratio of not less than 1.1:1. The Company was in
compliance with all financial covenants at December 31, 1996.
(5) INCOME TAXES
The Company has not paid Federal income taxes due to its net operating
loss carryforward, but is required to pay alternative minimum tax ("AMT"). This
tax can be partially offset by an AMT net operating loss carryforward.
A U.S. Federal statutory rate applied to the Company's income (loss)
before income taxes of 35% in 1996 and 34% in 1995 and 1994 was used in the
following reconciliation of the Company's effective income tax expense:
-37-
<PAGE> 38
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Federal income tax provision (benefit)
at statutory rate $ 3,946 $(2,418) $ 35
Utilization of net operating loss carryforward - - (105)
Adjustment to valuation allowance (596) 2,357 -
Other (583) 33 70
------- ------- -------
2,767 (28) -
AMT provision 290 105 24
State income and franchise taxes 281 197 238
------- ------- -------
Income tax expense $ 3,338 $ 274 $ 262
======= ======= =======
</TABLE>
The significant components which give rise to the Company's deferred
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Net operating loss carryforwards..................... $ 18,689 $ 23,070
Gas and oil acquisition, exploration and development
costs deducted for tax purposes in excess of book.. (14,520) (8,074)
Investment tax credit carryforwards.................. 2,463 4,813
Option plan compensation............................. 1,559 1,507
Other................................................ 2,309 2,435
------ ------
Net deferred tax asset............................. 10,500 23,751
Valuation allowance.................................. (7,635) (10,581)
-------- --------
Recognized net deferred tax asset.................. $ 2,865 $ 13,170
======== ========
</TABLE>
A valuation allowance of approximately $7.6 million and $10.6 million
at December 31, 1996 and 1995, respectively, has been provided against the
Company's net deferred tax assets based on management's estimate of the
recoverability of future tax benefits. The valuation allowance relates
primarily to the ability to use net operating loss and investment tax credit
carryforwards. The Company evaluated all appropriate factors to determine the
proper valuation allowance for these carryforwards, including any limitations
concerning their use, the year the carryforwards expire and the levels of
taxable income necessary for utilization. In this regard, full valuation
allowances were provided for investment tax credit carryforwards. Based on its
recent operating results and its expected levels of future earnings, the
Company believes it will, more likely than not, generate sufficient taxable
income to realize the benefit attributable to the net operating loss
carryforwards for which valuation allowances were not provided.
At December 31, 1996, the Company had investment tax credit
carryforwards of approximately $2.5 million and net operating loss
carryforwards of approximately
-38-
<PAGE> 39
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
$53.4 million. The Company currently has no liability for deferred Federal
income taxes because of these net operating loss and investment tax credit
carryforwards. Realization of the benefits of these carryforwards is dependent
upon the Company's ability to generate taxable earnings in future periods. In
addition, the availability of these carryforwards is subject to various
limitations. The remainder of the carryforwards will expire between 1997 and
2004. Additionally, the Company has approximately $3.9 million of statutory
depletion carryforwards and $0.4 million of AMT credit carryforwards that may be
carried forward until utilized.
(6) STOCKHOLDERS' EQUITY
Common Stock
The Company's Common Stock is $.10 par value per share. There are
40,000,000 authorized shares of Common Stock of which 23,898,431 shares and
20,180,902 shares were outstanding as of December 31, 1996 and 1995,
respectively.
In November 1995, the Company sold 4,600,000 of Common Stock in a
public offering. The net proceeds of such offering totaled approximately $47.7
million and were used to repay indebtedness outstanding under the Credit
Facility.
The Company issued 918,367 shares of Common Stock in January 1996 in
connection with the KNPC Acquisition and 2.71 million shares of Common Stock in
December 1996 in connection with the Presidio Acquisition (See Note 3).
Rights Plan
On March 1, 1991, the Board of Directors adopted a Rights Plan designed
to help assure that all stockholders receive fair and equal treatment in the
event of a hostile attempt to take over the Company, and to help guard against
abusive takeover tactics. The Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of Common
Stock. The dividend was distributed on March 15, 1991 to the shareholders of
record on that date. Each Right entitles the registered holder to purchase, for
the $20 per share exercise price, shares of Common Stock or other securities of
the Company (or, under certain circumstances, of the acquiring person) worth
twice the per share exercise price of the Right.
The Rights will be exercisable only if a person or group acquires 20%
or more of the Company's Common Stock or announces a tender offer which would
result in ownership by a person or group of 20% or more of the Common Stock.
The date on wich the above occurs is to be known as the ("Distribution Date").
The Rights will expire on March 15, 2001, unless extended or redeemed earlier
by the Company.
At the time the Rights dividend was declared, the Board of Directors
further authorized the issuance of one Right with respect to each share of the
Company's Common Stock that shall become outstanding between March 15, 1991 and
the earlier of
-39-
<PAGE> 40
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
the Distribution Date or the expiration or redemption of the Rights. Until the
Distribution Date occurs, the certificates representing shares of the Company's
Common Stock also evidence the Rights. Following the Distribution Date, the
Rights will be evidenced by separate certificates.
The provisions described above may tend to deter any potential
unsolicited tender offers or other efforts to obtain control of the Company
that are not approved by the Board of Directors and thereby deprive the
stockholders of opportunities to sell shares of the Company's Common Stock at
prices higher than the prevailing market price. On the other hand, these
provisions will tend to assure continuity of management and corporate policies
and to induce any person seeking control of the Company or a business
combination with the Company to negotiate on terms acceptable to the then
elected Board of Directors.
Preferred Stock
In January 1996, in connection with the KNPC acquisition, (see Note 3)
the Company issued 1,000,000 shares of its $1.75 Convertible Preferred Stock,
Series A (the "Preferred Stock"). There are 2,500,000 shares of Preferred Stock
authorized.
As the holder of the Preferred Stock, KNE is entitled to receive
cumulative dividends at the annual rate of $1.75 per share, payable in cash
quarterly on the fifteenth day of March, June, September and December in each
year. If full cumulative dividends on the Preferred Stock have not been
declared and paid or set apart for payment, the Company may not declare or pay
or set apart for payment any dividends or make any other distributions on, or
make any payment on account of the purchase, redemption or retirement of, the
Company's Common Stock, or any other stock of the Company ranking junior to the
Preferred Stock as to payment of dividends or distribution of assets on
liquidation, dissolution or winding up of the Company (other than, in the case
of dividends or distributions, dividends or distributions paid in shares of
Common Stock or such other junior ranking stock).
The Company has the option, at any time beginning on or after March 15,
2001, to redeem all or any part of the outstanding shares of Preferred Stock at
the redemption price of $25.00 per share, plus an amount equal to all accrued
and unpaid dividends on such shares of Preferred Stock to the date of
redemption.
Upon the occurrence of a change of control of the Company, KNE, as the
holder of the Preferred Stock, has the right to cause the Preferred Stock to be
redeemed by the Company, in whole or in part, at the redemption price of $25.50
per share, plus all accrued and unpaid dividends. Generally, for purposes of
the Preferred Stock, a "change of control" is any situation in which a majority
of the Board of Directors of the Company changes within a period of twelve
months or a new person or group of persons becomes in "control" of the Company,
within the meaning of rules of the Securities and Exchange Commission.
Each share of the Preferred Stock is convertible at the option of the
holder
-40-
<PAGE> 41
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
thereof, at any time and from time to time prior to the redemption of such
share, into fully paid and nonassessable shares of Common Stock of the Company
at the initial conversion rate of 1.6660 shares of Common Stock for each share
of Preferred Stock, subject to customary adjustments.
The Preferred Stock is exchangeable, in whole or in part, at the option
of the Company on any dividend payment date at any time on or after March 15,
1999, and prior to March 15, 2001, for shares of Common Stock at the exchange
rate of 1.666 shares of Common Stock for each share of Preferred Stock;
provided that (i) on or prior to the date of exchange, the Company shall have
declared and paid or set apart for payment to the holders of Preferred Stock
all accumulated and unpaid dividends to the date of exchange, and (ii) the
current market price of the Common Stock is above $18.375 (the "Threshold
Price"). The exchange rate is subject to adjustment in the same manner and
under the same circumstances as the conversion rate is subject to adjustment,
and the Threshold Price is also subject to adjustment in the same manner and
under the same circumstances.
Upon the dissolution, liquidation or winding up of the Company, whether
voluntary or involuntary, the holders of the Preferred Stock are entitled to
receive out of the assets of the Company available for distribution to
stockholders, the amount of $25.00 per share plus an amount equal to all
dividends on such shares (whether or not earned or declared) accrued and unpaid
thereon to the date of final distribution, before any payment or distribution
may be made on the Common Stock or on any class of stock ranking junior to the
Preferred Stock with respect to distributions upon dissolution, liquidation or
winding up.
If at any time dividends payable on the Preferred Stock are in arrears
and unpaid in an amount equal to or exceeding the amount of dividends payable
thereon for four quarterly dividend periods, the total number of Directors on
the Company's Board of Directors will be limited to a maximum of nine and the
holders of the outstanding Preferred Stock will have the exclusive right,
voting separately as a class without regard to series, to designate a special
class of two Directors of the Company (the "Special Directors") at the next
annual or special meeting of stockholders of the Company irrespective of
whether such meeting otherwise would involve the election of directors, and the
membership of the Board of Directors of the Company shall be increased by the
number of the Special Directors so designated. Such right of the holders of
Preferred Stock to designate Special Directors continues until all dividends
accumulated and payable on the Preferred Stock have been paid in full, at which
time such right to designate Special Directors terminates, subject to
re-vesting in the event of a subsequent dividend payment arrearage.
In exercising the right to designate Special Directors or when
otherwise granted voting rights by operation of law, each share of Preferred
Stock shall be entitled to one vote, except as described below.
For so long as KNE owns 80% or more of the voting power of the
securities of the Company issued pursuant to the KNPC Acquisition, KNE has the
right to elect a special
-41-
<PAGE> 42
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
class of two Directors to the Board of Directors of the Company, and for so
long as KNE owns securities of the Company issued pursuant to the KNPC
Acquisition possessing less than 80% of the voting power of the securities of
the Company issued pursuant to the KNPC Acquisition, but more than 30% of such
voting power, KNE has the right to elect a special class of one Director to the
Board of Directors of the Company.
The holders of the Preferred Stock are entitled to vote on all matters
upon which holders of the Company's Common Stock have the right to vote. In
such voting, each share of Preferred Stock is entitled to a number of votes per
share equivalent to the number of shares of Common Stock issuable upon
conversion of the Preferred Stock and shall vote together with the holders of
the outstanding shares of the Company's Common Stock as if a part of that
class.
(7) BENEFIT PLANS
1986 Grant
The Company granted nonqualified stock options to certain key officers
and employees for various terms and at prices not less than the market value of
the shares at the date of the grant. The exercise prices of the options
granted, which originally were set at prices ranging from $5.682 per share to
$7.50 per share, were reduced effective September 4, 1991 to $4.00 per share,
the market value at that date. The options expire ten years from the date of
grant.
1989 Plan
On September 28, 1990, shareholders approved the Company's 1989 Stock
Option Plan (the "1989 Plan"). The aggregate number of shares of Common Stock
that may be issued under the 1989 Plan is 1,400,000 shares. The exercise price
of the options granted to employees and employee directors prior to 1991, which
was originally set at $5.25 per share, was reduced effective September 4, 1991
to $4.00 per share, the market value at that date. The options expire ten years
from the date of grant.
1993 Plan
In May 1990 and March 1992, the Board of Directors adopted the 1990
Phantom Stock Option Plan and the 1992 Phantom Stock Option Plan for
Non-employee Directors (the "Phantom Plans").
In February 1993, the Board of Directors adopted the Company's 1993
Stock Option Plan (the "1993 Plan"). The 1993 Plan provides for issuance of
options to certain employees and directors to purchase shares of Common Stock.
In May 1996, the Board of Directors increased the aggregate number of shares of
Common Stock that may be issued under the 1993 Plan is 800,000 shares. The
exercise price, vesting and duration of the options may vary and will be
determined at the time of issuance. Also, in connection with the 1993 Plan,
employees and directors who were granted units pursuant to the Phantom Plans
surrendered those
-42-
<PAGE> 43
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
units for a like number of options under the 1993 Plan at the surrendered
units' exercise prices.
A summary of the status of the plans described above, as of the dates
indicated, and the changes during the years then ended, is presented in the
table and narrative below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(shares in thousands)
Wtd. Wtd. Wtd.
Shares Avg. Shares Avg. Shares Avg.
Under Exer. Under Exer. Under Exer.
Option Price Option Price Option Price
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,525 $ 8.72 1,120 $ 6.51 1,099 $ 6.17
Granted 673 15.70 470 12.96 88 11.75
Exercised (88) 5.89 (60) 4.41 (67) 4.65
Forfeited 0 (5) 3.86 0
----- ----- -----
Outstanding, end of year 2,110 11.06 1,525 8.72 1,120 6.51
===== ===== -----
Exercisable, end of year 1,457 8.99 1,309 8.28 893 5.71
===== ===== =====
Available for grant, end of year 31 429 495
===== ===== =====
</TABLE>
The weighted average fair value of options granted during the years
ended December 31, 1996 and 1995 was $9.19 and $6.71, respectively. The fair
value of each option is estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: (i) risk-free
interest rates of 6.35 and 7.59 percent; (ii) expected lives of seven years,
(iii) expected volatility of 45.4 and 46.9 percent , and (iv) no dividend
yields.
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
No. of Shs. Wtd. Avg. No. of Shs.
Range of Under Remaining Wtd. Avg. Under Wtd. Avg.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices Options Life Price Options Price
- ---------------- ----------- ----------- --------- ----------- ---------
(shares in thousands)
<C> <C> <C> <C> <C> <C>
$ 3.810 - 7.620 699 4.51 $ 4.26 694 $ 4.23
11.125 - 13.320 493 8.74 12.16 418 12.09
14.687 - 18.875 918 9.20 15.66 345 14.82
----- -----
2,110 7.54 11.06 1,457 8.99
===== =====
</TABLE>
-43-
<PAGE> 44
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The Company accounts for its stock-based compensation using the
intrinsic value method prescribed by APB Opinion No. 25 and related
interpretations, under which no compensation cost has been recognized for the
stock option plans. Alternatively, if compensation costs for these plans had
been determined in accordance with SFAS No. 123 ("SFAS 123"), the Company's net
income and net income per share would approximate the following pro forma
amounts:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
------- -------
(in thousands, except per share amounts)
<S> <C> <C>
Net Income
As Reported........................ $ 6,263 $ 5,785
Pro Forma.......................... 4,729 5,105
Net Income per Common Share:
As Reported........................ $ 0.28 $ 0.34
Pro Forma.......................... 0.21 0.30
</TABLE>
The pro forma amounts shown above may not be representative of future
results because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995.
Profit Sharing, ESOP and KSOP Plans
Effective April 1, 1985, the Company adopted a profit sharing plan (the
"Profit Sharing Plan") for the benefit of all employees. Under the Profit
Sharing Plan, the Company may contribute to a trust either stock or cash in
such amounts as it may, from time to time, deem advisable. The Company
contributed $30,000 for 1995 to the Profit Sharing Plan. The Company did not
make a contribution to the Profit Sharing Plan for year 1994.
Effective April 1, 1986, the Company adopted an employee stock
ownership plan (the "ESOP") for the benefit of all employees. Under the ESOP,
the Company may contribute cash or the Company's Common Stock to a trust in
such amounts as the Company deems advisable. The Company contributed $30,000
and $60,000 to the trust for 1995 and 1994, respectively, for the purchase by
the trust of 2,110 and 4,750 shares of Common Stock.
Effective April 1, 1990, the Profit Sharing Plan was amended to provide
for voluntary employee contributions under Section 401(k) of the Internal
Revenue Code of 1986, as amended. The Profit Sharing Plan was further amended
to provide employees with the ability to give direct investment instructions to
the Profit Sharing Trustee for amounts held for their benefit.
Effective January 1, 1996 the Company adopted the KSOP ("KSOP")which is
a merger of the ESOP and the Profit Sharing Plan which contains 401(k) profit
sharing plan and employer stock ownership plan provisions for the benefit of
those persons who qualify
-44-
<PAGE> 45
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
as participants. The Company contributed $100,000 to the KSOP for 1996.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of financial instruments. The carrying values of trade receivables and
trade payables included in the accompanying Consolidated Balance Sheets
approximated market value at December 31, 1996 and 1995.
Cash and Cash Equivalents
The carrying amounts approximated fair value due to the short maturity
of these instruments.
Investments
At December 31, 1995, there was no quoted price for the Presidio GINs.
Consequently, the Company was unable to estimate the fair value of the GINs;
therefore, they remained valued at the Company's purchase price.
Bank Debt
The carrying value approximates fair value because the interest rate is
variable and is reflective of current market conditions.
(9) RELATED PARTIES AND SIGNIFICANT CUSTOMERS
Certain of the Company's officers and directors participate (either
individually or indirectly through various entities) with the Company and other
unrelated investors in the drilling, development and operation of gas and oil
properties. Related party transactions are non-interest bearing and are settled
in the normal course of business with terms which, in management's opinion, are
similar to those with other joint owners.
The Company has engaged from time to time two law firms, one of whose
partner serves as a director and one of whose partner serves as an officer. The
amounts paid to each of these firms for the years ended December 31, 1996, 1995
and 1994 were $56,000 and $268,000; $103,000 and $159,000; and $37,000 and
$70,000, respectively. The Company also paid $74,000, $35,000, and $35,000
during the years ended December 31, 1996, 1995 and 1994, respectively, to a
consulting firm which has a partner who serves as a director of the Company.
The Company participates in exploration activity with a partnership,
one of whose partner is a director of the Company. During the years ended
December 31, 1996, 1995, and 1994 the Company billed $239,000, $153,000 and
$6,000, respectively to such partnership for their share of certain leasehold
costs.
-45-
<PAGE> 46
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
In addition, certain officers and directors of the Company are
directors of a former subsidiary. The Company and the former subsidiary make
available to each other certain personnel, office services and records with
each party being reimbursed for costs and expenses incurred in connection
therewith. During the years ended December 31, 1996, 1995 and 1994, the Company
charged the former subsidiary approximately $75,000, $70,000 and $64,000,
respectively, for such services. The former subsidiary performs drilling
services on certain wells operated by the Company and charged approximately
$42,000, $934,000 and $1,322,000 for such services during the years ended
December 31, 1996, 1995 and 1994, respectively. In management's opinion, the
above described transactions and services were provided on the same terms as
could be obtained from non-related sources.
Gas and oil sales to three purchasers, Coastal Oil and Gas, Conoco,
Inc. and KN Gas Marketing, Inc., accounted for 15%, 14% and 13%, respectively,
of gas and oil sales and marketing, gathering and processing revenues for the
year ended December 31, 1996 and 14%, 25% and 12%, respectively, for the year
ended December 31, 1995. For the year ended December 31, 1994, Montana-Dakota
Utilities Co. and KN Gas Marketing, Inc. accounted for 13% and 12%,
respectively, of gas and oil sales and marketing, gathering and processing
revenues. Because there are numerous other parties available to purchase the
Company's production, the Company believes the loss of these purchasers would
not materially affect its ability to sell natural gas or crude oil.
Concentration of Credit Risk
The Company's revenues are derived principally from uncollateralized
sales to customers in the gas and oil industry. The concentration of credit
risk in a single industry affects the Company's overall exposure to credit risk
because customers may be similarly affected by changes in economic and other
conditions. The Company has not experienced significant credit losses on such
receivables.
-46-
<PAGE> 47
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(10) SEGMENT INFORMATION
The Company operates in two reportable segments: (i) gas and oil
exploration and development and (ii) marketing, gathering and processing. The
segment results are presented in the following schedule:
<TABLE>
<CAPTION>
Gas & Oil Marketing,
Exploration Gathering
& & Intercompany
Development Processing Sales & Other Total
----------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Year ended
December 31, 1996
- -----------------
Assets $ 393,697 $ 14,923 $ (2,246) $ 406,374
Revenues 41,598 29,476 (4,354) 66,720
Income before taxes 7,417 3,856 -- 11,273
Capital expenditures 256,054 24,550 -- 280,604
Depreciation and amortization 13,762 1,378 -- 15,140
Year ended
December 31, 1995
- -----------------
Assets $ 157,928 $ 6,246 $ -- $ 164,174
Revenues 25,385 19,696 (4,028) 41,053
Income (loss) before taxes (9,060) 1,949 -- (7,111)
Capital expenditures 24,809 1,203 -- 26,012
Depreciation and amortization 9,785 209 -- 9,994
Year ended
December 31, 1994
- -----------------
Assets $ 106,144 $ 8,948 $ -- $ 115,092
Revenues 15,792 16,554 (3,275) 29,071
Income (loss) before taxes (1,414) 1,516 -- 102
Capital expenditures 22,359 651 -- 23,010
Depreciation and amortization 7,119 169 -- 7,288
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
The Company's operations are subject to numerous Federal and state
government regulations which may give rise to claims against the Company. In
addition, the Company is a defendant in various lawsuits generally incidental
to its business. The Company does not believe that the ultimate resolution of
such litigation will have a material adverse effect on the Company's financial
position or results of operations.
-47-
<PAGE> 48
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Lease Commitments
At December 31, 1996, the Company had long-term leases covering certain
of its facilities and equipment. The minimum rental commitments under
non-cancelable operating leases with lease terms in excess of one year are
approximately $562,000, $132,000 and $75,000 for 1997, 1998 and 1999,
respectively. Total rental expense incurred for the years ended December 31,
1996, 1995 and 1994 was approximately $394,000, $262,000 and $245,000,
respectively, all of which represented minimum rentals under non-cancelable
operating leases.
Firm Transportation Commitments
As of December 31, 1996, Wildhorse had entered into several contracts
for firm transportation on interstate pipelines. Based upon current rates and
using the Company's forty-five percent (45%) ownership in Wildhorse, the
Company's obligation for such firm transportation for the next five years and
thereafter is as follows:
<TABLE>
<CAPTION>
Commitment
Years ending December 31, Amount
------------------------- ----------
(in thousands)
<S> <C>
1997 $ 2,812
1998 4,866
1999 4,851
2000 4,778
2001 4,531
Thereafter 7,490
-------
$29,328
=======
</TABLE>
Environmental Matters
A wholly-owned subsidiary of the Company is a party to an environmental
cleanup proceeding. The subsidiary's share of the estimated cleanup costs were
accrued in the consolidated financial statements at December 31, 1994. Based on
the amount of remediation costs estimated for this site and the Company's de
minimis contribution, if any, the Company believes that the outcome of this
proceeding will not have a material adverse effect on its financial position or
results of operations.
-48-
<PAGE> 49
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1996
- -------------------
Revenues $13,205 $14,071 $14,773 $24,671 $66,720
Gross profit (1) 7,300 7,999 6,407 13,875 $35,581
Net income 870 1,012 122 4,259 $ 6,263
Net income per
common share (3) .04 .05 .01 .19 $ .28
Year ended
December 31, 1995
- -------------------
Revenues $ 9,428 $ 9,162 $12,082 $10,381 $41,053
Gross profit (1) 3,814 4,101 3,765 4,254 $15,934
Net income (loss)(2) 4,530 273 1,500 (518) $ 5,785
Net income (loss) per
common share (3) .28 .02 .09 (.03) $ .34
</TABLE>
(1) Gross Profit is computed as the excess of gas and oil revenues over
operating expenses. Operating expenses are those associated directly
with gas and oil revenues and include lease operations, gas and oil
related taxes and other expenses.
(2) Net income for the quarter ended March 31, 1995 includes the recognition
of deferred tax assets of $13,967,000 offset by an $8,368,000 charge
against earnings related to the early adoption of SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets...". see Note 2.
(3) The sum of the individual quarterly net income (loss) per share may not
agree with year-to-date net income (loss) per share as each period's
computation is based on the weighted average number of common shares
outstanding during the period.
-49-
<PAGE> 50
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(13) SUPPLEMENTAL INFORMATION RELATED TO GAS AND OIL ACTIVITIES (UNAUDITED)
The following tables set forth certain historical costs and operating
information related to the Company's gas and oil producing activities:
Capitalized Costs and Costs Incurred
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Capitalized costs
Proved gas and oil properties $ 392,192 $ 184,424 $ 212,218
Unproved gas and oil properties 44,687 2,200 2,233
--------- --------- ---------
Total gas and oil properties 436,879 186,624 214,451
Less: Accumulated depreciation,
depletion and amortization (118,635) (105,442) (132,512)
--------- --------- ---------
Net capitalized costs $ 318,244 $ 81,182 $ 81,939
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Costs incurred
Proved property
acquisition costs $ 194,869 $ 44 $ 256
Unproved property
acquisition costs 42,877 657 1,498
Exploration costs 3,471 3,144 3,177
Development costs 13,177 21,747 17,797
--------- --------- ---------
Total $ 254,394 $ 25,592 $ 22,728
========= ========= =========
</TABLE>
Gas and Oil Reserve Information (Unaudited)
The following summarizes the policies used by the Company in preparing
the accompanying gas and oil reserve disclosures, Standardized Measure of
Discounted Future Net Cash Flows Relating to Proved Gas and Oil Reserves and
reconciliation of such standardized measure between years.
Estimates of proved and proved developed reserves at December 31, 1996,
1995 and 1994 were principally prepared by independent petroleum consultants.
Proved reserves are estimated quantities of natural gas and crude oil which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can be
recovered through existing wells with existing equipment and operating methods.
All of the Company's gas and oil reserves are located in the United States.
-50-
<PAGE> 51
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The standardized measure of discounted future net cash flows from
production of proved reserves was developed as follows:
1. Estimates are made of quantities of proved reserves and the future
periods during which they are expected to be produced based on year end
economic conditions.
2. The estimated future cash flows from proved reserves were determined
based on year end prices, except in those instances where fixed and
determinable price escalations are included in existing contracts.
3. The future cash flows are reduced by estimated production costs and
costs to develop and produce the proved reserves, all based on year end
economic conditions and by the estimated effect of future income taxes based on
the then-enacted tax law, the Company's tax basis in its proved gas and oil
properties and the effect of net operating loss, investment tax credit and
other carryforwards.
The standardized measure of discounted future net cash flows does not
purport to present, nor should it be interpreted to present, the fair value of
the Company's gas and oil reserves. An estimate of fair value would also take
into account, among other things, the recovery of reserves not presently
classified as proved, anticipated future changes in prices and costs and a
discount factor more representative of the time value of money and the risks
inherent in reserve estimates.
-51-
<PAGE> 52
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Quantities of Gas and Oil Reserves (Unaudited)
The following table presents estimates of the Company's net proved and
proved developed natural gas and oil reserves (including natural gas liquids).
<TABLE>
<CAPTION>
Reserve Quantities
------------------------
Gas Oil
Proved reserves: (MMcf) (MBbls)
--------- --------
<S> <C> <C>
Estimated reserves at December 31, 1993 130,995 3,300
Revisions of previous estimates (4,582) (288)
Purchase of minerals in place 659 19
Extensions and discoveries 60,593 1,775
Sales of minerals in place (128) (8)
Production (7,231) (276)
------- ------
Estimated reserves at December 31, 1994 180,306 4,522
Revisions of previous estimates (11,071) (476)
Purchase of minerals in place -- --
Extensions and discoveries 12,065 455
Sales of minerals in place (7,412) (46)
Production (10,585) (387)
------- ------
Estimated reserves at December 31, 1995 163,303 4,068
Revisions of previous estimates 10,249 (471)
Purchase of minerals in place 174,185 6,278
Extensions and discoveries 28,192 2,976
Production (16,762) (545)
------- ------
Estimated reserves at December 31, 1996 359,167 12,306
======= ======
Proved developed reserves:
December 31, 1993 86,153 2,357
December 31, 1994 114,061 2,877
December 31, 1995 109,267 2,862
December 31, 1996 257,241 8,994
</TABLE>
-52-
<PAGE> 53
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Gas
and Oil Reserves (Unaudited)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Future cash flows $ 1,523,845 $ 308,965 $ 348,652
Future production costs (380,453) (86,735) (90,228)
Future development costs (62,124) (13,344) (17,596)
----------- ----------- -----------
Future net cash flows before tax 1,081,268 208,886 240,828
Future income taxes (265,260) (31,016) (38,950)
----------- ----------- -----------
Future net cash flows after tax 816,008 177,870 201,878
Annual discount at 10% (349,795) (74,523) (90,048)
----------- ----------- -----------
Standardized measure at
discounted future net cash flows $ 466,213 $ 103,347 $ 111,830
=========== =========== ===========
Discounted future net cash flows
before income taxes $ 608,746 $ 114,586 $ 124,942
=========== =========== ===========
</TABLE>
Natural gas prices increased significantly during the fourth quarter of
1996 and subsequent to December 31, 1996 have declined significantly.
Accordingly, the discounted future net cash flows shown above would be
substantially lower if the standardized measure were calculated using prices in
effect at the end of the first quarter of 1997.
-53-
<PAGE> 54
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Changes in Standardized Measure of Discounted Future Net Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Gas and oil sales, net
of production costs $ (30,955) $ (13,509) $ (9,793)
Net changes in
anticipated prices
and production cost 129,492 (10,077) (29,733)
Extensions and
discoveries, less
related costs 81,675 10,803 51,231
Changes in estimated
future development
costs (1,985) 2,254 1,237
Previously estimated
development costs
incurred 428 4,152 667
Net change in income
taxes (131,293) 1,872 (3,706)
Purchase of minerals
in place 288,643 -- 485
Sales of minerals
in place (37) (6,133) (157)
Accretion of discount 11,458 12,494 10,575
Revision of quantity
estimates 16,993 (8,337) (3,515)
Changes in production
rates and other (1,553) (2,002) (1,808)
--------- --------- ---------
Change in
Standardized
Measure $ 362,866 $ (8,483) $ 15,483
========= ========= =========
</TABLE>
-54-
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding Directors of the Company will be included
in the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year covered by this Form 10-K and such information is incorporated by
reference to the Company's definitive proxy statement. Information concerning
the Executive Officers of the Company appears under Item I of this Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Certain information regarding compensation of executive officers of the
Company will be included in the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year covered by this Form 10-K and such
information is incorporated by reference to the Company's definitive proxy
statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information regarding security ownership of certain beneficial
owners and management will be included in the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year covered by this Form
10-K and such information is incorporated by reference to the Company's
definitive proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information regarding transactions with management and other
related parties will be included in the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the Company's fiscal year covered by this Form 10-K and such
information is incorporated by reference to the Company's definitive proxy
statement.
-55-
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(1) See Index to Consolidated Financial Statements under Item 8 of this
Annual Report on Form 10-K.
(2) None
(3) Exhibits:
( 2.1) Exchange Agreement dated August 5, 1996 by and among
Presidio Oil Company, Presidio Exploration, Inc., Presidio
West Virginia, Inc., Palisade Oil, Inc. and the Registrant
(Incorporated by reference to Exhibit No. 2.1 in the
Registrant's Quarterly Report on Form 10-Q for the six
months ended June 30, 1996).
( 2.2) First Amendment to Exchange Agreement dated August 20, 1996
by and among Presidio Oil Company, Presidio Exploration,
Inc., Presidio West Virginia, Inc., Palisade Oil, Inc. and
the Registrant (Incorporated by reference to Exhibit No.
2.2 in the Registrant's Form 8-K Report dated December 23,
1996 and filed with the Securities and Exchange Commission
on January 6, 1997).
( 2.3) Second Amendment to Exchange Agreement dated September 5,
1996 by and among Presidio Oil Company, Presidio
Exploration, Inc., Presidio West Virginia, Inc., Palisade
Oil, Inc. and the Registrant (Incorporated by reference to
Exhibit No. 2.3 in the Registrant's Form 8-K Report dated
December 23, 1996 and filed with the Securities and
Exchange Commission on January 6, 1997).
( 2.4) Third Amendment to Exchange Agreement dated November 20,
1996 by and among Presidio Oil Company, Presidio
Exploration, Inc., Presidio West Virginia, Inc., Palisade
Oil, Inc. and the Registrant (Incorporated by reference to
Exhibit No. 2.4 in the Registrant's Form 8-K Report dated
December 23, 1996 and filed with the Securities and
Exchange Commission on January 6, 1997).
( 3.1) Certificate of Incorporation, as amended, of the Registrant
(Incorporated by reference to
-56-
<PAGE> 57
Exhibit No. 4 in the Registrant's Form 10-Q Report for the
quarterly period ended June 30, 1996 and filed with the
Securities and Exchange Commission on August 14, 1996).
( 3.2) Bylaws of the Registrant (Incorporated by reference to
Exhibit No. 3.2 in the Registrant's Form 8-B Registration
Statement dated July 15, 1987 and filed with the Securities
and Exchange Commission on July 17, 1987).
( 4.1) Specimen Common Stock Certificate (Incorporated by
reference to Exhibit No. 4.2 in the Registrant's Form 8-B
Registration Statement dated July 15, 1987 and filed with
the Securities and Exchange Commission on July 17, 1987).
( 4.2) Rights Agreement dated as of March 5, 1991 between the
Registrant and The First National Bank of Boston, successor
in interest to American Stock Transfer & Trust Company
(Incorporated by reference to Exhibit No. 4(a) in the
Registrant's Form 8-K Report dated March 12, 1991 and filed
with the Securities and Exchange Commission on March 15,
1991).
(10.1) Wind River Gathering Company Joint Venture Agreement
between Retex Gathering Company, Inc. and KN Gas Gathering,
Inc. dated March 18, 1991 (Incorporated by reference to
Exhibit No. 10.5 in the Registrant's Form S-1 Registration
Statement dated May 3, 1993 and filed with the Securities
and Exchange Commission on May 4, 1993).
(10.2) Asset Purchase Agreement dated November 2, 1992, between
Williston Basin Interstate Pipeline Company as Seller and
Wind River Gathering Company as Buyer (Incorporated by
reference to Exhibit No. 10.6 in the Registrant's Form S-1
Registration Statement dated May 3, 1993 and filed with the
Securities and Exchange Commission on May 4, 1993.)
(10.3) Letter Agreement dated as of June 27, 1995 and Demand
Promissory Note dated as of June 28, 1995 between the
Registrant and Chemical Bank (Incorporated by reference to
Exhibit No. 10.1 in the Registrant's Form 10-Q Quarterly
Report
-57-
<PAGE> 58
dated August 11, 1995).
(10.4) Agreement between the Registrant and Chemical Bank, dated
September 14, 1995 (Incorporated by reference to Form 8-K
Report dated September 27, 1995 and filed with the
Securities and Exchange Commission on September 28, 1995).
(10.5) Agreement and Plan of Reorganization, dated January 31,
1996, by and among the Registrant, TBI Acquisition, Inc.,
KN Production Company and KN Energy, Inc. (Incorporated by
reference to Exhibit No. 10.1 in the Registrant's Form 8-K
Report dated January 31, 1996 and filed with the Securities
and Exchange Commission on February 15, 1996).
(10.6) Limited Liability Company Agreement, dated January 31,
1996, of Wildhorse Energy Partners, LLC, between the
Registrant and KN Energy, Inc. (Incorporated by reference
to Exhibit No. 10.2 in the Registrant's Form 8-K Report
dated January 31, 1996 and filed with the Securities and
Exchange Commission on February 15, 1996).
(10.7) Registration Rights Agreement, dated January 31, 1996,
between the Registrant and KN Energy, Inc. (Incorporated by
reference to Exhibit No. 10.4 in the Registrant's Form 8-K
Report dated January 31, 1996 and filed with the Securities
and Exchange Commission on February 15, 1996).
(10.8)* Credit Agreement, dated as of December 23, 1996, among the
Registrant, The Chase Manhattan Bank and the other lenders
parties thereto.
Executive Compensation Plans and Arrangements (Exhibits
10.9 through 10.19):
(10.9) Non-qualified Stock Option Agreement dated December 24,
1986 between the Registrant and Pete Scherer (Incorporated
by reference to Exhibit No. 10.12 in the Registrant's Form
8-B Registration Statement dated July 15, 1987 and filed
with the Securities and Exchange Commission on July 17,
1987).
(10.10) Non-qualified Stock Option Agreement dated
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<PAGE> 59
December 24, 1986 between the Registrant and Kim Harris
(Incorporated by reference to Exhibit No. 10.15 in the
Registrant's Form 8-B Registration Statement dated July 15,
1987 and filed with the Securities and Exchange Commission
on July 17, 1987).
(10.11) Non-qualified Stock Option Agreement dated December 24,
1986 between the Registrant and Donald L. Evans
(Incorporated by reference to Exhibit No. 10.16 in the
Registrant's Form 8-B Registration Statement dated July 15,
1987 and filed with the Securities and Exchange Commission
on July 17, 1987).
(10.12) 1989 Stock Option Plan (Incorporated by reference to
Exhibit No. 10.17 in the Registrant's Form S-1 Registration
Statement dated February 14, 1990 and filed with the
Securities and Exchange Commission on February 13, 1990).
(10.13) Employee Stock Ownership Plan and Trust
Agreement(Incorporated by reference to Exhibit 10.20 in the
Registrant's Form 10-K Report dated March 26, 1993 and
filed with the Securities and Exchange Commission on March
31, 1993).
(10.14) Tom Brown, Inc. 401(k) Profit Sharing Plan (Incorporated by
reference to Exhibit 10.21 in the Registrant's Form 10-K
Report dated March 26, 1993 and filed with the Securities
and Exchange Commission on March 31, 1993).
(10.15)* Second Amended and Restated Employment Agreement dated
January 1, 1997 between the Registrant and Donald L. Evans.
(10.16) 1992 Phantom Stock Option Plan for Non-employee Directors
(Incorporated by reference to Exhibit 10.23 in the
Registrant's Form 10-K Report dated March 26, 1993 and
filed with the Securities and Exchange Commission on March
31, 1993).
(10.17) Amendments to 1992 Phantom Stock Option Plan for
Non-employee Directors (Incorporated by reference to
Exhibit 10.24 in the Registrant's Form 10-K Report dated
March 26, 1993 and filed with the Securities and Exchange
Commission on March 31, 1993).
-59-
<PAGE> 60
(10.18) 1993 Stock Option Plan. (Incorporated by reference to
Exhibit 10.25 in the Registrant's Form 10-K Report dated
March 26, 1993 and filed with the Securities and Exchange
Commission on March 31, 1993.)
(10.19)* Tom Brown, Inc. KSOP Plan.
(11.1)* Computation of per share earnings.
(21.1)* Subsidiaries of the Registrant.
(23.1)* Consent of Arthur Andersen LLP
(23.2)* Consent of Williamson Petroleum Consultants, Inc.
(23.3)* Consent of Ryder Scott Company.
(27.1)* Financial Data Schedule
----------------
* Filed herewith
(4) Reports on Form 8-K:
None
-60-
<PAGE> 61
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.
TOM BROWN, INC.
By /s/ Donald L. Evans Date: March 25, 1997
----------------------------------
Donald L. Evans
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange 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 dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Donald L. Evans Chairman of the Board and March 25, 1997
- -------------------------- Chief Executive Officer
Donald L. Evans
/s/ R. Kim Harris Controller and Principal March 25, 1997
- -------------------------- Financial Officer
R. Kim Harris
/s/ William R. Granberry President, Chief Operating March 25, 1997
- -------------------------- Officer and Director
William R. Granberry
/s/ Thomas C. Brown Director March 25, 1997
- --------------------------
Thomas C. Brown
/s/ Edward W. LeBaron, Jr. Director March 25, 1997
- --------------------------
Edward W. LeBaron, Jr.
/s/ Henry Groppe Director March 25, 1997
- --------------------------
Henry Groppe
/s/ Robert H. Whilden, Jr. Director March 25, 1997
- --------------------------
Robert H. Whilden, Jr.
/s/ James B. Wallace Director March 25, 1997
- --------------------------
James B. Wallace
/s/ David M. Carmichael Director March 25, 1997
- --------------------------
David M. Carmichael
/s/ George M. Simmons Director March 25, 1997
- --------------------------
George M. Simmons
-61-
<PAGE> 62
TOM BROWN, INC.
EXHIBITS
TO
ANNUAL REPORT ON FORM 10-K
FOR THE PERIOD ENDED
December 31, 1996
-62-
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
- ------- -------
<S> <C>
10.8 Credit Agreement dated as of December 23, 1996, among Tom Brown,
Inc., The Chase Manhattan Bank and the other lenders parties
thereto.
10.15 Second Amended and Restated Employment Agreement dated January 1,
1997 between the Registrant and Donald L. Evans.
10.19 Tom Brown, Inc. KSOP Plan.
11.1 Computation of per share earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Williamson Petroleum Consultants, Inc.
23.3 Consent of Ryder Scott Company.
27.1 Financial Data Schedule.
</TABLE>
-63-
<PAGE> 1
CREDIT AGREEMENT
among
TOM BROWN, INC.
The Several Lenders
from Time to Time Parties Hereto
and
THE CHASE MANHATTAN BANK,
as Agent
Dated as of December 23, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Procedure for Revolving Credit Borrowing . . . . . . . . . . . . . . . . 13
2.3 Fees 14
2.4 Termination or Reduction of Commitments . . . . . . . . . . . . . . . . 14
2.5 Repayment of Revolving Credits; Evidence of Debt . . . . . . . . . . . . 14
2.6 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Initial Borrowing Base . . . . . . . . . . . . . . . . . . . . . . 15
(b) Determinations of the Borrowing Base . . . . . . . . . . . . . . . 15
2.7 Optional and Mandatory Prepayments . . . . . . . . . . . . . . . . . . . 16
2.8 Conversion and Continuation Options . . . . . . . . . . . . . . . . . . 17
2.9 Minimum Amounts and Maximum Number of Tranches . . . . . . . . . . . . . 18
2.10 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . 18
2.11 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . 18
2.12 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . 19
2.13 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . 19
2.14 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.15 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.17 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.18 Change of Lending Office . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . 24
3.4 Corporate Power; Authorization; Enforceable Obligations . . . . . . . . 24
3.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.8 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . 25
3.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.10 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . 25
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.12 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.14 Investment Company Act; Public Utility Holding Company Act; Other
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.15 Purpose of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . 26
3.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.1 Conditions to Effectiveness . . . . . . . . . . . . . . . . . . . . . . 27
(a) Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Effective Certificate . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Presidio Acquisition . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . . . 28
(e) Incumbency Certificate . . . . . . . . . . . . . . . . . . . . . . 28
(f) Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . 28
(g) Consents, Licenses and Approvals . . . . . . . . . . . . . . . . . 29
(h) Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(j) Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(k) Existing Agreement . . . . . . . . . . . . . . . . . . . . . . . . 29
4.2 Conditions to Each Revolving Credit Loan . . . . . . . . . . . . . . . . 29
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . 29
(b) No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Maintenance of Borrowing Base . . . . . . . . . . . . . . . . . . . 30
(d) No Material Litigation . . . . . . . . . . . . . . . . . . . . . . 30
(e) Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . 30
(f) Additional Matters . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . 31
5.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . 32
5.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . 32
5.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . 32
5.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9 Borrowing Base Certificates . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.1 Financial Condition Covenants . . . . . . . . . . . . . . . . . . . . . 34
(a) Maintenance of Consolidated Tangible Net Worth . . . . . . . . . . 34
(b) Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) Maintenance of Current Ratio . . . . . . . . . . . . . . . . . . . 35
6.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 35
6.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . . . . . . 36
6.5 Limitation on Fundamental Changes . . . . . . . . . . . . . . . . . . . 36
6.6 Limitation on Sale of Assets . . . . . . . . . . . . . . . . . . . . . . 36
6.7 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . 37
6.8 Limitation on Investments, Acquisitions, Loans and Advances . . . . . . 37
6.9 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . 38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.10 Limitation on Sales and Leasebacks . . . . . . . . . . . . . . . . . . . 38
6.11 Limitation on Operating Leases . . . . . . . . . . . . . . . . . . . . . 38
6.12 Limitation on Changes in Fiscal Year . . . . . . . . . . . . . . . . . . 38
6.13 Limitation on Negative Pledge Clauses . . . . . . . . . . . . . . . . . 38
6.14 Limitation on Lines of Business . . . . . . . . . . . . . . . . . . . . 38
6.15 Limitation on Certain Agreements . . . . . . . . . . . . . . . . . . . . 38
SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.6 Non-Reliance on Agent and Other Lenders . . . . . . . . . . . . . . . . 42
8.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . 43
8.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.10 Co-Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . 45
9.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . 45
9.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . 45
9.6 Successors and Assigns; Participations and Assignments . . . . . . . . . 46
9.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . 49
9.13 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.14 Waivers of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.15 Limitation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SCHEDULES
Schedule I Commitments and Addresses for Notices
Schedule 3.18 Subsidiaries
Schedule 6.4(a) Guarantee Obligations ons
EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Subsidiaries Guarantee
Exhibit C Form of Effective Certificate
Exhibit D Form of Opinion of Lynch, Chappell & Alsup
Exhibit E Form of Borrowings Base Certificate
Exhibit F Form of Commodities Trading Report
Exhibit G Form of Assignment and Acceptance
</TABLE>
iv
<PAGE> 6
CREDIT AGREEMENT, dated as of December _, 1996 (this
"Agreement"), among Tom Brown, Inc., a Delaware corporation (the "Borrower"),
the several banks and other financial institutions from time to time parties to
this Agreement (the "Lenders") and The Chase Manhattan Bank, a New York banking
corporation ("Chase"), as agent for the Lenders hereunder (in such capacity,
the "Agent").
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the
Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. For purposes hereof.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Agent as its prime rate in effect
at its principal office in New York City (the Prime Rate not being
intended to be the lowest rate of interest charged by Chase in
connection with extensions of credit to debtors); "Federal Funds
Effective Rate" shall mean, for any day, the weighted average of the
rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such
change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"ABR Loans": Revolving Credit Loans the rate of interest
applicable to which is based upon the ABR.
"Affiliate": as to any Person, any other Person (other than
a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Agent": The Chase Manhattan Bank, as the agent for the
Lenders under this Agreement and the other Loan Documents.
"Agreement": this Credit Agreement, as amended,
supplemented or
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otherwise modified from time to time.
"Applicable Margin": on each day when the Utilization
Percentage is less than or equal to 75%, 0.75% per annum, and on each
day when the Utilization Percentage is greater than 75%, 1.00% per
annum.
"Assignee": as defined in subsection 9.6(c).
"Available Commitment": at any time any amount equal to the
lesser of (i) the aggregate Commitments of the Lenders and (ii) the
Borrowing Base at that time.
"Bankruptcy Documents": collectively (i) the Joint Plan of
Reorganization, dated December ___, 1996, proposed by Presidio,
Presidio Exploration, Inc., Palisade Oil, Inc., Presidio West
Virginia, Inc, and the Borrower, (ii) the Disclosure Statement, dated
as of October 9, 1996, of Presidio Oil Company and its subsidiaries
and (iii) the Exchange Agreement, dated August 5, 1996, among the
parties proposing the Joint Plan of Reorganization, and all amendments
thereto through the date hereof.
"Board": the Board of Governors of the Federal Reserve System.
"Borrowing Base": at any date, the amount determined pursuant
to subsection 2.6(a) as the amount of credit available to the Borrower
under this Agreement at such date.
"Borrowing Base Assets": the proven reserves of the Borrower
and each Subsidiary Guarantor described in the most recent Reserve
Report submitted by the Borrower to the Agent in accordance with
subsection 2.6(b), including, without limitation, proven reserves of
Presidio and its Subsidiaries included in such Reserve Report.
"Borrowing Date": any Business Day specified in a notice
pursuant to subsection 2.2 as a date on which the Borrower requests
the Lenders to make Revolving Credit Loans hereunder.
"Business": as defined in subsection 3.16(b).
"Business Day": a day other than a Saturday, Sunday or any
other day on which commercial banks in New York City are authorized or
required by law to close.
"Capital Stock": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
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<PAGE> 8
"Cash Equivalents": (a) securities with maturities of one year
or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b)
certificates of deposit and Eurodollar time deposits with maturities
of one year or less from the date of acquisition and overnight bank
deposits of any Lender or of any commercial bank having capital and
surplus in excess of $500,000,000, (c) repurchase obligations of any
Lender or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days with
respect to securities issued or fully guaranteed or insured by the
United States Government, (d) commercial paper of a domestic issuer
rated at least A-2 by Standard and Poor's Rating Group ("S&P") or P-2
by Moody's Investors Service, Inc. ("Moody's"), (e) securities with
maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may
be) are rated at least A by S&P or A by Moody's, (f) securities with
effective maturities of one year or less from the date of acquisition
backed by an Aaa/AAA insurer or standby letters of credit issued by
any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition, (g) securities with maturities of six
months or less from the date of acquisition over collateralized with
United States' Government obligations as collateral or (h) shares of
money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (a) through (g) of this
definition.
"Chase": The Chase Manhattan Bank.
"Co-Agent": NationsBank of Texas, N.Agent as co-agent for the
Lenders under this Agreement and the other Loan Documents.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment": as to any Lender, the obligation of such Lender
to make Revolving Credit Loans to the Borrower hereunder in an
aggregate principal amount at any one time outstanding not to exceed
the amount set forth opposite such Lender's name on Schedule 1, as
such amount may be reduced from time to time in accordance with the
provisions of this Agreement.
"Commitment Percentage": as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the
aggregate Commitments (or, at any time after the Commitments shall
have expired or terminated, the percentage which the aggregate
principal amount of such Lender's Revolving Credit Loans then
outstanding constitutes of the aggregate principal amount of the
Revolving Credit Loans then outstanding).
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"Commitment Period": the period from and including the
Effective Date to but not including the Termination Date or such
earlier date on which the Commitments shall terminate as provided
herein.
"Commonly Controlled Entity ": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 ofERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Consolidated Current Assets": at the date of determination,
all assets which would, in accordance with GAAP, be classified on a
consolidated balance sheet of the Borrower and its Subsidiaries as
current assets.
"Consolidated Current Liabilities": at the date of
determination, all liabilities which would, in accordance with GAAP,
be classified on a consolidated balance sheet of the Borrower and its
Subsidiaries as current liabilities.
"Consolidated Debt": as of the date of determination, of any
Person at such date, (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services
(other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), (b)
any other indebtedness of such Person which is evidenced by a note,
bond, debenture or similar instrument, (c) all obligations of such
Person under Financing Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such
Person and (e) all Guarantee Obligations of such Person in respect of
obligations described in (a), (b), (c) and (d).
"Consolidated EBITDA": for any period, the revenues of the
Borrower and its Subsidiaries for such period from continuing
operations, minus associated costs (generally excluding Consolidated
Interest Expense, income taxes, unallocated depreciation, depletion,
and amortization and other non- cash expenses), determined in each
case on a consolidated basis in accordance with GAAP.
"Consolidated Fixed Charges": for any period, the sum (without
duplication) of (i) Consolidated Interest Expense for such period,
(ii) provision for cash income taxes made by the Borrower or any of
its Subsidiaries on a consolidated basis in respect of such period and
(iii) scheduled payments made during such period on account of
principal of Indebtedness of the Borrower or any of its Subsidiaries.
"Consolidated Interest Expense:" for any period, the amount of
interest expense, both expenses and capitalized, of the Borrower and
its Subsidiaries determined on a consolidated basis in accordance with
GAAP, for such period on the aggregate principal amount of their
Indebtedness, determined on a consolidated basis in accordance with
GAAP.
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"Consolidated Net Income": for any period, the consolidated
net income (or loss) of the Borrower and its Subsidiaries determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth": as of the date of determination, all
items which in conformity with GAAP would be included under
shareholders' equity on a consolidated balance sheet of the Borrower
and its Subsidiaries at such date.
"Consolidated Tangible Net Worth": as of the date of
determination, Consolidated Net Worth after deducting therefrom the
following:
(a) any surplus resulting from the write-up of assets
subsequent to September 30, 1996;
(b) goodwill, including any amounts (however designated on
the balance sheet) representing the cost of acquisitions of
Subsidiaries in excess of underlying tangible assets;
(c) patents, trademarks, copyrights;
(d) leasehold improvements not recoverable at the expiration
of a lease; and
(e) deferred charges (including, but not limited to,
unamortized debt discount and expense, organization expenses and
experimental and development expenses, but excluding prepaid expenses
and expenses general and administrative and geological and geophysical
expenses).
"Consolidated Total Capitalization": as of the date of
determination, the sum of Consolidated Tangible Net Worth and
Consolidated Debt.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Convertible Preferred Stock": the $1.75 Convertible Preferred
Stock, Series A, of the Borrower issued to KNIE pursuant to the Merger
Agreement.
"Default": any of the events specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Effective Date": the date on which the conditions precedent
set forth in
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subsection 4.1 shall be satisfied.
"Environmental Laws": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority
or other Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct concerning
protection of human health or the environment, as now or may at any
time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to
a Eurodollar Loan, 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.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
equal to the rate at which Chase 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 in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Loans": Revolving Credit Loans the rate of
interest applicable to which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, 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
"Eurodollar Tranche": with reference to Eurodollar Loans, the
then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such
Loans shall originally have been made on the same day).
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"Event of Default": any of the events specified in Section 7;
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Existing Agreement": the Credit Agreement, dated as of
September 14, 1995, as amended, supplemented or otherwise modified
through the Effective Date, among the Borrower, the several banks and
financial institutions parties thereto and The Chase Manhattan Bank
(formerly known as Chemical Bank), as Agent.
"Fee Letter": the fee letter, dated August 1, 1996, between
Chase, Chase Securities Inc. and the Borrower.
"Financing Lease": any lease of property, real or personal,
the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the
lessee.
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of
any other third Person (the "primary obligator") in any manner,
whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not contingent, (i)
to purchase any such primary obligation or any property constituting
direct or indirect security therefor, (ii) to advance or supply funds
(1) for the purchase or payment of any such primary obligation or (2)
to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof, provided,
however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount
equal to the stated or determinable amount of the primary obligation
in respect of which such Guarantee Obligation is made and (b)
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<PAGE> 13
the maximum amount for which such guaranteeing person may be liable
pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for
which such guaranteeing person may be liable are not stated or
determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated
liability in respect thereof as determined by the Borrower in good
faith.
"Indebtedness": of any Person at any date, (a) all indebtedness
of such Person for borrowed money or for the deferred purchase price
of property or services (other than current trade liabilities incurred
in the ordinary course of business and payable in accordance with
customary practices), (b) any other indebtedness of such Person which
is evidenced by a note, bond, debenture or similar instrument, (c) all
obligations of such Person under Financing Leases, (d) all obligations
of such Person in respect of acceptances issued or created for the
account of such Person and (e) all liabilities secured by any Lien on
any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof
"Independent Engineer": Williamson Petroleum Consultants,
Inc., or such other independent petroleum engineering company as the
Borrower may designate that is acceptable to the Agent and the Co-
Agent.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property" as defined in subsection 3.9.
"Interest Payment Date": (a) as to any ABR Loan, the last day
of each calendar month to occur while such ABR Loan is outstanding and
the Termination Date, (b) as to any Eurodollar Loan having an Interest
Period of one, two or three months, the last day of such Interest
Period, and (c) as to any Eurodollar Loan having an Interest Period of
six months, each day which is three months after the first day of such
Interest Period and the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of
the next
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<PAGE> 14
preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Agent not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond
the Termination Date shall end on the Termination Date; and
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month.
"Interest Rate Protection Agreement": any interest rate
protection agreement, interest rate futures contract, interest rate
option, interest rate cap, interest rate swap or other interest rate
hedge arrangement, to or under which the Borrower or any of its
Subsidiaries is a party or a beneficiary on the date hereof or becomes
a party or a beneficiary after the date hereof.
"KNE": K N Energy, Inc., a Kansas corporation.
"KNPC": K N Production Company, a Delaware corporation, now
known as TBI Production Company.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Financing Lease having substantially the
same economic effect as any of the foregoing).
"Loan Documents": this Agreement, the Subsidiaries Guarantee
and any Notes.
"Majority Lenders": at any time, Lenders the Commitment
Percentages of which aggregate more than 50%.
"Material Adverse Effect": a material adverse effect on (a)
the business,
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<PAGE> 15
operations, property, condition (financial or otherwise), results of
operations, assets, liabilities or prospects of the Borrower and its
Subsidiaries taken as a whole, (b) the ability of the Borrower to
perform any of its obligations under the Loan Documents or (c) the
validity or enforceability of this or any of the other Loan Documents
or the rights or remedies of the Agent or the Lenders hereunder or
thereunder.
"Material Environmental Amount": an amount not otherwise
covered by insurance payable by the Borrower and/or its Subsidiaries
in excess of $2,500,000 for remedial costs, compliance costs,
compensatory damages, punitive damages, fines, penalties or any
combination thereof.
"Materials of Environmental Concern": any hazardous or toxic
substances, materials or wastes, defined or regulated as such in or
under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and ureaformaldehyde insulation.
"Maximum Loan Amount": $125,000,000, or such lesser amount to
which the aggregate Commitments may be reduced pursuant to subsection
2.4 hereof.
"Merger Agreement": the Agreement and Plan of Reorganization
among the Borrower, KNE, TBI Acquisition, Inc. and KNPC, dated January
31, 1996, delivered by the Borrower to the Lenders.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": means, with respect to any sale or other
disposition of securities, the cash proceeds (including cash
equivalents and any cash payments received by way of deferred payment
of principal pursuant to a note or installment receivable or purchase
price adjustment receivable or otherwise, but only as and when
received) of such sale or other disposition received by the Borrower
or any of its Subsidiaries, net of all attorneys' fees, accountants'
fees, investment banking fees and other customary fees actually
incurred by the Borrower or any of its Subsidiaries and documented in
connection therewith and net of taxes paid or reasonably expected to
be payable by the Borrower or any of its Subsidiaries as a result
thereof.
"Non-Excluded Taxes": as defined in subsection 2.16.
"Notes": the Revolving Credit Notes.
"Optional Reserve Report": as defined in subsection 2.6(b)(ii).
"Participant": as defined in subsection 9.6(b).
"Partnership': Wind River - Pavillion, Ltd., a Texas limited
partnership.
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<PAGE> 16
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Petroleum": oil, gas and other liquid or gaseous
hydrocarbons, including, without limitation, all liquefiable
hydrocarbons and other products which may be extracted from gas and
gas condensate by the processing thereof in a gas processing plant.
"Petroleum Price Hedge Agreement": any hedge agreement
designed to protect the Borrower or any of its Subsidiaries against
fluctuations in Petroleum prices.
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Presidio": Presidio Oil Company, a Delaware corporation.
"Properties": as defined in subsection 3.16(a).
"Purchase and Sale Agreement": the Purchase and Sale
Agreement, dated as of September 6, 1996, by and among Williams Field
Services Company, Williams Gas Processing Company and Wildhorse.
"Register": as defined in subsection 9.6(d).
"Regulation": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. Section 2615.
"Required Lenders": at any time, Lenders the Commitment
Percentages of which aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or
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other Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any
of its property is subject.
"Reserve Report": as defined in subsection 2.6(b).
"Responsible Officer": the Chairman of the Board of Directors,
president or executive vice-president of the Borrower or, with
respect to financial matters, the chief financial officer of the
Borrower.
"Retex": Retex Gathering Company, Inc., a Wyoming corporation.
"Revolving Credit Loans": as defined in subsection 2.1.
"Revolving, Credit Note": as defined in subsection 2.5(e).
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Subsidiary Guarantor": Presidio and each of its Subsidiaries
and any other Subsidiaries party to the Subsidiaries Guarantee.
"Subsidiaries Guarantee": the Subsidiaries Guarantee, to be
entered into by each Subsidiary Guarantor, substantially in the form
of Exhibit B attached hereto as the same may be amended, supplemented
or otherwise modified from time to time.
"Termination Date": the third anniversary of the Effective
Date.
"Transferee": as defined in subsection 9.6(f).
"Type": as to any Revolving Credit Loan, its nature as an ABR
Loan or a Eurodollar Loan.
"Utilization Percentage": on any day, the aggregate
outstanding principal amount of the Revolving Credit Loans outstanding
on such date divided by the Borrowing Base on such date.
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"Wildhorse": Wildhorse Energy Partners, LLC, a Delaware limited
liability company.
"Wildhorse Limited Liability Company Agreement": the Limited
Liability Company Agreement between KNE and the Borrower for the
formation of Wildhorse, dated January 31, 1996 and delivered by the
Borrower to the Lenders.
"Wind River Joint Venture": the joint venture between Retex
and K N Gas Gathering, Inc., pursuant to the Wind River Joint Venture
Agreement.
"Wind River Joint Venture Agreement": the Amended and Restated
Joint Venture Agreement, dated June 1, 1993, between Retex and K N Gas
Gathering, Inc., a Colorado corporation.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in any Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower and its Subsidiaries not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1, to the extent not defined, shall have
the respective meanings given to them under GAAP.
(c) The words "hereof', "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions
hereof (including, without limitation, Section 4.2(c)), each Lender severally
agrees to make revolving credit loans ("Revolving, Credit Loans") to the
Borrower from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the amount of such
Lender's Commitment Percentage of the Available Commitment. During the
Commitment Period the Borrower may use the Commitments by borrowing, prepaying
the Revolving Credit Loans in whole or in part, and reborrowing, all in
accordance with the term and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Agent in accordance with subsections 2.2
and 2.8; Provided that no Revolving Credit Loan shall be made as a Eurodollar
Loan after the day that is one month prior to the Termination Date.
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2.2 Procedure for Revolving, Credit Borrowings. The Borrower
may borrow under the Commitments during the Commitment Period on any Business
Day; provided that the Borrower shall give the Agent irrevocable notice (which
notice must be received by the Agent prior to 10:00 A.M., New York City time,
(a) three Business Days prior to the requested Borrowing Date, if all or any
part of the requested Revolving Credit Loans are to be initially Eurodollar
Loans, or (b) one Business Day prior to the requested Borrowing Date,
otherwise), specifying (i) the amount to be borrowed, (ii) the requested
Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR
Loans, or a combination thereof and (iv) if the borrowing is to be entirely or
partly of Eurodollar Loans, the respective amounts of each such Type of
Revolving Credit Loan and the respective lengths of the initial Interest
Periods therefor. Each borrowing under the Commitments shall be in an amount
equal to (x) in the case of ABR Loans, $500,000 or a whole multiple thereof and
(y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of $100,000
in excess thereof. Upon receipt of any such notice from the Borrower, the
Agent shall promptly notify each Lender thereof. Each Lender will make the
amount of its pro rata share of each borrowing available to the Agent for the
account of the Borrower at the office of the Agent specified in subsection 9.2
prior to I 1:00 A.M., New York City time, on the Borrowing Date requested by
the Borrower in funds immediately available to the Agent. Such borrowing will
then be made available to the Borrower by the Agent crediting the account of
the Borrower on the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by the
Agent.
2.3 Fees. The Borrower agrees to pay to the Agent for the
account of each Lender a commitment fee for the period from and including the
first day of the Commitment Period to the Termination Date, computed at the
rate of .25% per annum on the average daily amount of the unutilized part of
the Available Commitment of such Lender during the period for which payment is
made, payable quarterly in affairs on the last day of each March, June,
September and December and on the Termination Date or such earlier date as the
Commitments shall terminate as provided herein, commencing on the first of such
dates to occur after the date hereof.
2.4 Termination or Reduction of Commitments. The Borrower
shall have the right, upon not less than five Business Days' notice to the
Agent, to terminate the Commitments or , from time to time, to reduce the
amount of the Commitments. Any such reduction shall be in an amount equal to
$1,000,000 or a whole multiple thereof and shall reduce permanently the
Commitments then in effect.
2.5 Repayment of Revolving Credits; Evidence of Debt. (a)
The Borrower hereby unconditionally promises to pay to the Agent for the
account of each Lender the then unpaid principal amount of each Revolving
Credit Loan of such Lender in full on the Termination Date (or such earlier
date on which the Revolving Credit Loans become due and payable pursuant to
Section 7). The Borrower hereby further agrees to pay interest on the unpaid
principal amount of the Revolving Credit Loans from time to time outstanding
from the date hereof until payment in full thereof at the rates per annum, and
on the dates, set forth in subsection 2.10.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Revolving
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Credit Loan of such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Agent shall maintain the Register pursuant to
subsection 9.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Revolving Credit Loan made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Agent hereunder from the Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.5(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Borrower to repay (with applicable interest) the Revolving Credit Loans
made to such Borrower by such Lender in accordance with the terms of this
Agreement.
(e) The Borrower agrees that the Borrower will execute and
deliver to each Lender a promissory note of the Borrower evidencing the
Revolving Credit Loans of such Lender, substantially in the form of Exhibit A
with appropriate insertions as to date and principal amount (a "Revolving
Credit Note").
2.6 Borrowing Base. The Borrowing Base shall be determined as
follows:
(a) Initial Borrowing Base The amount of the Borrowing Base
shall be $125,000,000 during the period from the Effective Date to the date on
which the Borrower receives notice of the first determination of the Borrowing
Base by the Agent and the CoAgent pursuant to Subsection 2.6(b) and thereafter
the amount of the Borrowing Base shall be the Borrowing Base most recently
determined pursuant to subsection 2.6(b). In no event shall the Borrowing Base
exceed the Maximum Loan Amount.
(b) Determinations of the Borrowing Base. (i) No later than
45 days after June 30 and December 31 of each calendar year, commencing
December 31, 1996, the Borrower shall, at its own expense, furnish to the Agent
and the Co-Agent a report ("Reserve Report"), in a form and substance
reasonably satisfactory to the Agent and the Co-Agent which report shall be
dated as of such June 30 or December 31 and shall set forth the Borrower's and
its Subsidiary Guarantors' interest (broken down by category) in all Borrowing
Base Assets and, in the case of the December 31 report only, a projection of
the rate of production and net operating income with respect thereto as of such
date. Each June 30 Reserve Report shall be prepared by the Borrower and each
December 31 Reserve Report shall be prepared by the Independent Engineer. Each
June 30 Reserve Report may be prepared in summary form and shall include a
review of any material production variances, if any, from the immediately
preceding December 31 Reserve Report.
(ii) At any date the Borrower may at its expense furnish
additional Reserve Reports to the Agent and the Co-Agent ("Optional Reserve
Reports"), which Optional Reserve
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Reports need not be prepared or audited by an independent petroleum engineer
(unless the Agent or the Co-Agent so requests), each dated a date other than
June 30 or December 31.
(iii) Notwithstanding the provisions of Section 2.6(b)(i),
upon the Borrower's written request, and upon submission of an Optional Reserve
Report, the Agent and the CoAgent shall review the Borrowing Base and make any
adjustments thereto they deem appropriate under the circumstances; provided
that in no event shall the Agent and the Co-Agent be required to make more
than two such unscheduled Borrowing Base determinations during any calendar
year.
(iv) Within forty-five days after they both receive each
Reserve Report or Optional Reserve Report, the Agent and the Co-Agent shall
make a determination of the Borrowing Base, and shall notify the Borrower of
the new Borrowing Base, if any.
(v) Within forty-five days after the Borrower has notified
the Agent and the Co-Agent pursuant to subsection 2.7(c) that it or any
Subsidiary Guarantor has determined to sell or otherwise dispose of any of the
Borrowing Base Assets (other than sales permitted by subsections 6.6(a), (b),
(c), (d) and (e)), the Agent and the Co-Agent shall make a redetermination of
the Borrowing Base, and shall notify the Borrower of the new Borrowing Base, if
any; provided that such redetermination and notification shall occur only if
the aggregate amount of consideration paid for Borrowing Base Assets disposed
of since the last determination of the Borrowing Base exceeds $5,000,000.
(vi) The Borrower agrees to pay or reimburse the Agent and
the Co-Agent for all reasonable out-of-pocket costs and expenses incurred in
connection with (a) the examination of each Optional Reserve Report furnished
to the Agent and the Co-Agent by the Borrower, (b) the determination of the
Borrowing Base pursuant to such Reserve Report or Optional Reserve Report, (c)
the redetermination of the Borrowing Base pursuant to subsection 2.6(b)(v) and
(d) the notification of the Borrower of such Borrowing Base.
(vii) Each determination of the Borrowing Base shall be made
by the Agent and the Co-Agent in the exercise of their sole discretion in
accordance with the then current standards and practices of the Agent and the
Co- Agent for similar oil and gas loans, taking into account such factors as
the Agent and the Co-Agent may deem appropriate, including, without limitation
the nature and extent of the Borrower's interest in the Borrowing Base Assets
and the anticipated timing and extent of net operating income therefrom;
provided that each such determination shall be approved by the Required
Lenders. The Agent and the CoAgent may in their sole discretion discount the
value of any Borrowing Base Asset set forth in a Reserve Report or an Optional
Reserve Report by the same factors utilized by it in discounting the value of
comparable borrowing base assets in comparable transactions.
(viii) Each delivery by the Borrower to the Agent and the
Co-Agent of a Reserve Report or an Optional Reserve Report shall be deemed to
constitute a representation and warranty by the Borrower to the Agent and the
Co-Agent that the Borrower or the Subsidiary Guarantors, to the extent of the
interest specified in such report (and subject to exceptions disclosed in
writing to the Agent and the Co-Agent by the Borrower), has good and marketable
title to the Borrowing Base Assets and any other property rights or interests
described in such report, and that none of such Borrowing Base Assets or other
property rights or interests is
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subject to any Lien other than as permitted by subsection 6.3.
2.7 Optional and Mandatory Prepayments. (a) The Borrower may
at any time and from time to time prepay the Revolving Credit Loans, in whole
or in part, without premium or penalty (subject to subsection 2.17), upon at
least four Business Days' irrevocable notice to the Agent, specifying the date
and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and, if of a combination thereof, the amount
allocable to each. Upon receipt of any such notice the Agent shall promptly
notify each Lender thereof. If any such notice is given, the amount specified
in such notice shall be due and payable on the date specified therein, together
with any amounts payable pursuant to subsection 2.17. Partial prepayments shall
be in an aggregate principal amount of $1,000,000 or a whole multiple thereof.
(b) In the event the aggregate unpaid principal amount of the
Revolving Credit Loans shall at any time be in excess of the Borrowing Base at
such time, the Agent shall so notify the Borrower, and the Borrower shall,
within 30 days after such notification, either (i) prepay the principal of the
Revolving Credit Loans, in an aggregate amount at least equal to such excess,
together with accrued interest on the amount prepaid to the date of such
prepayment or (ii) take such actions as may be approved by the Agent and the
Co-Agent in their sole discretion to increase the Borrowing Base by the amount
of such excess in a manner satisfactory to the Agent and the Co-Agent.
(c) In the event the Borrower or any Subsidiary Guarantor
determines to sell or otherwise dispose of any of the Borrowing Base Assets
(other than sales permitted by subsections 6.6 (a), (b), (c), (d) and (f)), the
Borrower shall immediately notify the Agent and the Co-Agent (but in no event
later than five Business Days prior to the date of such sale or disposition)
and, no later than three Business Days following the consummation of such sale
or disposition, the Borrower shall prepay the Revolving Credit Loans in an
aggregate amount equal to the net proceeds of such sale or disposition;
provided that no later than three Business Days following the redetermination
of the Borrowing Base by the Agent and the Co-Agent to reflect such sale or
disposition to the extent required by subsection 2.6(b)(v), the Borrower shall
additionally prepay the Revolving Credit Loans in an aggregate amount equal to
the excess, if any, of (i) the aggregate principal amount of outstanding
Revolving Credit Loans after reflecting payment of the net proceeds of such
asset sale or disposition over (ii) the Borrowing Base as redetermined by the
Agent and the Co-Agent to reflect such sale or disposition.
(d) In the event that both ABR Loans and Eurodollar Loans are
outstanding on the date of any such mandatory prepayment made in accordance
with the terms of paragraph (b) or (c) of this Section 2.7, the Borrower shall
apply such mandatory prepayment first to prepay any or all of such outstanding
ABR Loans and next to prepay any or all of such outstanding Eurodollar Loans;
provided that in the event the Borrower shall apply such mandatory prepayment
to prepay a Eurodollar Loan on a date other than the last day of an Interest
Period with respect thereto, any losses or costs incurred by the Lenders shall
be indemnified by the Borrower in accordance with the provisions of Section
2.17.
2.8 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to ABR Loans by giving the
Agent at least two Business
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Days' prior irrevocable notice of such election; provided that any such
conversion of Eurodollar Loans may only be made on the last day of an Interest
Period with respect thereto. The Borrower may elect from time to time to
convert ABR Loans to Eurodollar Loans by giving the Agent at least three
Business Days' prior irrevocable notice of such election. Any such notice of
conversion to Eurodollar Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Upon receipt of any such notice the Agent
shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans and ABR Loans may be converted as provided herein; provided
that (i) no Revolving Credit Loan may be converted into a Eurodollar Loan when
any Event of Default has occurred and is continuing and the Agent has or the
Required Lenders have determined that such a conversion is not appropriate and
(ii) no Revolving Credit Loan may be converted into a Eurodollar Loan after the
date that is one month prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Agent, in accordance with the applicable
provisions of the term "Interest Period" set forth in subsection 1. 1, of the
length of the next Interest Period to be applicable to such Revolving Credit
Loans; provided that no Eurodollar Loan may be continued as such (i) when any
Event of Default has occurred and is continuing and the Agent has or the
Required Lenders have determined that such a continuation is not appropriate or
(ii) after the date that is one month prior to the Termination Date; and
provided, further that if the Borrower shall fail to give such notice or if
such continuation is not permitted such Revolving Credit Loans shall be
automatically converted to ABR Loans on the last day of such then expiring
Interest Period.
2.9 Minimum Amounts and Maximum Number of Tranches. All
borrowings, conversions and continuations of Revolving Credit Loans hereunder
and all selections of Interest Periods hereunder shall be in such amounts and
be made pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of the Revolving Credit Loans comprising each
Eurodollar Tranche shall be equal to $1,000,000 or a whole multiple of $100,000
in excess thereof In no event shall there be more than eight Eurodollar
Tranches outstanding at any time.
2.10 Interest Rates and Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
day plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum
equal to the ABR.
(c) If all or a portion of (i) any principal of any Revolving
Credit Loan, (ii) any interest payable thereon, (iii) any commitment fee or
(iv) any other amount payable hereunder shall not be paid when due (whether at
the stated maturity, by acceleration or otherwise), the principal of the
Revolving Credit Loans and any such overdue interest, commitment fee or other
amount shall bear interest at a rate per annum which is (x) in the case of
principal, the rate that would otherwise be applicable thereto pursuant to the
foregoing provisions of this subsection plus 2% or (y) in the case of any such
overdue interest, commitment fee or other amount, the rate described in
paragraph (b) of this subsection plus 2%, in each case from the date of such
non-payment until such overdue principal, interest, commitment fee or other
amount is paid in full (as well after as before judgment).
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(d) Interest shall be payable in arrears on each Interest
Payment Date; provided that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
2.11 Continuation of Interest and Fees. (a) Commitment fees
and, whenever it is calculated on the basis of the Prime Rate, interest shall
be calculated on the basis of a 365(or 366, as the case may be) day year for
the actual days elapsed; and, otherwise, interest shall be calculated on the
basis of a 360-day year for the actual days elapsed. The Agent shall as soon
as practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Revolving Credit Loan
resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the opening of business on the day on which such
change becomes effective. The Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
(b) Each determination of an interest rate by the Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The Agent
shall, at the request of the Borrower, deliver to the Borrower a statement
showing the quotations used by the Agent in determining any interest rate
pursuant to subsection 2. 1 0(a).
2.12 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Agent shall have determined (which determination
shall be conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the Majority
Lenders that the Eurodollar Rate to be determined for such Interest Period will
not adequately and fairly reflect the cost to such Lenders (as conclusively
certified by such Lenders) of making or maintaining their affected Revolving
Credit Loans during such Interest Period, the Agent shall give telecopy or
telephonic notice thereof to the Borrower and the Lenders as soon as
practicable thereafter. If such notice is given (x) any Eurodollar Loans
requested to be made on the first day of such Interest Period shall be made as
ABR Loans, (y) any Revolving Credit Loans that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be converted to
or continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to ABR Loans. Until such
notice has been withdrawn by the Agent, no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrower have the right to convert
Revolving Credit Loans to Eurodollar Loans.
2.13 Pro Rata Treatment and Payments. (a) Each borrowing by
the Borrower from the Lenders hereunder, each payment by the Borrower on
account of any commitment fee hereunder and any reduction of the Commitments of
the Lenders shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Each payment (including each prepayment) by the
Borrower on account of principal of and interest on the Revolving
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Credit Loans shall be made pro rata according to the respective outstanding
principal amounts of the Revolving Credit Loans then held by the Lenders. All
payments (including prepayments) to be made by the Borrower hereunder, whether
on account of principal, interest, fees or otherwise, shall be made without set
off or counterclaim and shall be made prior to 12:00 Noon, New York City time,
on the due date thereof to the Agent, for the account of the Lenders, at the
Agent's office specified in subsection 9.2, in Dollars and in immediately
available funds. The Agent shall distribute such payments to the Lenders
promptly upon receipt in like funds as received. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day, and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension.
(b) Unless the Agent shall have been notified in writing by
any Lender prior to a borrowing that such Lender will not make the amount that
would constitute its Commitment Percentage of such borrowing available to the
Agent, the Agent may assume that such Lender is making such amount available to
the Agent, and the Agent may, in reliance upon such assumption, make available
to the Borrower a corresponding amount. If such amount is not made available
to the Agent by the required time on the Borrowing Date therefor, such Lender
shall pay to the Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Effective Rate for the period until
such Lender makes such amount immediately available to the Agent. A
certificate of the Agent submitted to any Lender with respect to any amounts
owing under this subsection shall be conclusive in the absence of manifest
error. If such Lender's Commitment Percentage of such borrowing is not made
available to the Agent by such Lender within three Business Days of such
Borrowing Date, the Agent shall also be entitled to recover such amount with
interest thereon at the rate per annum applicable to ABR Loans hereunder, on
demand, from the Borrower.
2.14 Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall
forthwith be canceled and (b) such Lender's Revolving Credit Loans then
outstanding as Eurodollar Loans, if any, shall be converted automatically to
ABR Loans on the respective last days of the then current Interest Periods with
respect to such Revolving Credit Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.17.
2.15 Requirements of Law. (a) If the adoption of or any
change in any Requirement of Law or in the interpretation or application
thereof or compliance by any Lender 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 any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note or any Eurodollar Loan, or
change the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by subsection 2.16 and changes in the
rate of tax on the overall net income of such Lender);
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(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 such Lender which is not otherwise included in the determination of the
Eurodollar Rate; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or to reduce any amount
receivable hereunder in respect thereof, then, in any such case, the Borrower
shall promptly pay such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such
Lender or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender
to be material, then from time to time, the Borrower shall promptly pay to such
Lender such additional amount or amounts as will compensate such Lender for
such reduction.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower
(with a copy to the Agent) of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender to the Borrower (with a copy to the Agent)
shall be conclusive in the absence of manifest error. The agreements in this
subsection shall survive the termination of this Agreement and the payment of
the Revolving Credit Loans and all other amounts payable hereunder.
2.16 Taxes. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on the Agent or any Lender as a
result of a present or former connection between the Agent or such Lender and
the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or
enforced, this Agreement or any Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded
Taxes") are required to be withheld from any amounts payable to the Agent or
any Lender hereunder or under any Note, the amounts so payable to the Agent or
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such Lender shall be increased to the extent necessary to yield to the Agent or
such Lender (after payment of all Non- Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in
this Agreement; provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender that is not organized under the
laws of the United States of America or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) of this subsection. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and the
Lenders for any incremental taxes, interest or penalties that may become
payable by the Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Revolving Credit Loans and all other amounts payable
hereunder.
(b) Each Lender that is not incorporated under the laws of
the United States of America or a state thereof shall:
(i) deliver to the Borrower and the Agent (A) two
duly completed copies of United States Internal Revenue Service Form
1001 or 4224, or successor applicable form, as the case may be, and
(B) an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be;
(ii) deliver to the Borrower and the Agent two
further copies of any such form or certification on or before the date
that any such form or certification expires or becomes obsolete and
after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be requested
by the Borrower or the Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of a Form I 00 I or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a Participant
pursuant to subsection 9.6 shall, upon the effectiveness of the related
transfer, be required to provide all of the forms and statements required
pursuant to this subsection; provided that in the case of a Participant such
Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
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2.17 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the excess, if
any, of (i) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to
the last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure) in each case at the applicable rate of interest for such
Revolving Credit Loans provided for herein (excluding, however, the Applicable
Margin included therein, if any) over (ii) the amount of interest (as
reasonably determined by such Lender) which would have accrued to such Bank on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. This covenant shall survive
the termination of this Agreement and the payment of the Revolving Credit Loans
and all other amounts payable hereunder.
2.18 Change of Lending, Office. Each Lender agrees that if
it makes any demand for payment under subsection 2.15 or 2.16(a), or if any
adoption or change of the type described in subsection 2.14 shall occur with
respect to it, it will use reasonable efforts (consistent with its internal
Policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, as determined in its sole discretion) to
designate a different lending office if the making of such a designation would
reduce or obviate the need for the Borrower to make payments under subsection
2.15 or 2.16(a), or would eliminate or reduce the effect of any adoption or
change described in subsection 2.14.
SECTION 3. REPRESENTATIONS AND WARRANTEES
To induce the Agent and the Lenders to enter into this
Agreement and to make the Revolving Credit Loans, the Borrower hereby
represents and warrants to the Agent and each Lender that:
3.1 Financial Condition. The consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at December 31, 1995 and the
related consolidated statements of income and 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 each Lender, 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. The unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at September 30, 1996 and the related unaudited
consolidated statements of income and of cash flows for the nine-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, 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 nine-month period
then ended (subject
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to normal year-end audit adjustments). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants or Responsible Officer, as the case may
be, and as disclosed therein). Neither the Borrower nor any of its
consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign
currency swap or exchange transaction, which is not reflected in the foregoing
statements or in the notes thereto. During the period from September 30, 1996
to and including the date hereof there has been no sale, transfer or other
disposition by the Borrower or any of its consolidated Subsidiaries of any
material pail of its business or property and, except for the Borrower's
acquisition of Presidio under the Bankruptcy Documents, no purchase or other
acquisition of any business or property (including any capital stock of any
other Person) material in relation to the consolidated financial condition of
the Borrower and its consolidated Subsidiaries at September 30, 1996.
3.2 No Change. (a) Since June 30, 1996 there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect and (b) during the period from June 30, 1996 to and
including the date hereof, except for dividends paid on the Convertible
Preferred Stock, no dividends or other distributions have been declared, paid
or made upon the Capital Stock of the Borrower nor has any of the Capital Stock
of the Borrower been redeemed, retired, purchased or otherwise acquired for
value by the Borrower or any of its Subsidiaries.
3.3 Corporate Existence; Compliance with Law. Each of the
Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
property (including, without limitation, the Borrowing Base Assets), to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification and (d) is in compliance with all Requirements of Law except to
the extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations.
The Borrower has the corporate power and authority, and the legal right, to
make, deliver and perform the Loan Documents to which it is a party and to
borrow hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and any Notes and to
authorize the execution, delivery and performance of the Loan Documents to
which it is a party. No consent or authorization of, filing with, notice to or
other act by or in respect of, any Governmental Authority or any other Person
is required in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of the Loan Documents to
which the Borrower is a party. This Agreement has been, and each other Loan
Document to which it is a party will be, duly executed and delivered on behalf
of the Borrower. This Agreement constitutes, and each other Loan Document to
which it is a party when executed and delivered will constitute, a legal, valid
and binding obligation of the Borrower enforceable
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against the Borrower in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.
3.5 No Legal Bar. The execution, delivery and performance of
the Loan Documents to which the Borrower is a party, the borrowings hereunder
and the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of the Borrower or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien on any of its
or their respective properties or revenues pursuant to any such Requirement of
Law or Contractual Obligation.
3.6 No Material Litigation. 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 any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
3.7 No Default. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
3.8 Ownership of Property; Liens: Each of the Borrower and
its Subsidiaries has good record and marketable title in fee simple to, or a
valid leasehold interest in, all its real property (including, without
limitation, the Borrowing Base Assets), and good title to, or a valid leasehold
interest in, all its other property, and none of such property is subject to
any Lien except as permitted by subsection 6.3.
3.9 Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). No claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does the
Borrower know of any valid basis for any such claim. The use of such
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
3.10 No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of the Borrower or any of its Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
3.11 Taxes. Each of the Borrower and its Subsidiaries has
filed or caused to be filed all tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
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property by any Governmental Authority (other than any the amount or validity
of which are currently being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided
on the books of the Borrower or its Subsidiaries, as the case may be); no tax
Lien has been filed, and, to the knowledge of the Borrower, no claim is being
asserted, with respect to any such tax, fee or other charge.
3.12 Federal Regulations. No part of the proceeds of any
Revolving Credit Loans will be used for "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation G or Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. If requested by any
Lender or the Agent, the Borrower will furnish to the Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR
Form G-I or FR Form U-I referred to in said Regulation G or Regulation U, as
the case may be.
3.13 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERJSA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither the Borrower nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if the Borrower or any such Commonly Controlled
Entity were to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this representation is
made or deemed made. No such Multiemployer Plan is in Reorganization or
Insolvent.
3.14 Investment Company Act; Public Utility Holding Company
Act; Other Regulations. The Borrower is not (a) an "investment company", or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended or (b) a "holding company" as
defined in, or otherwise subject to regulation under, the Public Utility
Holding Company Act of 1935. The Borrower is not subject to regulation under
any Federal or State statute or regulation (other than Regulation X of the
Board of Governors of the Federal Reserve System) which limits its ability to
incur Indebtedness.
3.15 Purpose of Revolving Credit Loans. The proceeds of the
Revolving Credit Loans shall be used by the Borrower to refinance the loans
outstanding under the Existing Agreement, to pay a portion of the purchase
price of Presidio in accordance with the Bankruptcy Documents and for general
corporate purposes in the ordinary course of business.
3.16 Environmental Matters. Except for environmental matters
which in the aggregate, could not reasonably be expected to either (a) result
in the existence of an unsatisfied liability in excess of a Material
Environmental Amount or (b) have a Material Adverse Effect:
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(a) To the best of the Borrower's knowledge, the facilities
and properties owned, leased or operated by the Borrower or any of its
Subsidiaries (the "Properties") do not contain, and have not
previously contained, any Materials of Environmental Concern in
amounts or concentrations which (i) constitute or constituted a
violation of, or (ii) could give rise to liability under, any
Environmental Law.
(b) To the best of the Borrower's knowledge, the Properties
and all operations at the Properties are in compliance, and have in
the last five years been in compliance, with all applicable
Environmental Laws, and there is no contamination at, under or about
the Properties or violation of any Environmental Law with respect to
the Properties or the business operated by the Borrower or any of its
Subsidiaries (the "Business").
(c) Neither the Borrower nor any of its Subsidiaries has
received any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the
Properties or the Business, nor does the Borrower have knowledge or
reason to believe that any such notice will be received or is being
threatened.
(d) To the best of the Borrower's knowledge, materials of
Environmental Concern have not been transported or disposed of from
the Properties in violation of, or in a manner or to a location which
could reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern
been generated, treated, stored or disposed of at, on or under any of
the Properties in violation of, or in a manner that could give rise to
liability under, any applicable environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower or any Subsidiary is
or will be named as a party with respect to the Properties or the
Business, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with
respect to the Properties or the Business.
(f) To the best of the Borrower's knowledge, there has been
no release or threat of release of Materials of Environmental Concern
at or from the Properties, or arising from or related to the
operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation
of or in amounts or in a manner that could give rise to liability
under Environmental Laws.
3.17 Insurance. The Borrower and each of its Subsidiaries
maintain with financially sound and reputable insurance companies insurance in
at least such amounts and
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against at least such risks (but including in any event public liability) as
are usually insured against in the same general area by companies engaged in
the same or a similar business and such insurance is otherwise in compliance
with the Loan Documents.
3.18 Subsidiaries. On the Effective Date, the Subsidiaries
of the Borrower, and its respective direct or indirect ownership interest in
each thereof, shall be as set forth in schedule 3.18 hereto.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Effectiveness. This Agreement shall become
effective upon, and the agreement of each Lender to make the initial Revolving
Credit Loan requested to be made by it is subject to, the satisfaction no later
than [December 31, 19961 of the following conditions precedent:
(a) Loan Documents. The Agent shall have received (i) this
Agreement, executed and delivered by a duty authorized officer of the
Borrower, with a counterpart for each Lender, (ii) the Subsidiaries
Guarantee, executed and delivered by a duly authorized officer of each
Subsidiary Guarantor, with a counterpart for each Lender, and (iii)
for the account of each Lender, a Revolving Credit Note in form and
executed and substance reasonably acceptable to the Agent and the
Agent's course delivered by a duly authorized officer of the Borrower.
(b) Effective Certificate. The Agent shall have received,
with a counterpart for each Lender, a certificate of the Borrower,
dated the Effective Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments, satisfactory in form and
substance to the Agent, executed by the Chairman of the Board of
Directors, President or any Vice President and the Secretary or any
Assistant Secretary of the Borrower.
(c) Presidio Acquisition. The Agent shall have received,
with a counterpart for each Lender, a certificate of the Borrower
dated the Effective Date to the effect that (i) the Joint Plan of
Reorganization referred to in clause (i) of the definition of
Bankruptcy Documents has been confirmed by the United States
Bankruptcy Court for the District of Delaware and the order conforming
the Plan of Reorganization is final and nonappealable, (ii) the
transactions contemplated by the Bankruptcy Documents have been
consummated without material waiver or modification (unless approved
by the Agent), (iii) the Borrower is the owner of all the capital
stock of Presidio free and clear of any Liens, (iv) no litigation
shall be pending nor any injunction or restraining order shall be in
effect with respect to the Borrower's acquisition of Presidio which
could have a Material Adverse Effect and (v) the Borrower has
previously delivered to each Lender true and complete copies of the
Bankruptcy Documents.
(d) Corporate Documents. The Agent shall have received, with
a counterpart for each Lender, a copy of the resolutions, in form and
substance
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satisfactory to the Agent, of the Board of Directors of the Borrower
and each Subsidiary Guarantor authorizing (i) the execution, delivery
and performance of the Loan Documents to which it is a party and (ii)
in the case of the Borrower, the borrowings contemplated hereunder,
certified by the Secretary or an Assistant Secretary of the Borrower
and of each such Subsidiary Guarantor, as the case may be, as of the
Effective Date, which certificate shall be in form and substance
satisfactory to the Agent and the Agent's counsel and shall state that
the resolutions thereby certified have not been amended, modified,
revoked or rescinded.
(e) Incumbency Certificates. The Agent shall have received,
with a counterpart for each Lender, a Certificate of the Borrower and
each Subsidiary Guarantor, dated the Effective Date, as to the
Incumbency and signature of the officers of the Borrower and the
Subsidiary Guarantors executing any Loan Document satisfactory in form
and substance to the Agent, executed by the Chairman of the Board of
Directors, President or any Vice President and the Secretary or any
Assistant Secretary of the Borrower and each Subsidiary Guarantor.
(f) Corporate Documents. The Agent shall have received, with
a counterpart for each Lender, true and complete copies of the
certificate of incorporation and by-laws of the Borrower and Presidio,
certified as of the Effective Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of the Borrower and
Presidio, as the case may be.
(g) Consents. Licenses The Agent shall have received, with
a counterpart for each Lender, a certificate of a Responsible Officer
of the Borrower (i) attaching copies of all consents, authorizations
and filings referred to in subsection 3.4, and (ii) stating that such
consents, licenses and filings are in full force and effect, and each
such consent, authorization and filing shall be in form and substance
satisfactory to the Agent.
(h) Fees. The Agent shall have received any fees and
expenses required to be received by it on the Effective Date pursuant
to the Loan Documents and the Fee Letter.
(i) Legal Opinions. The Agent shall have received, with a
counterpart for each Lender, the executed legal opinion of Lynch,
Chappell & Alsup, a professional corporation, counsel to the Borrower
and each Subsidiary Guarantor, substantially in the form of Exhibit D;
such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent and the
Agent's counsel may reasonably require.
(j) Reserve Report. Notwithstanding the provisions of
subsection 2.6(b), the Agent and the Co-Agent shall have received,
with a counterpart for each Lender, (i) a Reserve Report with respect
to the Borrower dated as of December 31, 1995 (ii) a Reserve Report
with respect to Presidio and its Subsidiaries dated
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as of December 31, 1995 and complying in all other respects with the
provisions of subsection 2.6(b) and such other reserve information as
may be requested by the Agent and the Co-Agent, all of which shall be
satisfactory in form and substance to the Agent and the Co-Agent.
(k) Existing Agreement. All amounts owed with respect to the
Existing Agreement shall have been paid in full and the Existing
Agreement and all commitments thereunder shall have been terminated.
4.2 Conditions to Each Revolving Credit Loan. The agreement
of each Lender to make any Revolving Credit Loan requested to be made by it on
any date (including, without limitation, its initial Revolving Credit Loan) is
subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in or pursuant to
the Loan Documents shall be true and correct in all material respects
on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
Revolving Credit Loans requested to be made on such date.
(c) Maintenance of Borrowing Base. Notwithstanding
subsection 2.7(b), after giving effect to the Revolving Credit Loans
requested to be made on any date, the aggregate amount of the
Borrowing Base then in effect.
(d) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority shall
be 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 any of
the Loan documents or any of the transactions contemplated hereby or
thereby, or (b) which could reasonably be expected to have a Material
Adverse Effect.
(e) Borrowing, Base Certificate. The Agent shall have
received, with a counterpart for each Lender, a borrowing base
certificate substantially in the form of Exhibit E, with appropriate
insertions.
(f) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement and the other
Loan Documents shall be satisfactory in form and substance to the
Agent, and the Agent shall have received such other documents and
legal opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall reasonably
request.
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Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained
in this subsection have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect or any amount is owing to any Lender or the Agent hereunder or
under any other Loan Document, theBorrower shall and (except in the case of
delivery of financial information, reports and notices) shall cause each of its
Subsidiaries to:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of income and retained earnings and of cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope
of the audit, by Arthur Andersen LLP or other independent certified
public accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of
each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of
income and retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each
case in comparative form the figures for the previous year, certified
by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 Certificates, Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial
statements referred to in subsection 5.1(a), a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in
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subsections 5.1(a) and (b), a certificate of a Responsible Officer
stating that, to the best of such Officer's knowledge, the Borrower
during such period has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to be observed, performed or
satisfied by it, and that such Officer has obtained no knowledge of
any Default or Event of Default except as specified in such
certificate, which certificate shall include the detailed calculations
of such Responsible Officer demonstrating the Borrower's compliance
with the financial covenants set forth in subsection 6.1;
(c) not later than thirty days prior to the end of each
fiscal year of the Borrower, a copy of the projections by the Borrower
of the operating budget and cash flow budget of the Borrower and its
consolidated Subsidiaries for the succeeding fiscal year, such
projections to be accompanied by a certificate of a Responsible
Officer to the effect that such projections have been prepared on the
basis of sound financial planning practice and that such Officer has
no reason to believe they are incorrect or misleading in any material
respect;
(d) not later than forty-five days prior to the end of each
fiscal year of the Borrower, a copy of the business plan and capital
expenditure budget report of the Borrower for the succeeding fiscal
year, such business plan and report to be accompanied by a certificate
of a Responsible Officer to the effect that such business plan and
report have been prepared on the basis of sound financial planning
practice and that such Officer has no reason to believe they are
incorrect or misleading in any material respect;
(e) within five Business Days after the same are sent, copies
of all financial statements and reports which the Borrower sends to
its stockholders, and within five days after the same are filed,
copies of all financial statements and reports which the Borrower may
make to, or file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority;
(f) not later than five Business Days following the end of
each fiscal quarter and upon reasonable request by the Agent a written
report, substantially in the form set forth in Exhibit F, with
appropriate insertions, containing information regarding the
commodities trading position (including, without limitation, the
individual and aggregate mark to market value of any such investments
held or Petroleum Price Hedge Agreements or Interest Rate Protection
Agreements entered into) of the Borrower, any of its Subsidiaries or
Affiliates (other than State Farm Mutual Automobile Insurance Company,
Metropolitan Life Insurance Company, The Equitable Companies
Incorporated, KNE, Wildhorse and the Wind River Joint Venture) as at
the end of such fiscal quarter in the case of the quarterly reports or
for any other point in time designated by the Agent in the case of the
reports requested by the Agent; and
(g) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
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5.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.
5.4 Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as now conducted by it
and preserve, renew and keep in full force and effect its corporate existence
and take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
as otherwise permitted pursuant to subsection 6.5; comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, be reasonably expected to have a
Material Adverse Effect.
5.5 Maintenance of Property, Insurance. Keep all property
useful and necessary in its business in good working order and condition;
maintain with financially sound and reputable insurance companies insurance in
at least such amounts and against at least such risks (but including in any
event public liability) as are usually insured against in the same general area
by companies engaged in the same or a similar business; and furnish to each
Lender, upon written request, full information as to the insurance carried.
5.6 Inspection of Property, Books and Records, Discuss. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties (including, without limitation, the Borrowing Base
Assets) and financial and other condition of the Borrower and its Subsidiaries
with officers and employees of the Borrower and its Subsidiaries and with its
independent certified public accountants.
5.7 Notices. Promptly give notice to the Agent and each
Lender of
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any
of its Subsidiaries in which the amount involved is $1,000,000
(individually or when aggregated with any other such litigation or
proceeding) or more and not covered by insurance or in which
injunctive or similar relief is sought;
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(d) the following events, as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know
thereof (i) the occurrence or expected occurrence of any Reportable
Event with respect to any Plan, a failure to make any required
contribution to a Plan, the creation of any Lien in favor of the PBGC
or a Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the
Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan; and
(e) any development or event which could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower proposes to take with respect
thereto.
5.8 Environmental Laws. (a) Except as, in the aggregate,
could not reasonably be expected to either (i) result in the payment of a
Material Environmental Amount or (ii) have a Material Adverse Effect, (x)
comply with, and ensure compliance by all tenants and subtenants, if any, with,
all applicable Environmental Laws and obtain and comply with and maintain, and
ensure that all tenants and subtenants obtain and comply with and maintain, and
ensure that any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws are maintained and complied
with and (y) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives of
all Governmental Authorities.
(b) Defend, indemnify and hold harmless the Agent and the
Lenders, and their respective parents, subsidiaries, affiliates, employees,
agents, officers and directors, from and against any and all claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature known or unknown, contingent or otherwise, arising out
of, or in any way relating to, the violation of, noncompliance with or
liability under any Environmental Laws applicable to the operations of the
Borrower or any of its Subsidiaries or to the Borrowing Base Assets, or any
orders, requirements or demands of Governmental Authorities related thereto,
including, without limitation, attorneys' and consultants' fees, investigation
and laboratory fees, response costs, court costs and litigation expenses,
except to the extent that any of the foregoing are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of the party seeking
indemnification therefor. This indemnity shall continue in full force and
effect regardless of the termination of this Agreement.
5.9 Borrowings Base Certificates. Provide the Agent with a
borrowing base certificate substantially in the form of Exhibit E, with
appropriate insertions, (i) concurrently with the provision of a notice of
borrowing under the Commitments pursuant to subsection 2.2, (ii) concurrently
with the provision of a notice of prepayment of the Revolving Credit Loans by
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the Borrower to the Agent pursuant to subsection 2.7(a), (iii) concurrently
with a prepayment of the Revolving Credit Loans pursuant to subsection 2.7(c)
and (iv) not later than 3 Business Days following a redetermination of the
Borrowing Base pursuant to subsection 2.6(b).
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect or any amount is owing to any Lender or the Agent hereunder or
under any other Loan Document, the Borrower shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly:
6.1 Financial Condition Covenants.
(a) Maintenance of Consolidated Tangible Net Worth. Permit
Consolidated Tangible Net Worth to be less than the sum, without
duplication, of (i) $220,000,000, (ii) 50% of the Consolidated Net
Income for the fiscal year of the Borrower ended December 31, 1996 and
for each fiscal quarter of the Borrower thereafter (so long as
Consolidated Net Income is positive for the relevant period) and (iii)
50% of the Net Cash Proceeds of any primary offering (public or
private) of equity securities consummated by the Borrower after the
Effective Date.
(b) Fixed Charge Coverage. Permit for any period of four
consecutive fiscal quarters (each such period a "Test Period") of the
Borrower the ratio of (i) Consolidated EBITDA for such Test Period to
(ii) Consolidated Fixed Charges for such Test Period to be less than
2.5 to I.O.
(c) Leverage. Permit the ratio of Consolidated Debt to
Consolidated Total Capitalization any time to be greater than 0.45 to
I.O.
(d) Maintenance of Current Ratio. Permit the ratio of
Consolidated Current Assets to Consolidated Current Liabilities at any
time to be less than 1.1 to I.O.
6.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
(c) Indebtedness permitted under subsection 6.3;
(d) Guarantee Obligations permitted under subsection 6.4;
(e) additional Indebtedness of the Borrower and Retex not
exceeding $1,500,000 in aggregate principal amount at any one time
outstanding;
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(f) Indebtedness of the Partnership not exceeding $2,000,000
in aggregate principal amount at any one time outstanding;
(g) additional Indebtedness of the Partnership so long as
such Indebtedness is non-recourse in all respects to the Borrower and
its other Subsidiaries; and
(h) letters of credit issued in the ordinary course of
business for the account of the Borrower and its Subsidiaries in an
aggregate face amount of $6,000,000 at any time.
6.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings; provided that adequate
reserves with respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, operator's or other like Liens arising in the ordinary
course of business which are not overdue for a period of more than 60
days or which are being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers
under insurance or self-insurance arrangements;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions, title defects and
other similar encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and which do
not in any case materially detract from the value of the property
subject thereto or materially interfere with the ordinary conduct of
the business of the Borrower or such Subsidiary; and
(f) Liens on properties of the Partnership securing
Indebtedness permitted by subsections 6.2(f) and 6.2(g); provided that
the amount of the Borrowing Base shall be reduced by the amount of any
such Indebtedness secured by such Liens.
6.4 Limitation on Guarantee Obligations. Create, incur,
assume or suffer to exist any Guarantee Obligation except:
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(a) Guarantee Obligations in existence on the date hereof
and listed on Schedule 6.4(a); and
(b) Guarantee Obligations incurred after the date hereof in
an aggregate amount not to exceed $2,500,000 at any one time
outstanding.
6.5 Limitation on Fundamental Changes. Enter into any
merger, consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
assign, transfer or otherwise dispose of, all or substantially all of its
property, business or assets, or make any material change in its present method
of conducting business, except:
(a) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (provided that the Borrower
shall be the continuing or surviving corporation) or with or into any
one or more wholly owned Subsidiaries of the Borrower provided that
the wholly owned Subsidiary or Subsidiaries shall be the continuing or
surviving corporation); and
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or any other wholly owned
Subsidiary of the Borrower.
6.6 Limitation on Sale of Assets. Convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person other
than the Borrower or any wholly owned Subsidiary, except:
(a) obsolete, worn out, depleted or "uneconomic" property
disposed of in the ordinary course of business;
(b) the sate, transportation and marketing of Petroleum in
the ordinary course of business;
(c) as permitted by subsection 6.5(b);
(d) undeveloped, undrilled leasehold acreage held in the
Borrower's inventory; provided that in any fiscal year of the Borrower
the gross proceeds of such property so disposed of shall not exceed
$5,000,000; and
(e) the sale of producing properties of the Borrower and its
Subsidiaries; provided that in any fiscal year of the Borrower the
gross proceeds of such sale or sales shall not in the aggregate exceed
$5,000,000.
6.7 Limitation on Dividends. Declare or pay any dividend
(other than dividends payable solely in common stock of the Borrower) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance,
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retirement or other acquisition of, any shares of any class of Capital Stock of
the Borrower or any warrants or options to purchase any such Stock, whether now
or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
the Borrower or any Subsidiary except that so long as no Default or Event of
Default is in existence, the Borrower may pay dividends on the Convertible
Preferred Stock.
6.8 Limitation on Investments, Acquisitions, Loans and
Advances. Make any advance, loan, extension of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other securities of or
any assets constituting a business unit of, or make any other investment in,
any Person, except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business;
(d) investments made in the ordinary course of business in
the Partnership, the Wind River Joint Venture and Wildhorse, and
working capital contributions to Wildhorse contemplated by Section 8.1
of the Wildhorse Limited Liability Company Agreement; provided that
such investments and working capital contributions (excluding initial
contributions made by the Borrower pursuant to such Section 8.1 as
described in Exhibit C to the Wildhorse Limited Liability Company
Agreement) do not exceed $3,000,000 in the aggregate; and
(e) investments in Wildhorse; provided that (i) the aggregate
amount of all such investments permitted by this subsection 6.8(e)
does not exceed $16,000,000 and (ii) the proceeds from all such
investments are used by Wildhorse for acquisitions by Wildhorse
pursuant to the Purchase and Sale Agreement.
6.9 Limitation on Transactions with Affiliates. Enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) not otherwise prohibited under this Agreement, (b) in
the ordinary course of the Borrower's or such Subsidiary's business and (c)
upon fair and reasonable terms no less favorable to the Borrower or such
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate.
6.10 Limitation on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary.
6.11 Limitation on Operating Leases. Enter into operating
leases with any Person,
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except:
(a) operating leases with rental obligations in an aggregate
principal amount not exceeding $2,000,000 in any fiscal year; and
(b) oil and gas leases and oil and gas operating agreements
entered into in the ordinary course of business.
6.12 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Borrower to end on a day other than December 31.
6.13 Limitation on Negative Pledge Clauses. Enter into with
any Person any agreement other than (a) this Agreement, (b) the Loan Documents,
(c) the Wind River Joint Venture Agreement, (d) the Wildhorse Limited Liability
Company Agreement, and (e) any industrial revenue bonds, purchase money
mortgages or Financing Leases permitted by this Agreement (in which cases, any
prohibition or limitation shall only be effective against the assets financed
thereby), which prohibits or limits the ability of the Borrower or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired.
6.14 Limitation on Lines of Business. Enter into any
business, either directly or through any Subsidiary, except for those
businesses in which the Borrower and its Subsidiaries are engaged on the date
of this Agreement or which are directly related thereto.
6.15 Limitation on Certain Agreements. Enter into Petroleum
Price Hedge Agreements or Interest Rate Protection Agreements, except where
such agreements are entered into in the ordinary course of business and not for
speculative purposes; provided that in the event that the Borrower enters into
a Petroleum Price Hedge Agreement or Interest Rate Protection Agreement with a
Lender, or an Affiliate thereof, the net liabilities of the Boffower under such
Petroleum Price Hedge Agreement or Interest Rate Protection Agreement will rank
pari passu with the Borrower's indebtedness under this Agreement.
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SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any
Revolving Credit Loan when due in accordance with the terms thereof or hereof;
or the Borrower shall fail to pay any interest on any Revolving Credit Loan, or
any other amount payable hereunder, within five days after any such interest or
other amount becomes due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at any
time under or in connection with this Agreement or any such other Loan Document
shall prove to have been incorrect in any material respect on or as of the date
made or deemed made; or
(c) The Borrower shall default in the observance or
performance of any agreement contained in Section 6; or
(d) The Borrower shall default in the observance or
performance of any other agreement contained in this Agreement or any other
Loan Document (other than as provided in paragraphs (a) through (c) of this
Section), and such default shall continue unremedied for a period of 30 days;
or
(e) The Borrower or any of its Subsidiaries shall (i) default
in any payment of principal of or interest of any Indebtedness (other than the
Revolving Credit Loans) or in the payment of any Guarantee Obligation, beyond
the period of grace (not to exceed 30 days), if any, provided in the instrument
or agreement under which such Indebtedness or Guarantee Obligation was created,
if the aggregate amount of the Indebtedness and/or Guarantee Obligations in
respect of which such default or defaults shall have occurred is at least
$1,000,000; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee
Obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Guarantee Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity or such
Guarantee Obligation to become payable; or
(f)(i) The Borrower or any of its Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part
of its assets, or the Borrower or any of its Subsidiaries shall make a general
assignment for
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the benefit of its creditors; or (ii) there shall be commenced against the
Borrower or any of its Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii) there
shall be commenced against the Borrower or any of its Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (iv) the Borrower or any of its
Subsidiaries shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or
(g)(i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan or any Lien
in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any
Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely to result
in the termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan
or (vi) any other event or condition shall occur or exist with respect to a
Plan; and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of $1,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof, or
(i) Any of the Loan Documents shall cease, for any reason, to
be in full force and effect, or the Borrower shall so assert; or
(j)(i) Any Person or "group" (within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) (A) shall
have acquired beneficial ownership of 20% or more of any outstanding class of
Capital Stock having ordinary voting power in the election of directors of the
Borrower, (B) (i) shall obtain the power (whether or not exercised) to elect a
majority of the Borrower's directors or (ii) the Board of Directors of the
Borrower shall not consist of a majority of Continuing Directors; "Continuing,
Directors" shall mean the directors of the Borrower on the Effective Date and
each other director, if such other director's nomination for election to the
Board of Directors of the Borrower is recommended by a majority
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of the then Continuing Directors, (ii) Donald L. Evans (or any successor
approved by the Required Lenders) shall cease to be actively involved as Chief
Executive Officer of the Borrower; or (iii) the Borrower shall cease to own
100% of the issued and, outstanding Capital Stock of each of its Subsidiaries,
or, in the case of the Partnership, shall cease to be the general partner.
(k) Environmental liabilities aggregating in excess of a
Material Environmental Amount shall be (i) outstanding at any time with respect
to the Borrower or any of its Subsidiaries or (ii) paid in any fiscal year of
the Borrower by the Borrower or any of its Subsidiaries.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions
may be taken: (i) with the consent of the Required Lenders, the Agent may, or
upon the request of the Required Lenders, the Agent shall, by notice to the
Borrower declare the Commitments to be terminated forthwith, whereupon the
Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Agent may, or upon the request of the Required Lenders,
the Agent shall, by notice to the Borrower declare the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement to
be due and payable forthwith, whereupon the same shall immediately become due
and payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 8. THE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates
and appoints the Agent as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes the Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
8.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.3 Exculpatory Provisions. Neither the Agent nor any of its
officer, directors,
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employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Loan Document (except for its or
such Person's own gross negligence or willful misconduct) or (ii) responsible
in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or any other Loan
Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or, conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
8.4 Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders
of the Revolving Credit Loans.
8.5 Notice of Default. The Agent shall not be deemed to have
know knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give notice thereof to the Lenders.
The Agent shall take such action with respect to such Default or Event of
Default as shall reasonably directed by the Required Lenders; provided that
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Lenders.
8.6 Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower, shall be deemed
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to constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and made its own decision to make its
Revolving Credit Loans hereunder and enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon the Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of the Borrower. Except for notices,
reports and other documents expressly required to be furnished to the Lenders
by the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects
or creditworthiness of the Borrower which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify the
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon
which the Commitments shall have terminated and the Revolving Credit Loans
shall have been paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Revolving Credit Loans) be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of, the Commitments, this
Agreement, any of the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's gross negligence or wilful misconduct. The agreements in this
subsection shall survive the payment of the Revolving Credit Loans and all
other amounts payable hereunder.
8.8 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though the Agent were not the Agent
hereunder and under the other Loan Documents. With respect to the Revolving
Credit Loans made by it, the Agent shall have the same rights and powers under
this Agreement and the other Loan Documents as any Lender and may exercise the
same as though it were not the Agent, and the terms "Lender" and "Lenders"
shall include the Agent in its individual capacity.
8.9 Successor Agent. The Agent may resign as Agent upon 10
days' notice to the Lenders. If the Agent shall resign as Agent under this
Agreement and the other Loan
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Documents, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders, which successor agent shall be approved by the
Borrower, whereupon such successor agent shall succeed to the rights, powers
and duties of the Agent, and the term "Agent" shall mean such successor agent
effective upon such appointment and approval, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further
act or deed on the part of such former Agent or any of the parties to this
Agreement or any holders of the Revolving Credit Loans. After any retiring
Agent's resignation as Agent, the provisions of this Section 8 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Loan Documents.
8.10 Co-Agent. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Co-Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Co-Agent.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement nor any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. The Required Lenders may, or, with the written consent of the
Required Lenders, the Agent may, from time to time, (a) enter into with the
Borrower written amendments, supplements or modifications hereto and to the
other Loan Documents for the purpose of adding any provisions to this Agreement
or the other Loan Documents or changing in any manner the rights of the Lenders
or of the Borrower hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders or the Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) reduce the amount or extend the scheduled date of
maturity of any Revolving Credit Loan or of any installment thereof, or reduce
the stated rate of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof or increase the amount or extend the
expiration date of any Lender's Commitment, in each case without the consent of
each Lender affected thereby, or (ii) amend, modify or waive any provision of
this subsection or reduce the percentage specified in the definition of
Required Lenders or Majority Lenders, or consent to the assignment or transfer
by the Borrower of any of its rights and obligations under this Agreement and
the other Loan Documents, in each case without the written consent of all the
Lenders, or (iii) amend, modify or waive any provision of Section 8 without the
written consent of the then Agent. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Borrower, the Lenders, the Agent and all future holders of
the Revolving Credit Loans. In the case of any waiver, the Borrower, the
Lenders and the Agent shall be restored to their former positions and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless
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otherwise expressly provided herein, shall be deemed to have been duly given or
made (a) in the case of delivery by hand, when delivered, (b) in the case of
delivery by mail, three days after being deposited in the mails, postage
prepaid, or (c) in the case of delivery by facsimile transmission, when sent
and receipt has been confirmed, addressed as follows in the case of the
Borrower and the Agent, and as set forth in Schedule I in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto:
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The Borrower: Tom Brown, Inc.
508 W. Wall, Suite 500
Midland, Texas
Attention: Donald L. Evans
Fax: (915) 682-917
The Agent: The Chase Manhattan Bank
I Chase Manhattan Plaza - 3rd Floor
New York, New York 10081
Attention: Oil and Gas Group
Fax: (212) 552-1687
with a copy to:
Chase Securities Inc.
270 Park Avenue
New York, New York 10017
Attention: Oil and Gas Group
Fax: (212) 552-1687
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to subsection 2.2, 2.4, 2.8, 2.9 or 2.13 shall not be effective until
received.
9.3 No Waiver, Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof-, nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Revolving Credit Loans hereunder.
9.5 Payment of Expenses and Taxes. The Borrower agrees (a)
to pay or reimburse the Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Agent, (b) to pay or reimburse each Lender and
the Agent for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other Loan
Documents and any such other documents, including, without limitation, the fees
and disbursements of counsel to each Lender and of counsel to the Agent, (c) to
pay, indemnify, and hold each Lender and the Agent harmless from any and all
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recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay, indemnify, and hold
each Lender and the Agent 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 Agreement, the other Loan Documents and any such other documents,
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower, any of its Subsidiaries or any of the
Properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"); provided, that the Borrower shall have no
obligation hereunder to the Agent or any Lender, as the case may be, with
respect to indemnified liabilities arising from (i) the gross negligence or
willful misconduct of the Agent or any such Lender, as the case may be, or (ii)
legal proceedings commenced against the Agent or any such Lender by any
security holder or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its capacity as such.
The agreements in this subsection shall survive repayment of the Revolving
Credit Loans and all other amounts payable hereunder.
9.6 Successors and Assigns, Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agent and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities approved by the Borrower, which approval shall
not be unreasonably withheld ("Participants") participating interests in any
Revolving Credit Loan owing to such Lender, any Commitment of such Lender or
any other interest of such Lender hereunder and under the other Loan Documents.
In the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such Revolving Credit Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and the other Loan Documents. The
Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement; provided that, in purchasing
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in subsection 9.7(a) as
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of subsections 2.15, 2.16 and
2.17 with respect to its participation in the Commitments
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and the Revolving Credit Loans outstanding from time to time as if it was a
Lender; provided that, in the case of subsection 2.16, such Participant shall
have complied with the requirements of said subsection; and provided, further,
that no Participant shall be entitled to receive any greater amount pursuant to
any such subsection than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time and from
time to time assign to any Lender or any affiliate thereof or, with the consent
of the Borrower and the Agent (which in each case shall not be unreasonably
withheld), to an additional bank or financial institution ("an Assignee") all
or any part of its rights and obligations under this Agreement and the other
Loan Documents pursuant to an Assignment and Acceptance, substantially in the
form of Exhibit G, executed by such Assignee, such assigning Lender (and, in
the case of an Assignee that is not then a Lender or an affiliate thereof, by
the Borrower and the Agent) and delivered to the Agent for its acceptance and
recording in the Register. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment as set forth therein,
and (y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
(d) The Agent, on behalf of the Borrower, shall maintain at
the address of the Agent referred to in subsection 9.2 a copy of each
Assignment and Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the Commitment
of, and principal amount of the Revolving Credit Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Lenders may
(and, in the case of any Revolving Credit Loan or other obligation hereunder
not evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Revolving Credit Loan or other obligation hereunder
as the owner thereof for all purposes of this Agreement and the other Loan
Documents, notwithstanding any notice to the contrary. Any assignment of any
Revolving Credit Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being
made in the Register. The Register shall be available for inspection by the
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Borrower and the Agent),
together with payment by the Assignee to the Agent of a registration and
processing fee of $2500, the Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto
record the information contained therein in the Register and give notice of
such acceptance and recordation to the Lenders and the Borrower.
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<PAGE> 55
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each. a "Transferee") and any prospective Transferee
any and all financial information in such Lender's possession concerning the
Borrower and its Affiliates which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and its Affiliates prior to becoming a party
to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Revolving Credit Loans and Notes relate only to absolute assignments and that
such provisions do not prohibit assignments creating security interests,
including, without limitation, any pledge or assignment by a Lender of any
Revolving Credit Loan or Note to any Federal Reserve Bank in accordance with
applicable law.
9.7 Adjustment Set-off. (a) If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of its Revolving
Credit Loans, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 7(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans, or interest thereon,
such benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loan, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders; provided, however that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender
agrees promptly to notify the Borrower and the Agent after any such set-off and
application made by such Lender; provided that the failure to give such notice
shall not affect the validity of such set-off and application.
9.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A copy of
this Agreement signed by all the parties shall be lodged with the Borrower and
the Agent.
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9.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other
Loan Documents.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.12 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action
or proceeding relating to this Agreement and the other Loan Documents
to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate
courts from any thereof,
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court
or that such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 9.2 or
at such other address of which the Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
9.13 Acknowledgments. The Borrower hereby acknowledges that:
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(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between the Agent and the Lenders, on one hand, and
the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
9.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
9.15 Limitation of Interest. (a) It is the intent of the
Borrower and the Lenders in the execution and performance of this Agreement and
all matters incidental and related hereto and the other Loan Documents or any
agreement or instrument executed in connection herewith or therewith or with
any Indebtedness of the Borrower to the Lenders to remain in strict compliance
with all laws applicable to the Lenders from time to time in effect, including,
without limitation, usury laws, in furtherance hereof, the Borrower and the
Lenders stipulate and agree that none of the terms and provisions contained in
or pertaining to this Agreement or in the other Loan Documents or any other
agreement or instrument ("Other Agreement") executed in connection herewith or
with any Indebtedness of the Borrower to the Lenders shall ever be construed to
create a contract to pay for the use, forbearance or detention of money with
interest at a rate or in an amount in excess of the maximum amount of interest
permitted to be charged by the Lenders under all laws in effect and applicable
to the Lenders (the "Maximum Rate"). For purposes of this Agreement and the
Revolving Credit Notes, "interest" shall include the aggregate of all amounts
which constitute or are deemed to constitute interest under the respective laws
in effect and applicable to the Lenders that are contracted for, chargeable,
receivable (whether received or deemed to have been received) or taken under
this Agreement or the Revolving Credit Notes or any Other Agreement. The
Borrower shall not be required to pay interest hereunder or on any Revolving
Credit Note or any Other Agreement at a rate or in an amount in excess of the
Maximum Rate with respect to the Lenders or the maximum amount of interest that
may be lawfully charged by the Lenders under any law which is in effect and
applicable to the Lenders, and the provisions of this subsection 9.15 shall
control over all other provisions of this Agreement and the Revolving Credit
Notes or any Other Agreement which may be in apparent conflict herewith. If
the effective rate or amount of interest which would otherwise be payable under
this Agreement or any Revolving Credit Note or any Other Agreement, or all of
them, would exceed the Maximum Rate for the Lenders or the maximum
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amount of interest the Lenders or any holder of any Revolving Credit Note or
any Other Agreement is allowed by the relevant applicable law to charge,
contract for, take or receive or in the event the Lenders or any holder of any
Revolving Credit Note or any Other Agreement shall charge, contract for, take
or receive monies that are deemed to constitute interest which could, in the
absence of this provision, increase the effective rate or amount of interest
payable under this Agreement or any Revolving Credit Note or any Other
Agreement, or all of them, to a rate or amount in excess of that permitted to
be charged, contracted for, taken or received under the applicable laws then in
effect with respect to the Lenders, then the principal amount of the Revolving
Credit Notes or the obligations of the Borrower to the Lenders under this
Agreement, the Revolving Credit Notes or any Other Agreement or the amount of
interest which would otherwise be payable to or for the account of the Lenders
under this Agreement or the Revolving Credit Notes or any Other Agreement or
all of them, shall be reduced to the amount allowed under said laws as now or
hereafter construed by the courts having jurisdiction, and all such monies so
charged, contracted for, or received that are deemed to constitute interest in
excess of the Maximum Rate for the Lenders or maximum amount of interest
permitted by the relevant applicable laws shall be immediately returned to or
credited to the account of the Company upon such determination. In determining
whether the interest paid or payable under any specific contingency exceed the
Maximum Rate, the Borrower and the Lenders shall, to the maximum extent
permitted by applicable law, (i) characterize any non-principal payment as an
expense, fee (excluding attorneys' and accountants' fees) or premium rather
than interest and (ii) amortize, prorate, allocate and spread, in equal parts
during the full term of the relevant Revolving Credit Note, all interest at any
time contracted for, charged or received in connection with the relevant
Revolving Credit Note.
(b) To the extent the Lenders' Maximum Rate is at any time
determined by the laws of the State of Texas (i) such rate shall be the
"indicated rate ceiling" described in Section (a)(1) of Article 5069-1.04 of
Chapter 1, Subtitle 1, Title 79, of the Revised Civil Statutes of Texas, 1925,
as amended; provided, however, to the extent permitted by such Article, the
Lenders by notice to the Borrower may revise the aforesaid election of such
interest rate ceiling as such ceiling affects the then current or future
balances outstanding under the Revolving Credit Notes and other Loan Documents
and Other Agreements and (ii) Chapter 15, Subtitle 3, Title 79, of the Revised
Civil Statutes of Texas, 1925, as amended (relating to revolving loans and
triparty accounts), shall not apply to this Agreement, the other Loan Documents
or the Other Agreements.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
TOM BROWN, INC.
By: /s/ W. R. Granberry
---------------------------------------
Name: W. R. Granberry
-------------------------------------
Title: President & Chief Operating Officer
-------------------------------------
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THE CHASE MANHATTAN BANK,
as Agent and as a Lender
By: /s/ Martha Ann Feyne
------------------------------------
Name: Martha Ann Feyne
----------------------------------
Title: Vice President
----------------------------------
NATIONSBANK OF TEXAS, N.A.,
as Co-Agent and as a Lender
By: /s/ Frank K. Stowers
------------------------------------
Name: Frank K. Stowers
----------------------------------
Title: Vice President
----------------------------------
CIBC INC.,
as a Lender
By: /s/ Aleksandra K. Oymanus
------------------------------------
Name: Aleksandra K. Oymanus
----------------------------------
Title: Authorized Signatory
----------------------------------
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SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Second Amended and Restated Employment Agreement (this
"Agreement") is made by and between TOM BROWN, INC., a Delaware corporation
(the "Company"), having its principal offices at 500 Empire Plaza, Midland,
Texas 79701, and Donald L. Evans (the "Employee"), an individual residing at
411 Carol Lane, Midland, Texas 79705.
W I T N E S S E T H :
WHEREAS, the Company and the Employee entered into that certain First
Amended and Restated Employment Agreement, dated as of May 21, 1992, providing
for, among other things, Employee's employment by the Company for the period
commencing January 1, 1992 and ending December 31, 1996; and
WHEREAS, the Company desires to amend, restate and extend the terms of
the Company's Employment Agreement with Mr. Evans as provided herein;
NOW, THEREFORE, in consideration of the premises and the other mutual
covenants contained herein, the Company and Employee hereby agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee hereby agrees to render his exclusive service to the Company, in his
current capacity of Chief Executive Officer and Chairman of the Board of
Directors of the Company, with such duties as may be assigned to him from time
to time by the Board of Directors for the period commencing on the date hereof
and ending on December 31, 2001 (the "Employment Period"), subject to earlier
termination as hereinafter provided.
2. Place of Employment. Unless otherwise agreed by the Company
and Employee, throughout the Employment Period of this Agreement, Employee's
business office shall be located in Midland, Texas, at such location as may be
specified by the Board of Directors of the Company.
3. Base Compensation. Employee shall be compensated by the
Company at a minimum base rate of Two Hundred Seventy Nine Thousand Two Hundred
Sixty and No/100 Dollars ($279,260.00) per annum, payable semi-monthly on the
fifteenth and final days of each month during the Employment Period, subject to
such increases and additional payments as may be determined from time to time
by the Board of Directors of the Company in its sole discretion. Such
compensation shall be in addition to any group insurance, pension, profit
sharing and other employee benefits, including the Company's
<PAGE> 2
existing employee benefit plans, which are extended from time to time to
Employee in the discretion of the Board of Directors of the Company and for
which Employee is eligible. Subject to such rules and procedures as are from
time to time specified by the Company, the Company shall also reimburse
Employee for all reasonable expenses incurred by him on behalf of the Company.
4. Performance of Services. Employee shall devote his full
working time to the business of the Company; provided, however, Employee shall
be excused from performing any services for the Company hereunder during
periods of temporary incapacity and during vacations conforming to the
Company's standard vacation policy, without thereby in any way affecting the
compensation to which he is entitled hereunder.
5. Noncompetition. Employee agrees that during his employment by
the Company and for so long thereafter as he is receiving Severance Benefit
Payments (as such term is defined in Paragraph 10 hereof), he will not,
directly or indirectly, either through any kind of ownership (other than
ownership of securities of publicly held corporations of which Employee owns
less than one percent (1%) of any class of outstanding securities) or as a
director, officer, agent, employee or consultant, engage in the business of
marketing products and services which are competitive with the products and
services marketed by the Company within the States of Texas, Wyoming, New
Mexico, Montana or North Dakota. It is expressly agreed that the remedy at law
for breach of this covenant is inadequate and that injunctive relief shall be
available to prevent the breach thereof.
6. Continuing Obligations. In order to induce the Company to
enter into this Agreement, the Employee hereby agrees that all documents,
records, techniques, business secrets and other information which have come
into his possession from time to time during his employment by the Company or
which may come into his possession during his employment hereunder, shall be
deemed to be confidential and proprietary to the Company and the Employee
further agrees to retain in confidence any confidential information known to
him concerning the Company and its subsidiaries and their respective businesses
so long as such information is not publicly disclosed. In the event of a
breach or threatened breach by the Employee of the provisions of this Paragraph
6, the Company shall, in addition to any other available remedies, be entitled
to an injunction restraining Employee from disclosing, in whole or in part, any
such information or from rendering any services to any person, firm or
corporation to whom any of such information may have been disclosed or is
threatened to be disclosed.
7. Property of Company. All data, drawings and other records and
written material prepared or compiled by Employee or furnished to Employee
while in the employ of the Company shall be the sole and exclusive property of
the Company, and
2
<PAGE> 3
none of such data, drawings or other records, or copies thereof, shall be
retained by Employee upon termination of his employment.
8. Surviving Provisions. The provisions of Paragraphs 5 (for so
long as the Employee is receiving Severance Benefit Payments), 6 and 7 of this
Agreement shall continue to be binding upon Employee in accordance with their
terms, notwithstanding termination of Employee's employment hereunder for any
reason.
9. Termination for Good Cause. It is agreed and understood that
the Company cannot terminate the employment of the Employee under this
Agreement except for good cause, and that, without prejudice to the generality
of the right to terminate for good cause, each of the following contingencies
shall be good cause:
(a) Should Employee by reason of injury or illness become
incapable for more than one hundred fifty (150) consecutive days of
satisfactorily performing his duties as an employee under this
Agreement;
(b) Should Employee for reasons other than illness or
injury absent himself from his duties without the consent of the
Company for more than ten (10) consecutive days;
(c) Should Employee commit a crime punishable by
imprisonment;
(d) Should Employee during the Employment Period engage
in any activity that would in the opinion of the Board of Directors of
the Company constitute a material conflict of interest with the
Company; provided that termination for cause based on this
subparagraph (d) shall not be effective unless the Employee shall have
received written notice from the Board of Directors of the Company of
such activity (which notice shall also include a demand for the
Employee to cease the activity giving rise to the conflict of
interest) 30 days prior to his termination and the Employee has failed
after receipt of such notice to cease all activities creating the
conflict of interest; or
(e) Should Employee be negligent or inefficient in the
performance of his duties hereunder, or otherwise fail to comply with
the terms and conditions of this Agreement; provided that termination
for cause based on this subparagraph (e) shall not be effective unless
the Employee shall have received written notice from the Board of
Directors of the Company (which notice shall include a description of
the reasons and
3
<PAGE> 4
circumstances giving rise to such notice) 30 days prior to his
termination and the Employee has failed after receipt of such notice
to satisfactorily discharge the performance of his duties hereunder or
to comply with the terms of this Agreement, as the case may be.
The Company may for good cause terminate Employee's employment under
this Agreement without advance notice, except as otherwise specifically
provided for in subparagraphs (d) and (e) above. Termination shall not affect
any of the Company's other rights and remedies.
10. Severance Benefit Payment. The Company shall provide Employee
with a severance benefit payment in an amount equal to the Employee's then
existing annual base pay (or an amount equal to the Employee's base pay for the
balance of the term hereof if less than one year) (the "Severance Benefit
Payment") upon (i) the occurrence of any one of the events specified in
subparagraphs (a) through (d) below and (ii) Employee's resignation from
employment (each, a "Severance Event"):
(a) Without the express written consent of Employee, the
assignment of Employee to any duties inconsistent with his position,
duties, responsibilities or status with the Company as such exist as
of the date hereof or a reduction of his duties or responsibilities
for reasons other than good cause;
(b) Any failure of the Company to obtain the assumption
of the obligation to perform this Agreement by any successor as
contemplated in Paragraph 13 hereof;
(c) Any failure by the Company or its stockholders, as
the case may be, to re-elect the Employee to the corporate offices of
Chief Executive Officer and Director, or upon his removal from any
such office for reasons other than good cause; or
(d) Any breach by the Company (or any successor) of any
of the provisions of this Agreement or any failure by the Company to
carry out any of its obligations hereunder for reasons other than good
cause.
The Severance Benefit Payment shall be paid to Employee in
semi-monthly installments in the same amounts and at the same times as
Employee's base pay was being paid at the time of the Severance Event, until
the full amount of the Severance Benefit Payment has been paid.
4
<PAGE> 5
11. Payment of Certain Costs of Employee. If a dispute arises
regarding a termination of the Employee or the interpretation or enforcement of
this Agreement, all legal fees and expenses incurred by the Employee in
contesting or disputing any such termination or seeking to obtain or enforce
any right or benefit provided for in this Agreement or in otherwise pursuing
his claim will be paid by the Company, to the extent the Employee prevails.
The Company further agrees to pay prejudgment interest on any money judgment
obtained by the Employee calculated at the NationsBank of Texas, N.A. prime
interest rate in effect from time to time from the date that payment(s) to him
should have been made under this Agreement.
12. Mitigation. The Employee is not required to mitigate the
amount of any payments to be made by the Company pursuant to this Agreement by
seeking other employment or otherwise. Notwithstanding the foregoing, if the
Employee secures other employment while he is entitled to receive Severance
Benefit Payments hereunder, such Severance Benefit Payments shall be reduced by
the amount of compensation received by Employee from such employment. Employee
shall notify the Company within fifteen (15) days after he accepts such new
employment of his monthly compensation from such employment.
13. Successors. (a) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Employee to compensation from the Company in the same amount
and on the same terms as the Employee would be entitled hereunder if he were to
terminate his employment pursuant to subparagraphs 10(a), 10(b), 10(c) or
10(d). As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Paragraph 13 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Employee should die during the term hereof, the Company shall pay an amount
equal to any amounts then payable to Employee hereunder, plus an amount equal
to three months' salary, with all such amounts to be paid to Employee's
devisee, legatee or other designee or, if there be no such designee, to his
estate.
5
<PAGE> 6
14. No Inconsistent Obligation. Employee represents and warrants
that he has not previously assumed any obligations inconsistent with those of
this Agreement.
15. Modification. This Agreement shall be in addition to all
previous agreements, written or oral, relating to Employee's employment by the
Company, and shall not be changed orally, but only by a written instrument to
which the Company and the Employee are both parties.
16. Binding Effect. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, and shall also bind and inure to
the benefit of any successor of the Company by merger or consolidation or any
assignee of all or substantially all of its properties.
17. Bankruptcy. Notwithstanding anything in this Agreement to the
contrary, the insolvency or adjudication of bankruptcy of the Company, whether
voluntary or involuntary, shall terminate this Agreement and the rights and
obligations of the Company and Employee hereunder shall be of no further force
or effect.
18. Law Governing. This Agreement is made, accepted and delivered
in Midland County, Texas, is performable in Midland County, Texas, and it shall
be construed and enforced according to the laws of the State of Texas. Venue
shall lie in Midland County, Texas for the purpose of resolving and enforcing
any dispute which may arise under this Agreement and the parties agree that
they will submit themselves to the jurisdiction of the competent State or
Federal Court situated in Midland County, Texas.
19. Invalid Provision. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be impaired thereby.
20. Notice. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Employee:
Donald L. Evans
411 Carol Lane
Midland, Texas 79705
6
<PAGE> 7
If to Company:
Tom Brown, Inc.
500 Empire Plaza
Suite 500
Midland, Texas 79701
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
Dated to be effective as of the lst day of January, 1997.
EMPLOYEE TOM BROWN, INC.
By: /s/ Donald L. Evans By: /s/ William R. Granberry
------------------------------ ------------------------------------
Donald L. Evans William R. Granberry, President
012\TBI\Employment Agreement DLE 97
7
<PAGE> 1
TOM BROWN, INC.
KSOP PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 - ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 CONDITIONS OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 APPLICATION FOR PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 EFFECTIVE DATE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 OMISSION OF ELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 ELECTION NOT TO PARTICIPATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 EMPLOYEE TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 EMPLOYEES NOT ELIGIBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS FOR ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2 - CONTRIBUTIONS AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ELECTIVE DEFERRALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 CONTRIBUTIONS TO THIS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 ELECTIVE DEFERRALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 EXCESS ELECTIVE DEFERRALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7 DISTRIBUTION OF EXCESS CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 RECHARACTERIZATION OF EXCESS CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.9 QUALIFIED NON-ELECTIVE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.12 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.13 QUALIFIED NON-ELECTIVE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.14 RECHARACTERIZATION OF EXCESS
AGGREGATE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
TOP-HEAVY PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.15 TOP HEAVY PLAN REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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2.16 TOP HEAVY STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.17 TOP HEAVY MINIMUM CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
OTHER CONTRIBUTIONS/FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.18 EMPLOYER CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.19 EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.20 FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.21 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.22 ADJUSTMENT FOR EXCESS AMOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ROLLOVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.23 ROLLOVERS TO THIS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
DEFINITIONS FOR CONTRIBUTIONS AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.24 ELECTIVE DEFERRALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.25 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.26 ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.27 TOP HEAVY PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.28 OTHER CONTRIBUTIONS AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.29 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.30 ROLLOVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3 - BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.1 TOM BROWN STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.2 RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.3 PUT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.4 DISTRIBUTIONS OF TOM BROWN STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.5 DISTRIBUTION EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(a) RETIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(b) DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(c) DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(d) TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(e) HARDSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.6 DIRECT ROLLOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3.7 SEGREGATION OR DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(a) MINORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(b) UNKNOWN LOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(c) LIMITATIONS ON BENEFITS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 55
DEFINITIONS FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 4 - OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.1 TOM BROWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.2 ACTION BY TOM BROWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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<TABLE>
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4.3 ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.4 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.5 AMENDMENT, TERMINATION, MERGER OR CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4.6 PARTICIPANT RIGHTS/CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.7 TOM BROWN STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
4.8 VALUATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.9 PARTICIPATING EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.10 OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
iii
<PAGE> 4
TOM BROWN, INC.
KSOP PLAN
TOM BROWN, INC. ("TOM BROWN") ADOPTS THE TOM BROWN, INC. KSOP ("THIS
PLAN"), WHICH IS A MERGER OF THE TOM BROWN, INC. EMPLOYEE STOCK OWNERSHIP PLAN
AND THE TOM BROWN, INC. PROFIT-SHARING 401(K) PLAN, EFFECTIVE AS OF JANUARY 1,
1996, AS A 401(K) PROFIT-SHARING PLAN WITH EMPLOYEE STOCK OWNERSHIP PLAN
PROVISIONS FOR THE BENEFIT OF THOSE PERSONS WHO QUALIFY AS PARTICIPANTS.
DEFINED TERMS ARE ITALICIZED, AND DEFINITIONS ARE AT THE END OF EACH SECTION.
"SECTION" AND "SUBSECTION" REFER TO THE SECTION AND SUBSECTIONS IN THIS PLAN.
ALL PROVISIONS APPLY ON OR AFTER THE EFFECTIVE DATE OF THIS AMENDMENT
AND RESTATEMENT AND SHALL BE APPLIED ON A UNIFORM AND CONSISTENT BASIS.
THE PURPOSE OF THIS PLAN IS TO PROVIDE BENEFITS OF A QUALIFIED
RETIREMENT PLAN IN CODE SECTION 401(A).
SECTION 1
ELIGIBILITY
1.1 CONDITIONS OF ELIGIBILITY
Subject to subsection 1.9, an EMPLOYEE is eligible to participate in
THIS PLAN on the later of his (i) completion of 1 YEAR OF SERVICE or (ii)
attaining age 21. TOM BROWN shall give each EMPLOYEE written notice of his
eligibility to participate in THIS PLAN prior to the close of the PLAN YEAR in
which he first becomes eligible to participate.
Employees of an AFFILIATED EMPLOYER are eligible, on the same basis as
EMPLOYEES, to participate in THIS PLAN when such AFFILIATED EMPLOYER
specifically adopts THIS PLAN in writing, with TOM BROWN'S and the Trustee's
approval.
1.2 APPLICATION FOR PARTICIPATION
Each EMPLOYEE shall apply to TOM BROWN for participation and agree to
the terms of THIS PLAN. An EMPLOYEE who accepts of any benefits from THIS PLAN
is deemed to have made application to participate in and be bound by THIS PLAN.
1
<PAGE> 5
1.3 EFFECTIVE DATE OF PARTICIPATION
An EMPLOYEE shall become a PARTICIPANT effective as of the earlier of
the 1st day of January, April July or October coinciding with or next following
the EMPLOYEE'S meeting the eligibility requirements of subsection 1.1 if the
EMPLOYEE is still employed as of such date (or, if not employed on such date,
when he begins SERVICE again).
A PARTICIPANT who becomes ineligible to participate participates
immediately upon his becoming eligible again.
1.4 DETERMINATION OF ELIGIBILITY
The ADMINISTRATOR determines each EMPLOYEE'S eligibility to
participate in THIS PLAN based upon information furnished by TOM BROWN. Such
determination shall be conclusive and binding upon all persons, when made
pursuant to THIS PLAN and the ACT. Such determination shall be subject to
review in subsection 4.6.
1.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any PLAN YEAR, any EMPLOYEE is erroneously omitted as a
PARTICIPANT and discovery of such omission is made after TOM BROWN makes a
contribution, TOM BROWN shall make a subsequent contribution for the omitted
EMPLOYEE which would have been contributed for him had he not been omitted.
Such contribution shall be made regardless of whether or not it is deductible
by the CODE.
1.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any PLAN YEAR, any person is erroneously included as a
PARTICIPANT and discovery of such inclusion is made after TOM BROWN makes a
contribution, TOM BROWN is not entitled to recover the contribution for the
ineligible person. The contribution for the ineligible person is a FORFEITURE
for the PLAN YEAR of discovery.
1.7 ELECTION NOT TO PARTICIPATE
An EMPLOYEE may, subject to TOM BROWN'S approval, voluntarily elect
not to participate in THIS PLAN. Such election must be communicated in writing
to TOM BROWN at least 30 days before the beginning of a PLAN YEAR.
1.8 EMPLOYEE TRANSFERS
An EMPLOYEE may be transferred from PARTICIPATING EMPLOYER to
PARTICIPATING EMPLOYER and, on any such transfer, such EMPLOYEE carries with
him his accumulated SERVICE and eligibility. No such transfer effects a
TERMINATION, and the PARTICIPATING EMPLOYER to which
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the EMPLOYEE is transferred then becomes obligated for such EMPLOYEE as was
the PARTICIPATING EMPLOYER from whom the EMPLOYEE was transferred.
1.9 EMPLOYEES NOT ELIGIBLE
EMPLOYEES whose employment is governed by the terms of a collective
bargaining agreement between employee representatives (by CODE SECTION
7701(a)(46)) and by which retirement benefits were the subject of good faith
bargaining between the parties are not eligible to participate in THIS PLAN
unless such agreement expressly provides for this coverage by THIS PLAN.
EMPLOYEES who are nonresident aliens (by CODE SECTION 7701(b)(1)(B))
and who receive no earned income (by CODE SECTION 911(d)(2)) which constitutes
income from sources within the United States (by CODE SECTION 861(a)(3)) are
not eligible to participate in THIS PLAN.
DEFINITIONS FOR ELIGIBILITY
THE FOLLOWING ARE DEFINITIONS FOR THIS SECTION AND THIS PLAN.
1.10 "PARTICIPANT" is any EMPLOYEE who participates in THIS PLAN by
subsection 1.1 and is not ineligible to participate in THIS PLAN.
(a) "EMPLOYEE" is any employee of TOM BROWN.
(b) "FORMER PARTICIPANT" is a person who was a PARTICIPANT, but
who is not a PARTICIPANT for any reason.
(c) "LEASED EMPLOYEE" is any person (other than an EMPLOYEE) who,
by an agreement between TOM BROWN and any other person ("leasing
organization") has performed services for TOM BROWN (or for TOM BROWN
and related persons by CODE SECTION 414(n)(6)) on a substantially full
time basis for a period of at least 1 year, and such services are of a
type historically performed by employees in TOM BROWN'S business
field. Contributions or benefits provided a LEASED EMPLOYEE by the
leasing organization attributable to services performed for TOM BROWN
are treated as provided by TOM BROWN.
A LEASED EMPLOYEE shall not be considered an EMPLOYEE:
(i) if such employee is covered by a money purchase
pension plan which provides:
(A) a nonintegrated employer contribution rate of
at least 10% of compensation (by CODE SECTION 415(c)
(3)) but including amounts contributed by TOM BROWN
to a salary reduction agreement and not
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includible in his gross income by CODE SECTIONS 125,
402(e)(3), 402(h)(1)(B), 403(b) or 457, and employee
contributions (by CODE SECTION 414(h)(2)) that are
treated as employer contributions.
(B) immediate participation; and
(C) full and immediate vesting; and
(ii) if LEASED EMPLOYEES constitute less than 20% of TOM
BROWN'S non-highly compensated work force.
1.11 "SERVICE" is employment with TOM BROWN.
(a) "1-YEAR BREAK IN SERVICE" is the applicable computation
period for which an EMPLOYEE completes less than 500 HOURS OF SERVICE.
To determine whether a PARTICIPANT has incurred a 1-YEAR BREAK
IN SERVICE, HOURS OF SERVICE are recognized for AUTHORIZED LEAVES OF
ABSENCE and MATERNITY AND PATERNITY LEAVES OF ABSENCE. YEARS OF
SERVICE and 1-YEAR BREAKS IN SERVICE are measured by the same
computation period.
"AUTHORIZED LEAVE OF ABSENCE" is an unpaid, temporary
cessation from active employment with TOM BROWN by an established
nondiscriminatory policy, whether by illness, military service, or any
other reason.
A "MATERNITY OR PATERNITY LEAVE OF ABSENCE" is an absence from
work for any period for the EMPLOYEE'S pregnancy, birth of the
EMPLOYEE'S child, placement of a child with the EMPLOYEE for the
adoption of such child, or any absence for caring for such child for a
period immediately following such birth or placement. HOURS OF
SERVICE are credited for the computation period in which the absence
from work begins, only if credit therefore is necessary to prevent the
EMPLOYEE from incurring a 1-YEAR BREAK IN SERVICE, or, in any other
case, in the immediately following computation period. HOURS OF
SERVICE credited for a MATERNITY OR PATERNITY LEAVE OF ABSENCE are
those which would normally have been credited but for such absence,
or, when the ADMINISTRATOR is unable to determine such hours normally
credited, 8 HOURS OF SERVICE per day. The total HOURS OF SERVICE
credited for a MATERNITY OR PATERNITY LEAVE OF ABSENCE shall not
exceed 501.
(b) "HOUR OF SERVICE" is each hour for which
(i) an EMPLOYEE is directly or indirectly compensated or
entitled to compensation for the performance of
duties during the applicable computation period;
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(ii) an EMPLOYEE is directly or indirectly compensated or
entitled to compensation (whether or not the
employment relationship has terminated) other than
for performance of duties (such as vacation,
holidays, sickness, jury duty, disability, lay-off,
military duty or leave of absence) during the
applicable computation period;
(iii) back pay is awarded or agreed to regardless of
mitigation of damages. These hours will be credited
to the EMPLOYEE for the computation period or periods
to which the award or agreement pertains rather than
the computation period in which the award, agreement
or payment is made.
The same HOURS OF SERVICE shall not be credited both under (i)
or (ii), as the case may be, and under (iii).
Notwithstanding the above,
(i) no more than 501 HOURS OF SERVICE are credited to an
EMPLOYEE for any single continuous period during
which the EMPLOYEE performs no duties (whether or not
such period occurs in a single computation period);
(ii) an hour for which an EMPLOYEE is directly or
indirectly paid, or entitled to payment for a period
during which no duties are performed is not credited
to the EMPLOYEE if such payment is made or due under
a plan maintained solely for complying with
applicable worker's compensation, unemployment
compensation, or disability insurance laws; and
(iii) HOURS OF SERVICE are not credited for a payment which
solely reimburses an EMPLOYEE for medical or
medically related expenses incurred by the EMPLOYEE.
For this subsection, a payment is deemed to be made by or due whether
or not such payment is made by or due directly, or indirectly through, among
others, a trust fund, or insurer, to which TOM BROWN contributes or pays
premiums and whether or not contributions made or due to the trust fund,
insurer, or other entity are for the benefit of particular EMPLOYEES or are for
a group of EMPLOYEES in the aggregate.
An HOUR OF SERVICE is counted for determining a YEAR OF SERVICE, a
year of participation for accrued benefits, a 1-YEAR BREAK IN SERVICE, and
employment beginning date (or reemployment beginning date). In addition, HOURS
OF SERVICE are credited for employment with an AFFILIATED EMPLOYER. Department
of Labor regulations 2530.200b-2(b) and (c) are incorporated by this reference.
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(c) "TERMINATION" is the stopping of SERVICE, other than for
death, RETIREMENT or DISABILITY.
(d) "YEAR OF SERVICE" is the computation period of 12 consecutive
months, during which an EMPLOYEE has at least 1,000 HOURS OF SERVICE.
For subsection 1.1, the initial computation period begins on
the date the EMPLOYEE first performs an HOUR OF SERVICE. The
participation computation period after a 1-YEAR BREAK IN SERVICE
begins on the date the EMPLOYEE again performs an HOUR OF SERVICE.
The participation computation period shifts to the PLAN YEAR which
includes the anniversary on which the EMPLOYEE first performed an HOUR
OF SERVICE.
Notwithstanding the above, for any short PLAN YEAR, whether an
EMPLOYEE completes a YEAR OF SERVICE is determined by Department of
Labor Regulation 2530.203-2(c). However, in determining whether an
EMPLOYEE completes a YEAR OF SERVICE for benefit accrual in the short
PLAN YEAR, the number of the HOURS OF SERVICE required are
proportionately reduced based on the number of full months in the
short PLAN YEAR.
(e) "PLAN YEAR" is the calendar year.
1.12 "TOM BROWN" is Tom Brown, Inc. and any AFFILIATED EMPLOYER and/or
PARTICIPATING EMPLOYER which adopts THIS PLAN; and any successor which
maintains THIS PLAN.
(a) "AFFILIATED EMPLOYER" is any corporation which is a member of
a controlled group of corporations (by CODE SECTION 414(b)) including
TOM BROWN; any trade or business (whether or not incorporated) under
common control (by CODE SECTION 414(c)) with TOM BROWN; any
organization (whether or not incorporated) which is a member of an
affiliated service group (by CODE SECTION 414(m)) including TOM BROWN;
and any other entity required to be aggregated with TOM BROWN by CODE
SECTION 414(o) REGULATIONS.
(b) "PARTICIPATING EMPLOYER" is a Participating Employer in
subsection 4.9.
1.13 "ACT" is the Employee Retirement Income Security Act of 1974, as
amended.
"CODE" is the Internal Revenue Code of 1986, as amended.
"CODE SECTION" is a Section of the Code.
"REGULATIONS" is Treasury Regulations.
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SECTION 2
CONTRIBUTIONS AND FORFEITURES
ELECTIVE DEFERRALS
2.1 CONTRIBUTIONS TO THIS PLAN
The following may be contributed to THIS PLAN:
(a) ELECTIVE DEFERRALS,
(b) QUALIFIED MATCHING CONTRIBUTIONS,
(c) QUALIFIED NON-ELECTIVE CONTRIBUTIONS,
(d) MATCHING CONTRIBUTIONS,
(e) EMPLOYEE CONTRIBUTIONS, and/or
(f) EMPLOYER CONTRIBUTIONS.
A PARTICIPANT'S accrued benefit derived from ELECTIVE DEFERRALS,
QUALIFIED NON-ELECTIVE CONTRIBUTIONS, EMPLOYEE CONTRIBUTIONS and QUALIFIED
MATCHING CONTRIBUTIONS is nonforfeitable. Separate accounts for ELECTIVE
DEFERRALS, QUALIFIED NON-ELECTIVE CONTRIBUTIONS, EMPLOYEE CONTRIBUTIONS,
MATCHING CONTRIBUTIONS, and QUALIFIED MATCHING CONTRIBUTIONS will be maintained
for each PARTICIPANT. Each account will be credited with the applicable
contributions and earnings thereon.
2.2 ELECTIVE DEFERRALS
(a) Each PARTICIPANT may elect on January 1, April 1, July 1 or
October 1 to defer his COMPENSATION which he would have received in
the PLAN YEAR, but for his deferral election, subject to the
limitations of subsection 2.3. An elective deferral (or modification
of an earlier election) may not be made for COMPENSATION which is
currently available on or before the date the PARTICIPANT executes
such election.
The amount by which a PARTICIPANT'S COMPENSATION is reduced is
his ELECTIVE DEFERRAL.
Once made, a PARTICIPANT'S deferral election shall remain in
effect until modified or terminated. Modifications may be made on any
January 1, April 1, July 1, or October 1, and terminations may be
made at any time.
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Any election or modification or termination of an election
becomes effective as soon as is administratively feasible.
(b) If a PARTICIPANT receives a hardship distribution by
REGULATION 1.401(k)-1(d)(2)(iii)(B) from any other plan maintained by
TOM BROWN or from his ELECTIVE DEFERRAL ACCOUNT by subsection 3.5(e),
he is not permitted to have an ELECTIVE DEFERRAL to THIS PLAN for 12
months following his receipt of the distribution. In addition, the
dollar limitation in CODE SECTION 402(g) is reduced, for his taxable
year following the taxable year of his hardship distribution, by his
ELECTIVE DEFERRAL, if any, to THIS PLAN (and any other plan maintained
by TOM BROWN) for the taxable year of the hardship distribution.
2.3 EXCESS ELECTIVE DEFERRALS
To the extent that a PARTICIPANT'S ELECTIVE DEFERRAL in THIS PLAN and
any elective deferrals (in REGULATION 1.402(g)-1(b)) to another qualified cash
or deferred arrangement (in CODE SECTION 401(k)), a simplified employee pension
(in CODE SECTION 408(k)), a salary reduction arrangement (in CODE SECTION
3121(a)(5)(D)), a deferred compensation plan (in CODE SECTION 457) or a trust
(in CODE SECTION 501(c)(18)) cumulatively exceeds the dollar limitation of CODE
SECTION 402(g), in effect for the calendar year in which the PLAN YEAR began,
he shall have an "Excess Elective Deferral." A PARTICIPANT will be deemed to
have notified the ADMINISTRATOR of the Excess Elective Deferral which shall be
distributed by subsection 2.4(a). The CODE SECTION 402(g) limitation is
adjusted annually by CODE SECTION 415(d) and its REGULATIONS.
2.4 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
(a) If a PARTICIPANT has an Excess Elective Deferral for his
taxable year, he may, not later than March 1st after the close of his
taxable year, notify the ADMINISTRATOR in writing of his Excess
Elective Deferral and request his ELECTIVE DEFERRAL be reduced by the
amount he specifies. If so, the ADMINISTRATOR shall direct the
TRUSTEE to distribute such excess amount (and any INCOME allocable to
such excess amount) to the PARTICIPANT not later than the first April
15th following the close of his taxable year.
Any distribution of less than the entire amount of Excess
Elective Deferral and Income is treated as a pro rata distribution of
Excess Elective Deferral and Income. The amount distributed shall not
exceed the PARTICIPANT'S ELECTIVE DEFERRAL to THIS PLAN for the
taxable year. Any distribution on or before the last day of the
PARTICIPANT'S taxable year must satisfy each of the following
conditions:
(1) the PARTICIPANT shall designate the distribution as
Excess Elective Deferral;
(2) the distribution must be made after the date on which
THIS PLAN received the Excess Elective Deferral; and
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(3) THIS PLAN must designate the distribution as a
distribution of Excess Elective Deferral.
Any distribution in this subsection shall be made first from unmatched
ELECTIVE DEFERRALS and, thereafter, simultaneously from an ELECTIVE DEFERRAL
which is matched and MATCHING CONTRIBUTIONS for such ELECTIVE DEFERRAL.
However, any such MATCHING CONTRIBUTIONS which are not vested are forfeited in
lieu of being distributed.
For this Section, "Income" means the amount of income or loss
allocable to a PARTICIPANT'S EXCESS ELECTIVE DEFERRAL and is equal to the sum
of the allocable gain or loss for his taxable year and the allocable gain or
loss for the period between the end of his taxable year and the date of
distribution ("gap period"). The Income allocable to each such period is
calculated separately and is determined by multiplying the income or loss
allocable to the PARTICIPANT'S ELECTIVE DEFERRAL for the respective period by a
fraction. The numerator of the fraction is the PARTICIPANT'S EXCESS ELECTIVE
DEFERRAL for the PARTICIPANT'S taxable year. The denominator is the balance,
as of the last day of the respective period, of the PARTICIPANT'S ELECTIVE
DEFERRAL ACCOUNT that is attributable to the PARTICIPANT'S ELECTIVE DEFERRALS
reduced by the gain allocable to such total amount for the respective period
and increased by the loss allocable to such total amount for the respective
period. Income or loss shall be measured from the date of deposit to the date
of withdrawal.
In lieu of the fractional method described above, a safe harbor method
may be used to calculate the allocable income or loss for the gap period.
Under such safe harbor method, allocable income or loss for the gap period is
deemed to equal 10% of the income or loss allocable to a PARTICIPANT'S EXCESS
ELECTIVE DEFERRAL for his taxable year multiplied by the number of calendar
months in the gap period. To determine the number of calendar months in the
gap period, a distribution occurring on or before the 15th day of the month is
treated as having been made on the last day of the preceding month, and a
distribution occurring after the 15th day of the month is treated as having
been made on the 1st day of the next subsequent month.
Income allocable to any distribution of EXCESS ELECTIVE DEFERRAL on or
before the last day of the PARTICIPANT'S taxable year is calculated from the
1st day of his taxable year to the date on which the distribution is made by
either the fractional method or the safe harbor method.
Notwithstanding the above, any distribution by this subsection does
not include any income for the gap period. Further, for any distribution by
this subsection, the amount of INCOME may be computed using a reasonable method
that is consistent with subsection 2.15(g), if such method is used consistently
for all PARTICIPANTS and for all such distributions for the PLAN YEAR.
(b) Notwithstanding the above, a PARTICIPANT'S EXCESS ELECTIVE
DEFERRAL is reduced, but not below zero, by any distribution of EXCESS
ELECTIVE DEFERRALS in subsection 2.7(i)
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or recharacterization of EXCESS ELECTIVE DEFERRALS in subsection
2.8(i) for the PLAN YEAR beginning with or within his taxable year.
(c) At his NORMAL RETIREMENT DATE, or such other date when the
PARTICIPANT is entitled to receive benefits, the fair market value of
his ELECTIVE DEFERRAL ACCOUNT is used to provide benefits to him or
his BENEFICIARY.
(d) ELECTIVE DEFERRALS may be segregated into a separate account
for each PARTICIPANT in a federally insured savings account,
certificate of deposit in a bank or savings and loan association,
money market certificate, or other short-term debt security acceptable
to the TRUSTEE until such time as the allocations in this subsection
have been made.
(e) TOM BROWN and the ADMINISTRATOR shall adopt a procedure
necessary to implement the elective deferrals for THIS PLAN.
ACTUAL DEFERRAL PERCENTAGE TESTS
2.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) For each PLAN YEAR, the annual allocation of ELECTIVE
DEFERRALS and QUALIFIED NON-ELECTIVE CONTRIBUTIONS to a PARTICIPANT'S
ELECTIVE DEFERRAL ACCOUNT and QUALIFIED NON-ELECTIVE CONTRIBUTION
ACCOUNT shall satisfy 1 of the following tests:
(1) The Actual Deferral Percentage for the HIGHLY
COMPENSATED EMPLOYEE group shall not be more than the Actual
Deferral Percentage of the NON-HIGHLY COMPENSATED EMPLOYEE
group multiplied by 1.25, or
(2) The excess of the Actual Deferral Percentage for the
HIGHLY COMPENSATED EMPLOYEE group over the Actual Deferral
Percentage for the NON-HIGHLY COMPENSATED EMPLOYEE group shall
not be more than 2 percentage points. Additionally, the
Actual Deferral Percentage for the HIGHLY COMPENSATED EMPLOYEE
group shall not exceed the Actual Deferral Percentage for the
NON-HIGHLY COMPENSATED EMPLOYEE group multiplied by 2. CODE
SECTION 401(k)(3) and REGULATION 1.401(k)-1(b) are
incorporated by this reference.
However, to prevent the multiple use of the alternative method
described in (2) above and CODE SECTION 401(m)(9)(A), any
HIGHLY COMPENSATED EMPLOYEE eligible to make ELECTIVE
DEFERRALS and to make EMPLOYEE CONTRIBUTIONS or to receive
MATCHING CONTRIBUTIONS shall have his Actual Contribution
Percentage (in subsection 2.10(d)) reduced by REGULATION
1.401(m)-2, incorporated by this reference.
(b) For this subsection, "Actual Deferral Percentage" is, for the
HIGHLY COMPENSATED
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EMPLOYEE group and the NON-HIGHLY COMPENSATED EMPLOYEE group for a
PLAN YEAR, the average of the percentages, calculated separately for
each PARTICIPANT in each such group, of
(1) the amount of ELECTIVE DEFERRALS and QUALIFIED
NON-ELECTIVE CONTRIBUTIONS allocated to his ELECTIVE
DEFERRAL ACCOUNT and QUALIFIED NON-ELECTIVE
CONTRIBUTION ACCOUNT for such PLAN YEAR; to
(2) such 414(S) COMPENSATION for such PLAN YEAR.
The Actual Deferral Percentage for each PARTICIPANT and each
group are calculated to the nearest 1/100th of 1%. ELECTIVE DEFERRALS
allocated to each NON-HIGHLY COMPENSATED EMPLOYEE'S ELECTIVE DEFERRAL
ACCOUNT are reduced by his EXCESS ELECTIVE DEFERRALS made under THIS
PLAN or any other plan maintained by TOM BROWN.
(c) To determine the Actual Deferral Percentage of a HIGHLY
COMPENSATED PARTICIPANT who is subject to the FAMILY MEMBER
aggregation rules of CODE SECTION 414(q)(6) because he is either a 5%
OWNER or 1 of the 10 HIGHLY COMPENSATED EMPLOYEES paid the greatest
COMPENSATION during the year:
(1) The combined Actual Deferral Percentage for the
family group (which is treated as 1 HIGHLY
COMPENSATED EMPLOYEE) is the greater of: (i) the
percentage determined by aggregating ELECTIVE
DEFERRALS and 414(S) COMPENSATION of all eligible
FAMILY MEMBERS who are HIGHLY COMPENSATED EMPLOYEES
without family aggregation and (ii) the percentage
determined by aggregating ELECTIVE DEFERRALS and
414(S) COMPENSATION of all eligible FAMILY MEMBERS
(including HIGHLY COMPENSATED EMPLOYEES). However,
in applying the $150,000 limit to 414(S)
COMPENSATION, FAMILY MEMBERS shall include only the
affected EMPLOYEE's spouse and any lineal descendants
who have not attained age 19 before the close of the
PLAN YEAR.
(2) ELECTIVE DEFERRALS and 414(S) COMPENSATION of all
FAMILY MEMBERS are disregarded to determine the
Actual Deferral Percentage of the NON-HIGHLY
COMPENSATED EMPLOYEE group except to the extent taken
into account in subparagraph (1) above.
(3) If a PARTICIPANT is required to be aggregated as a
member of more than 1 family group in a plan, all
PARTICIPANTS who are members of the family groups
that include such PARTICIPANT are aggregated as 1
family group by subparagraphs (1) and (2) above.
(d) For this subsection and CODE SECTIONS 401(a)(4), 410(b) and
401(k), if 2 or more
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plans which include cash or deferred arrangements are considered 1
plan for CODE SECTION 401(a)(4) or 410(b) (other than CODE SECTION
401(b)(2)(A)(ii) as in effect for PLAN YEARS beginning after December
31, 1988), the cash or deferred arrangements included in such plans
are treated as 1 arrangement. In addition, 2 or more cash or deferred
arrangements may be considered as 1 arrangement to determine whether
or not such arrangements satisfy CODE SECTIONS 401(a)(4), 410(b) and
401(k). If so, the cash or deferred arrangements included in such
plans and the plans including such arrangements are treated as 1
arrangement and as 1 plan for this subsection and CODE SECTIONS
401(a)(4), 410(b) and 401(k). Plans may be aggregated by this
subparagraph (d) only if they have the same plan year.
(e) For this subsection, if a HIGHLY COMPENSATED EMPLOYEE is a
participant in 2 or more cash or deferred arrangements (other than a
cash or deferred arrangement which is part of an employee stock
ownership plan in CODE SECTION 4975(e)(7) for PLAN YEARS beginning
after December 31, 1988) of TOM BROWN, all such cash or deferred
arrangements are treated as 1 cash or deferred arrangement to
determine his Actual Deferral Percentage. If the cash or deferred
arrangements have different PLAN YEARS, this subparagraph applies by
treating all cash or deferred arrangements ending with or within the
same calendar year as 1 arrangement.
(f) To determine and correct ELECTIVE DEFERRALS of a HIGHLY
COMPENSATED EMPLOYEE whose Actual Deferral Percentage is determined by
the family aggregation rules shall be as follows:
(1) If the Actual Deferral Percentage for the HIGHLY
COMPENSATED EMPLOYEE is determined by subsection
2.5(c)(1)(ii), the Actual Deferral Percentage shall
be reduced as required herein and the ELECTIVE
DEFERRALS for the family unit shall be allocated
among the FAMILY MEMBERS in proportion to the
ELECTIVE DEFERRALS of each FAMILY MEMBER that were
combined to determine the group Actual Deferral
Percentage.
(2) If the Actual Deferral Percentage for the HIGHLY
COMPENSATED EMPLOYEE is determined by subsection
2.5(c)(1)(i), the Actual Deferral Percentage shall
first be reduced by subparagraph (1), but not below
the Actual Deferral Percentage of the group of FAMILY
MEMBERS who are not HIGHLY COMPENSATED EMPLOYEES
without family aggregation. The ELECTIVE DEFERRALS
resulting from the initial reduction shall be
allocated (in proportion to ELECTIVE DEFERRALS) among
the HIGHLY COMPENSATED PARTICIPANTS whose ELECTIVE
DEFERRALS were combined to determine the Actual
Deferral Percentage. If further reduction is still
required, ELECTIVE DEFERRALS resulting from this
further reduction shall be determined by taking into
account the contributions of all FAMILY MEMBERS and
shall be allocated among them in the ratio of their
respective ELECTIVE DEFERRALS.
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2.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
"Excess Contribution" is, for any Plan Year, the excess of:
(i) the aggregate amount of contribution actually taken into
account in computing the Actual Deferral Percentage of Highly
Compensated Employees for such Plan Year over
(ii) the maximum amount of such contribution permitted by the
Actual Deferral Percentage Tests in subsection 2.5(a)
(determined by reducing contributions made for Highly
Compensated Employees in order of the Actual Deferral
Percentages, starting with the highest such percentages).
If the initial allocations of ELECTIVE DEFERRALS AND QUALIFIED
NON-ELECTIVE CONTRIBUTIONS do not satisfy 1 of the tests in subsection
2.5(a)(1) or (2), the ADMINISTRATOR shall adjust EXCESS CONTRIBUTIONS by a
distribution in subsection 2.7 and/or a recharacterization in subsection 2.8
until 1 of the tests in subsection 2.5 are satisfied.
Any distribution and/or recharacterization of less than the entire
amount of EXCESS ELECTIVE DEFERRALS shall be treated as a pro rata distribution
and/or recharacterization of EXCESS ELECTIVE DEFERRALS and INCOME.
Any amounts not distributed or recharacterized within 2 1/2 months
after the end of the PLAN YEAR shall be subject to the 10% employer excise tax
imposed by CODE SECTION 4979.
2.7 DISTRIBUTION OF EXCESS CONTRIBUTIONS
For distribution of EXCESS CONTRIBUTIONS, such distribution:
(i) may be postponed but not later than the close of the PLAN YEAR
following the PLAN YEAR to which they are allocable;
(ii) shall be made first from unmatched ELECTIVE DEFERRALS and,
thereafter, simultaneously from ELECTIVE DEFERRALS which are
matched and MATCHING CONTRIBUTIONS which relate to such
ELECTIVE DEFERRALS. (However, any such MATCHING CONTRIBUTIONS
which are not vested shall be forfeited in lieu of being
distributed);
(iii) shall be made from QUALIFIED NON-ELECTIVE CONTRIBUTIONS to the
extent that EXCESS CONTRIBUTIONS exceed the balance in the
PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT attributable to
ELECTIVE DEFERRALS and MATCHING CONTRIBUTIONS.
(iv) shall be adjusted for INCOME; and
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(v) shall be designated by TOM BROWN as a distribution of EXCESS
CONTRIBUTIONS (and INCOME).
2.8 RECHARACTERIZATION OF EXCESS CONTRIBUTIONS
To recharacterize EXCESS CONTRIBUTIONS, such recharacterized amounts
shall:
(i) be deemed to have occurred on the date on which the
last of those HIGHLY COMPENSATED EMPLOYEES with
EXCESS CONTRIBUTIONS to be recharacterized is
notified of the recharacterization and the tax
consequences of such recharacterization;
(ii) not exceed the amount of ELECTIVE DEFERRAL on behalf
of any HIGHLY COMPENSATED EMPLOYEE for any PLAN YEAR;
(iii) be treated as VOLUNTARY EMPLOYEE CONTRIBUTIONS for
CODE SECTION 401(a)(4) and REGULATION 1.401(k)-1(b).
However, for subsections 2.17 and 2.16(f),
recharacterized EXCESS CONTRIBUTIONS continue to be
treated as EMPLOYER CONTRIBUTIONS that are ELECTIVE
DEFERRALS. EXCESS CONTRIBUTIONS recharacterized as
VOLUNTARY EMPLOYEE CONTRIBUTIONS shall continue to be
nonforfeitable and subject to the same distribution
rules in subsection 3.5(d);
(iv) are not permitted if the amount recharacterized plus
VOLUNTARY EMPLOYEE CONTRIBUTIONS actually made by
such HIGHLY COMPENSATED EMPLOYEE, exceed the maximum
amount of VOLUNTARY EMPLOYEE CONTRIBUTIONS
(determined prior to application of subsection 2.10)
that such HIGHLY COMPENSATED EMPLOYEE is permitted to
make under THIS PLAN in the absence of
recharacterization;
(v) shall be adjusted for INCOME.
2.9 QUALIFIED NON-ELECTIVE CONTRIBUTIONS
Within 12 months after the end of the PLAN YEAR, TOM BROWN shall make
a special QUALIFIED NON-ELECTIVE CONTRIBUTION for NON-HIGHLY COMPENSATED
EMPLOYEES in an amount sufficient to satisfy 1 of the tests in subsection
2.5(a). Such contribution shall be allocated to each NON-HIGHLY COMPENSATED
EMPLOYEE'S QUALIFIED NON-ELECTIVE DEFERRAL ACCOUNT in the same ratio that each
NON-HIGHLY COMPENSATED EMPLOYEE'S COMPENSATION for the year bears to the total
COMPENSATION of all NON-HIGHLY COMPENSATED EMPLOYEES.
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ACTUAL CONTRIBUTION PERCENTAGE TESTS
2.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for the HIGHLY
COMPENSATED PARTICIPANT group shall be less than the greater of:
(1) 125% of the Actual Contribution Percentage for the
NON-HIGHLY COMPENSATED PARTICIPANT group or
(2) the lesser of 200% of the Actual Contribution
Percentage for the NON-HIGHLY COMPENSATED PARTICIPANT
group or the Actual Contribution Percentage for the
NON-HIGHLY COMPENSATED PARTICIPANT group plus 2
percentage points.
To prevent the multiple use of the alternative method
described in (2) above and in CODE SECTION 401(m)(9)(A), any HIGHLY
COMPENSATED PARTICIPANT eligible to make Elective Deferrals and to
make EMPLOYEE CONTRIBUTIONS or to receive MATCHING CONTRIBUTIONS shall
have his Actual Contribution Percentage reduced by REGULATION
1.401(m)-2. CODE SECTION 401(m) and REGULATIONS 1.401 (m)-1 (b) and
1.401(m)-2 are incorporated by this reference.
(b) For this subsection and subsection 2.11, the "Actual
Contribution Percentage" is, for the HIGHLY COMPENSATED PARTICIPANT
group and NON-HIGHLY COMPENSATED PARTICIPANT group for a PLAN YEAR,
the average of the ratios (calculated separately for each PARTICIPANT
in each group) of:
(1) the sum of MATCHING CONTRIBUTIONS in subsection
2.18(b) (to the extent such MATCHING CONTRIBUTIONS
are not used to satisfy the tests in subsection 2.5,
VOLUNTARY EMPLOYEE CONTRIBUTIONS in subsection
2.19(a) and EXCESS ELECTIVE DEFERRALS recharacterized
as VOLUNTARY EMPLOYEE CONTRIBUTIONS by subsection 2.8
on behalf of each such PARTICIPANT for such PLAN
YEAR; to
(2) the PARTICIPANT'S 414(S) COMPENSATION for such PLAN
YEAR.
The Actual Contribution Percentage for each PARTICIPANT and
each group are calculated to the nearest 1/100th of 1%.
(c) To determine the ACTUAL CONTRIBUTION PERCENTAGE and the EXCESS
AGGREGATE CONTRIBUTIONS in subsection 2.11, the ADMINISTRATOR may
elect to take into account, for EMPLOYEES eligible to have VOLUNTARY
EMPLOYEE CONTRIBUTIONS in subsection 2.19 allocated to their ACCOUNTS,
ELECTIVE DEFERRALS (in REGULATION 1.402(g)-l(b)) and
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QUALIFIED NON-ELECTIVE DEFERRALS (in CODE SECTION 401(m)(4)(C))
contributed to any plan maintained by TOM BROWN. Such ELECTIVE
DEFERRALS and QUALIFIED NON-ELECTIVE DEFERRALS are treated as MATCHING
CONTRIBUTIONS subject to REGULATION 1.401(m)-l(b)(5), incorporated by
this reference. The PLAN YEAR must be the same as the plan year of
the plan to which the ELECTIVE DEFERRALS and the QUALIFIED
NON-ELECTIVE DEFERRALS are made.
(d) To determine the Actual Contribution Percentage of a HIGHLY
COMPENSATED EMPLOYEE who is subject to the FAMILY MEMBER aggregation
rules of CODE SECTION 414(q)(6) because he is either a "5% OWNER" of
TOM BROWN or 1 of the 10 HIGHLY COMPENSATED EMPLOYEES paid the
greatest COMPENSATION during the year:
(1) The combined Actual Contribution Percentage for the
family group (which is treated as 1 HIGHLY
COMPENSATED EMPLOYEE) shall be determined by
aggregating VOLUNTARY EMPLOYEE CONTRIBUTIONS in
subsection 2.19 and 414(S) COMPENSATION of all
eligible FAMILY MEMBERS (including HIGHLY COMPENSATED
PARTICIPANTS). However, in applying the $150,000
limit to 414(S) COMPENSATION, FAMILY MEMBERS include
only the affected EMPLOYEE'S spouse and any lineal
descendants who have not attained age 19 before the
close of the PLAN YEAR.
(2) The VOLUNTARY EMPLOYEE CONTRIBUTIONS in subsection
2.19 and 414(S) COMPENSATION of all FAMILY MEMBERS
are disregarded to determine the Actual Contribution
Percentage of the NON-HIGHLY COMPENSATED PARTICIPANT
group except to the extent taken into account in
subparagraph (1) above.
(3) If a PARTICIPANT is required to be aggregated as a
member of more than 1 family group in a plan, all
PARTICIPANTS who are members of the family groups
that include the PARTICIPANT are aggregated as 1
family group in paragraphs (1) and (2) above.
(e) For this subsection and CODE SECTIONS 401(a)(4), 410(b) and
401(m), if 2 or more TOM BROWN plans to which MATCHING CONTRIBUTIONS
or EMPLOYEE CONTRIBUTIONS, or both, are made are treated as 1 plan for
CODE SECTIONS 401(a)(4) or 410(b) (other than the average benefits
test in CODE SECTION 410(b)(2)(A)(ii)) such plans are treated as 1
plan. In addition, 2 or more TOM BROWN plans to which MATCHING
CONTRIBUTIONS or EMPLOYEE CONTRIBUTIONS, or both, are made may be
considered as 1 plan to determine whether or not such plans satisfy
CODE SECTIONS 401(a)(4), 410(b) and 401(m). If so, the aggregated
plans must satisfy this subsection and CODE SECTIONS 401 (a)(4),
410(b) and 401(m) as though such aggregated plans were 1 plan. Plans
may be aggregated under this subparagraph only if they have the same
plan year.
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(f) If a HIGHLY COMPENSATED EMPLOYEE is a PARTICIPANT under 2 or
more plans (other than an employee stock ownership plan in CODE
SECTION 4975(e)(7) or 409) maintained by TOM BROWN to which MATCHING
CONTRIBUTIONS or EMPLOYEE CONTRIBUTIONS, or both, are made, all such
contributions for such HIGHLY COMPENSATED EMPLOYEE shall be aggregated
to determine his Actual Contribution Percentage. If the plans have
different plan years, this subparagraph applies by treating all plans
ending with or within the same calendar year as 1 plan.
(g) For this subsection and subsection 2.11, a HIGHLY COMPENSATED
EMPLOYEE and NON-HIGHLY COMPENSATED EMPLOYEE include any EMPLOYEE
eligible to make VOLUNTARY EMPLOYEE CONTRIBUTIONS in subsection 2.19
(whether or not VOLUNTARY EMPLOYEE CONTRIBUTIONS are made) allocated
to his ACCOUNT for the PLAN YEAR.
(h) Any distribution of less than the entire amount of EXCESS
AGGREGATE CONTRIBUTIONS (and INCOME) is treated as a pro rata
distribution of EXCESS AGGREGATE CONTRIBUTIONS and INCOME.
2.11 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
"Contribution Percentage Amounts" is the sum of EMPLOYEE
CONTRIBUTIONS, MATCHING CONTRIBUTIONS (other than MATCHING CONTRIBUTIONS
forfeited to correct EXCESS AGGREGATE CONTRIBUTIONS or related to EXCESS
ELECTIVE DEFERRALS, EXCESS CONTRIBUTIONS OR EXCESS AGGREGATE CONTRIBUTIONS),
QUALIFIED MATCHING CONTRIBUTIONS (to the extent not taken into account for the
Actual Deferral Percentage tests in subsection 2.5) and the QUALIFIED
NON-ELECTIVE CONTRIBUTIONS used by TOM BROWN in the Actual Contribution
Percentages.
"Excess Aggregate Contributions" is, for any PLAN YEAR, the excess of:
(a) the aggregate Contribution Percentage Amounts to compute the
numerator for the HIGHLY COMPENSATED EMPLOYEE group, over
(b) the maximum Contribution Percentage Amounts permitted by the
Actual Contribution Percentage Tests (by reducing contributions for
HIGHLY COMPENSATED EMPLOYEES in order of their Actual Contribution
Percentage beginning with the highest of such percentages).
Such determination shall be made after first determining EXCESS
ELECTIVE DEFERRALS in subsection 2.2 and then EXCESS CONTRIBUTIONS in
subsection 2.6.
If the initial allocation of Contribution Percentage Amounts do not
satisfy 1 of the tests in subsection 2.10(a)(1) or (2), the ADMINISTRATOR shall
adjust the Contribution Percentage Amounts by a distribution in subsection 2.12
or a recharacterization in subsection 2.14 until 1 of the tests in subsection
2.10(a)(1) or (2) are met.
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2.12 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(a) If the Actual Contribution Percentage for the HIGHLY
COMPENSATED EMPLOYEE group exceeds the Actual Contribution Percentage
for the NON-HIGHLY COMPENSATED EMPLOYEE group except as permitted in
subsection 2.10(a)(1) or (2), the ADMINISTRATOR (on or before March
15th following the end of the PLAN YEAR, but not later than the close
of the following PLAN YEAR) shall direct the TRUSTEE to distribute to
the HIGHLY COMPENSATED EMPLOYEE having the highest Actual Contribution
Percentage, his portion of EXCESS AGGREGATE CONTRIBUTIONS (and INCOME
allocable to such contributions) until either 1 of the tests in
subsection 2.10(a)(1) or (2) is satisfied, or until his Actual
Contribution Percentage equals the Actual Contribution Percentage of
the HIGHLY COMPENSATED EMPLOYEE having the 2nd highest Actual
Contribution Percentage. This shall continue until 1 of the tests in
subsection 2.10(a)(1) or (2) is satisfied.
(b) For each HIGHLY COMPENSATED EMPLOYEE, EXCESS AGGREGATE
CONTRIBUTIONS are equal to (i) the VOLUNTARY EMPLOYEE CONTRIBUTIONS in
subsection 2.19 and any QUALIFIED NON-ELECTIVE DEFERRALS or ELECTIVE
DEFERRALS taken into account in subsection 2.10(c) on behalf of the
HIGHLY COMPENSATED EMPLOYEE (determined prior to the application of
this subparagraph) (ii) minus the amount determined by multiplying the
HIGHLY COMPENSATED EMPLOYEE'S Actual Contribution Percentage
(determined after application of this subparagraph) by his 414(S)
COMPENSATION. The EXCESS AGGREGATE CONTRIBUTION for any HIGHLY
COMPENSATED EMPLOYEE cannot exceed the amount of VOLUNTARY EMPLOYEE
DEFERRALS in subsection 2.19 and any QUALIFIED NON-ELECTIVE
CONTRIBUTIONS or ELECTIVE DEFERRALS taken into account in subsection
2.10(c) on behalf of such HIGHLY COMPENSATED EMPLOYEE for such PLAN
YEAR.
(c) If the determination and correction of EXCESS AGGREGATE
CONTRIBUTIONS of a HIGHLY COMPENSATED EMPLOYEE whose Actual
Contribution Percentage is made by the rules of subsection 2.10(d),
the Actual Contribution Percentage shall be reduced and the EXCESS
AGGREGATE CONTRIBUTIONS for the family unit shall be allocated among
the FAMILY MEMBERS in proportion to the sum of VOLUNTARY EMPLOYEE
CONTRIBUTIONS in subsection 2.19 and any QUALIFIED NON-ELECTIVE
DEFERRALS or ELECTIVE DEFERRALS taken into account in subsection
2.10(c) of each FAMILY MEMBER that were combined to determine the
group Actual Contribution Percentage.
(d) If during a PLAN YEAR the projected aggregate amount of
VOLUNTARY EMPLOYEE CONTRIBUTIONS to be allocated to all HIGHLY
COMPENSATED EMPLOYEES in THIS PLAN would, by virtue of the tests in
subsection 2.10(a), cause THIS PLAN to fail such tests, the
ADMINISTRATOR may automatically reduce proportionately or in the order
in subsection 2.11(a) each affected HIGHLY COMPENSATED EMPLOYEE'S
projected share of such contributions by an amount necessary to
satisfy 1 of the tests in subsection 2.10(a).
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2.13 QUALIFIED NON-ELECTIVE CONTRIBUTIONS
Notwithstanding the above, within 12 months after the end of the PLAN
YEAR, TOM BROWN may make a QUALIFIED NON-ELECTIVE CONTRIBUTION on behalf of
NON-HIGHLY COMPENSATED EMPLOYEES in an amount sufficient to satisfy 1 of the
tests in subsection 2.10(a). Such contribution shall be allocated to the
PARTICIPANT'S ACCOUNT of each NON-HIGHLY COMPENSATED EMPLOYEE in the same
proportion that each NON-HIGHLY COMPENSATED EMPLOYEE'S COMPENSATION for the
year bears to the total COMPENSATION of all NON-HIGHLY COMPENSATED EMPLOYEE. A
separate accounting shall be maintained for such contributions.
2.14 RECHARACTERIZATION OF EXCESS AGGREGATE CONTRIBUTIONS
The determination of EXCESS AGGREGATE CONTRIBUTIONS for any PLAN YEAR
is made after first determining the EXCESS DEFERRALS (in REGULATION
1.401(k)-1(g)(7)(I)), if any, to be treated as VOLUNTARY EMPLOYEE CONTRIBUTIONS
by recharacterization for the plan year of any qualified cash or deferred
arrangement (in CODE SECTION 401(k)) maintained by TOM BROWN that ends with or
within the PLAN YEAR.
TOP-HEAVY PLAN
2.15 TOP HEAVY PLAN REQUIREMENTS
For any TOP HEAVY PLAN YEAR, THIS PLAN provides the special vesting
requirements of CODE SECTION 416(b) in subsection 3.5(d) and the special
minimum allocation requirements of CODE SECTION 416(c) in subsection 2.17(a).
2.16 TOP HEAVY STATUS
(a) THIS PLAN is a "Top Heavy Plan" for any PLAN YEAR in which, as
of the determination date, (1) the PRESENT VALUE OF ACCRUED BENEFITS
of KEY EMPLOYEES and (2) the sum of the AGGREGATE ACCOUNTS of KEY
EMPLOYEES and all plans of an AGGREGATION GROUP, exceeds 60% of the
PRESENT VALUE OF ACCRUED BENEFITS and the AGGREGATE ACCOUNTS of all
KEY AND NON-KEY EMPLOYEES and all plans of an AGGREGATION GROUP.
If any PARTICIPANT is a NON-KEY EMPLOYEE for any PLAN YEAR,
but such PARTICIPANT was a KEY EMPLOYEE for any prior PLAN YEAR, such
PARTICIPANT'S PRESENT VALUE OF ACCRUED BENEFIT and/or AGGREGATE
ACCOUNT balance is not taken into account to determine whether THIS
PLAN is a Top Heavy or Super Top Heavy Plan (or whether any
AGGREGATION GROUP which includes THIS PLAN is a TOP HEAVY GROUP). In
addition, if a PARTICIPANT or FORMER PARTICIPANT performs no SERVICE
for TOM BROWN during the 5 year period ending on the determination
date, any accrued benefit for such PARTICIPANT or FORMER PARTICIPANT
is not taken into account to determine whether THIS PLAN is a Top
Heavy or Super Top Heavy Plan.
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(b) THIS PLAN is a "Super Top Heavy Plan" for any PLAN YEAR in
which, as of the determination date, (1) the PRESENT VALUE OF ACCRUED
BENEFITS of KEY EMPLOYEES and (2) the sum of the AGGREGATE ACCOUNTS of
KEY EMPLOYEES of THIS PLAN and all plans of an AGGREGATION GROUP,
exceeds 90% of the PRESENT VALUE OF ACCRUED BENEFITS and the AGGREGATE
ACCOUNTS of all KEY AND NON-KEY EMPLOYEES of THIS PLAN and all plans
of an AGGREGATION GROUP.
(c) For these purposes, a PARTICIPANT'S AGGREGATE ACCOUNT as of
the determination date is the sum of:
(1) his PARTICIPANT'S ACCOUNT BALANCE as of the most
recent VALUATION DATE within a 12 month period ending
on the determination date.
(2) an adjustment for any contributions due as of the
determination date. Such adjustment is the amount of
any contributions actually made after the VALUATION
DATE but due on or before the determination date.
(3) any plan distributions within the PLAN YEAR that
includes the determination date or within the 4
preceding PLAN YEARS. However, for distributions
made after a VALUATION DATE and prior to the
determination date, such distributions are not
included as distributions to the extent that such
distributions are already included in the
PARTICIPANT'S AGGREGATE ACCOUNT balance as of the
VALUATION DATE. Distributions from THIS PLAN
(including the cash value of life insurance policies)
of a PARTICIPANT'S ACCOUNT BALANCE because of death
are treated as a distribution for this subparagraph.
(4) any EMPLOYEE contributions, whether voluntary or
mandatory. However, amounts for tax deductible
qualified voluntary EMPLOYEE contributions are not
considered a part of the PARTICIPANT'S AGGREGATE
ACCOUNT balance.
(5) for unrelated rollovers and plan-to-plan transfers
(which are both initiated by the EMPLOYEE and made
from a plan maintained by 1 employer to a plan
maintained by another employer). If THIS PLAN
provides the rollovers or plan-to-plan transfers,
such rollovers or plan-to-plan transfers are a
distribution for this subsection. If THIS PLAN is
the plan accepting such rollovers or plan-to-plan
transfers, such rollovers or plan-to-plan transfers
are not a part of the PARTICIPANT'S AGGREGATE ACCOUNT
balance.
(6) for related rollovers and plan-to-plan transfers
(either not initiated by the EMPLOYEE or made to a
plan maintained by the same employer), if THIS PLAN
provides a rollover or plan-to-plan transfer, it
shall not be counted as a distribution for this
subsection. If THIS PLAN accepts such rollover or
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plan-to-plan transfer, such rollover or plan-to-plan
transfer are a part of the PARTICIPANT'S AGGREGATE
ACCOUNT balance, regardless of the date on which such
rollover or plan-to-plan transfer is accepted.
(7) To determine whether 2 employers are to be treated as
1 employer in (5) and (6) above, all employers
aggregated by CODE SECTION 414(b), (c), (m) and (o)
are treated as 1 employer.
(d) The ADMINISTRATOR establishes and maintains an account in the
name of each PARTICIPANT to which the ADMINISTRATOR credits as of each
VALUATION DATE all amounts allocated to each such PARTICIPANT.
(e) TOM BROWN provides the ADMINISTRATOR with all information
required by the ADMINISTRATOR for a proper allocation of EMPLOYER
CONTRIBUTIONS for each PLAN YEAR and designates MATCHING CONTRIBUTIONS
which shall be ELECTIVE DEFERRALS. Within a reasonable time after
receipt of information, the ADMINISTRATOR allocates EMPLOYER
CONTRIBUTIONS to each PARTICIPANT'S ACCOUNT in the proportion that
each PARTICIPANT'S COMPENSATION for the year bears to the total
COMPENSATION of all PARTICIPANTS for the year.
Only PARTICIPANTS actively employed on the last day of the
PLAN YEAR are eligible to share in EMPLOYER CONTRIBUTIONS for the PLAN
YEAR.
(f) A PARTICIPANT'S ACCOUNTs are credited as of each VALUATION
DATE with FORFEITURES of TOM BROWN STOCK and his allocable share of
TOM BROWN STOCK (including fractional shares) purchased and paid for
or contributed in kind by TOM BROWN. Stock or cash dividends on TOM
BROWN STOCK are credited to his ACCOUNT holding TOM BROWN STOCK when
paid.
(g) As of each VALUATION DATE before allocating EMPLOYER
CONTRIBUTIONS and FORFEITURES, any earnings or losses (net of
appreciation or net depreciation) of the TRUST FUND are allocated in
the same proportion that each PARTICIPANT'S and FORMER PARTICIPANT'S
nonsegregated accounts bear to the total of all PARTICIPANTS' and
FORMER PARTICIPANTS' nonsegregated accounts. PARTICIPANTS' transfers
from other qualified plans deposited in the TRUST FUND share in any
earnings and losses (net appreciation or net depreciation) of the
TRUST FUND as provided above. Each PARTICIPANT'S segregated account
is credited or charged with its separate earnings and losses.
(h) A PARTICIPANT'S ACCOUNTS are debited for any insurance or
annuity premiums paid, if any, and credited with any dividends
received on CONTRACTS.
(i) FORFEITURES are first made available to reinstate previously
forfeited ACCOUNT BALANCES of FORMER PARTICIPANTS, if any, by
subsection 3.5(d). Remaining FORFEITURES,
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if any, are allocated among PARTICIPANTS' ACCOUNTS of PARTICIPANTS
otherwise eligible to share in the allocation of EMPLOYER
CONTRIBUTIONS in the proportion that each such PARTICIPANT'S
COMPENSATION for the year bears to the total COMPENSATION of all such
PARTICIPANTS for the year.
However, if the allocation of FORFEITURES causes the ANNUAL
ADDITION (in subsection 2.21) to any PARTICIPANT'S ACCOUNT to exceed
the amount allowable by the Code, the excess is reallocated by
subsection 2.22.
(j) For any TOP HEAVY PLAN YEAR, PARTICIPANTS not otherwise
eligible to share in the allocation of EMPLOYER CONTRIBUTIONS and
FORFEITURES, receive the minimum allocation in subsection 2.17(a) if
eligible by subsection 2.17(c).
(k) PARTICIPANTS not actively employed on the last day of the PLAN
YEAR from Retirement (Normal or Late), DISABILITY or death share
EMPLOYER CONTRIBUTIONS and FORFEITURES for that PLAN YEAR only if
otherwise eligible.
2.17 TOP HEAVY MINIMUM CONTRIBUTIONS
(a) Notwithstanding the above, for any TOP HEAVY PLAN YEAR, the
sum of EMPLOYER CONTRIBUTIONS and FORFEITURES allocated to a
PARTICIPANT'S ACCOUNT shall be equal to at least 3% of such
PARTICIPANT'S COMPENSATION (reduced by contributions and forfeitures,
if any, allocated to each PARTICIPANT in any defined contribution plan
included with THIS PLAN in a REQUIRED AGGREGATION GROUP). However, if
(1) the sum of the EMPLOYER CONTRIBUTIONS and FORFEITURES allocated to
the ACCOUNT of each KEY EMPLOYEE for such TOP HEAVY PLAN YEAR is less
than 3% of each KEY EMPLOYEE'S COMPENSATION and (2) THIS PLAN is not
required to be included in an AGGREGATION GROUP to enable a defined
benefit plan to meet the requirements of CODE SECTION 401(a)(4) or
410, the sum of the EMPLOYER CONTRIBUTIONS and FORFEITURES allocated
to the PARTICIPANT'S ACCOUNT shall equal the largest percentage
allocated to any KEY EMPLOYEE'S ACCOUNT.
However, no such minimum allocation is required in THIS PLAN
for any EMPLOYEE who participates in another defined contribution plan
subject to CODE SECTION 412 if such benefits are included with THIS
PLAN in a REQUIRED AGGREGATION GROUP.
(b) For the minimum allocations above, the percentage allocated to
any KEY EMPLOYEE'S ACCOUNT shall be equal to the ratio of the sum of
the EMPLOYER CONTRIBUTIONS and FORFEITURES allocated to such KEY
EMPLOYEE divided by the KEY EMPLOYEE'S COMPENSATION.
(c) For any TOP HEAVY PLAN YEAR, the minimum allocations above
shall be allocated to the ACCOUNT of PARTICIPANTS who are employed by
TOM BROWN on the last day of the PLAN YEAR, including EMPLOYEEs who
have not completed a YEAR OF SERVICE.
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(d) In lieu of the above, if an EMPLOYEE participates in THIS PLAN
and a defined benefit pension plan included in a REQUIRED AGGREGATION
GROUP which is top heavy, a minimum allocation of 5% of COMPENSATION
shall be required in THIS PLAN.
(e) If a FORMER PARTICIPANT is reemployed after 5 consecutive
1-YEAR BREAKS IN SERVICE, separate accounts are maintained as follows:
(1) an account for nonforfeitable benefits attributable
to his pre-break SERVICE and
(2) an account representing his status in THIS PLAN
attributable to his post-break SERVICE.
(f) Notwithstanding the above, if THIS PLAN would otherwise not
meet the requirements of CODE SECTIONS 401(a)(26), 410(b)(1) or
410(b)(2)(A)(i) and their REGULATIONS because EMPLOYER CONTRIBUTIONS
would not be allocated to a sufficient number or percentage of
PARTICIPANTS for a PLAN YEAR, the following apply:
(1) The group of PARTICIPANTS eligible to share in the
EMPLOYER CONTRIBUTIONS and FORFEITURES for the PLAN
YEAR shall be expanded to include the minimum number
of PARTICIPANTS who would not otherwise be eligible
as are necessary to satisfy the applicable test
specified above. The specific PARTICIPANTS who
become eligible by this subparagraph are those
actively employed on the last day of the PLAN YEAR
and, when compared to similarly situated
PARTICIPANTS, have completed the greatest number of
HOURS OF SERVICE in the PLAN YEAR.
(2) If the applicable test is still not satisfied after
application of subparagraph (1) above, the group of
PARTICIPANTS eligible to share in the EMPLOYER
CONTRIBUTIONS and FORFEITURES for the PLAN YEAR is
further expanded to include the minimum number of
PARTICIPANTS who are not actively employed on the
last day of the PLAN YEAR as are necessary to satisfy
the applicable test. The specific PARTICIPANTS who
become eligible to share are those PARTICIPANTS, when
compared to similarly situated PARTICIPANTS, who have
completed the greatest number of HOURS OF SERVICE in
the PLAN YEAR before TERMINATION.
(3) Nothing in this subsection permits the reduction of a
PARTICIPANT'S ACCRUED BENEFIT. Therefore, any
amounts previously allocated to a PARTICIPANT'S
ACCOUNT may not be reallocated to satisfy these
requirements. TOM BROWN shall make additional
contributions equal to the amount such affected
PARTICIPANTS would have received had they been
included in the allocations, even if it exceeds the
amount deductible by
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CODE SECTION 404. Any adjustment to the allocations
by this subparagraph is considered a retroactive
amendment adopted on the last day of the PLAN YEAR.
(4) Notwithstanding the above, if THIS PLAN fails CODE
SECTION 410(b) if the coverage tests were applied by
treating those PARTICIPANTS whose only allocation
would otherwise be provided under the top heavy
formula as if they were not currently benefiting
under THIS PLAN, for this subparagraph (4), such
PARTICIPANTS are treated as not benefiting, and,
therefore, eligible to be included in the expanded
class of PARTICIPANTS who will share in the
allocation by THIS PLAN'S non top heavy formula.
OTHER CONTRIBUTIONS/FORFEITURES
2.18 EMPLOYER CONTRIBUTIONS
For each PLAN YEAR, TOM BROWN may make EMPLOYER CONTRIBUTIONS, which
shall not exceed the maximum amount allowable as a deduction to TOM BROWN in
CODE SECTION 404, except however, TOM BROWN shall make an EMPLOYER CONTRIBUTION
for the top heavy minimum contribution in subsection 2.17 even if it exceeds
the amount deductible by CODE SECTION 404.
All EMPLOYER CONTRIBUTIONS shall be made in cash, TOM BROWN STOCK or
in property acceptable to the TRUSTEE.
TOM BROWN shall pay the EMPLOYER CONTRIBUTION to the TRUSTEE for each
PLAN YEAR within the time prescribed by law. TOM BROWN STOCK and other
property contributed are valued at their then fair market value.
All contributions made by a PARTICIPATING EMPLOYER to THIS PLAN are
determined separately for each PARTICIPATING EMPLOYER and are allocated only
among the PARTICIPANTS eligible to share such PARTICIPATING EMPLOYER'S
contribution. On information furnished by the ADMINISTRATOR, the TRUSTEE keeps
separate books and records of the affairs of each PARTICIPATING EMPLOYER and as
to the ACCOUNTS and credits of the EMPLOYEES of each PARTICIPATING EMPLOYER.
The TRUSTEE may, but need not, register CONTRACTS to evidence that a particular
PARTICIPATING EMPLOYER is the interested employer, but, if an EMPLOYEE
transfers from 1 PARTICIPATING EMPLOYER to another, the employing employer
shall immediately notify the TRUSTEE.
For each PLAN YEAR, TOM BROWN contributes to THIS PLAN:
(a) The amount of the deferrals of all PARTICIPANTS in subsection
2.2, which amount is deemed an ELECTIVE DEFERRAL, plus
(b) QUALIFIED NON-ELECTIVE DEFERRALS or discretionary EMPLOYER
CONTRIBUTIONS,
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(c) QUALIFIED NON-ELECTIVE DEFERRALS, which are used to satisfy
the Actual Deferral Percentage Tests in subsection 2.5,
(d) Discretionary EMPLOYEE CONTRIBUTIONS.
ELECTIVE DEFERRALS accumulated through payroll deductions shall be
paid to the TRUSTEE as of the earliest date on which such contributions can
reasonably be segregated from TOM BROWN's general assets, but at least within
15 days after the end of the month of the payroll deduction. The DOL
Regulations 2510.3-102 are incorporated by this reference. Furthermore, any
additional EMPLOYER CONTRIBUTIONS which are allocable to the PARTICIPANT'S
ELECTIVE DEFERRED ACCOUNT for a PLAN YEAR shall be paid to THIS PLAN no later
than the 12-month period immediately following the close of such PLAN YEAR.
All EMPLOYER CONTRIBUTIONS shall be allocated on the last day of the
PLAN YEAR to which they relate.
2.19 EMPLOYEE CONTRIBUTIONS
(a) Each PARTICIPANT may, at the discretion of the ADMINISTRATOR,
elect to voluntarily contribute a portion of his COMPENSATION earned
while a PARTICIPANT to THIS PLAN. Such contributions shall be paid to
the TRUSTEE within 15 days after the end of the month of the
contribution. The balance in each PARTICIPANT'S VOLUNTARY
CONTRIBUTION ACCOUNT shall be fully vested at all times and shall not
be subject to FORFEITURE for any reason.
(b) A PARTICIPANT may elect to withdraw his VOLUNTARY
CONTRIBUTIONS from his VOLUNTARY CONTRIBUTION ACCOUNT and its actual
earnings consistent with and satisfying subsection 3.4, including, but
not limited to, all notice and consent requirements of CODE SECTION
411(a)(11) and its REGULATIONS. If the ADMINISTRATOR maintains
sub-accounts for VOLUNTARY CONTRIBUTIONS (and EARNINGS thereon) which
were made on or before a specified date, a PARTICIPANT may designate
which sub-account is the source for his withdrawal.
If such a withdrawal is made or if a PARTICIPANT has received
a hardship distribution in REGULATION 1.401(k)-1(d)(2)(iv)(B) from any
plan maintained by TOM BROWN, such PARTICIPANT is barred from making
any ELECTIVE DEFERRALS to the TRUST FUND for a period of 12 months
after receipt of the withdrawal or distribution.
(c) At NORMAL RETIREMENT DATE, or when the PARTICIPANT or his
BENEFICIARY are entitled to receive benefits, the fair market value of
his VOLUNTARY CONTRIBUTION ACCOUNT is used to provide additional
benefits to the PARTICIPANT or his BENEFICIARY.
(d) The ADMINISTRATOR may direct that VOLUNTARY CONTRIBUTIONS
after a VALUATION DATE be segregated into a separate account for each
PARTICIPANT in a federally insured
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savings account, certificate of deposit in a bank or savings and loan
association, money market certificate, or other short term debt
security acceptable to the TRUSTEE until such time as the allocations
of THIS PLAN have been made, at which time they may remain segregated
or be invested as part of the general TRUST FUND, as determined by the
ADMINISTRATOR.
2.20 FORFEITURES
(a) The ADMINISTRATOR shall establish and maintain an ACCOUNT in
the name of each PARTICIPANT to which the ADMINISTRATOR shall credit
as of each VALUATION DATE, all amounts allocated to each such
PARTICIPANT.
(b) TOM BROWN shall provide the ADMINISTRATOR with all information
required by the ADMINISTRATOR to make a proper allocation of EMPLOYER
CONTRIBUTIONS for each PLAN YEAR. Within a reasonable time after the
receipt of information, the ADMINISTRATOR shall allocate such
contribution as follows:
(1) For an ELECTIVE DEFERRAL in subsection 2.2(a), to
each PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT in an
amount equal to each such PARTICIPANT'S ELECTIVE
DEFERRAL for the PLAN YEAR.
(2) For a MATCHING CONTRIBUTION in subsection 2.2(b), to
each PARTICIPANT'S ACCOUNT or PARTICIPANT'S ELECTIVE
DEFERRAL ACCOUNT by subsection 2.2(a).
However, a PARTICIPANT who is not credited with a
YEAR OF SERVICE during any PLAN YEAR shall not share
in a MATCHING CONTRIBUTION for that year.
(3) For a NON-ELECTIVE DEFERRAL in subsection 2.26(d), to
each PARTICIPANT'S ACCOUNT by subsections 2.9 or
2.13, whichever is applicable.
(4) For a QUALIFIED NON-ELECTIVE DEFERRAL in subsection
2.25(d), to each PARTICIPANT'S QUALIFIED NON-ELECTIVE
DEFERRAL ACCOUNT in the same proportion that each
such PARTICIPANT'S COMPENSATION for the year bears to
the total COMPENSATION of all PARTICIPANTS for such
year. A PARTICIPANT not credited with a YEAR OF
SERVICE during any PLAN YEAR shall not share in a
QUALIFIED NON-ELECTIVE DEFERRAL for that year,
unless required by subsection 2.17(f). In addition,
subsections 2.26(g) and 2.26(h) apply for the
allocation of a QUALIFIED NON-ELECTIVE DEFERRAL.
(c) Notwithstanding the above, in determining whether a NON-KEY
EMPLOYEE has received the required minimum allocation by subsection
2.17(f), such NON-KEY EMPLOYEE'S ELECTIVE DEFERRAL used to satisfy the
Actual Deferral Percentage test in subsection 2.5(a) or the Actual
Contribution Percentage test in subsection 2.10(a) are not taken into
account.
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MAXIMUM ANNUAL ADDITIONS
2.21 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the above, the MAXIMUM ANNUAL ADDITIONS
credited to a PARTICIPANT'S ACCOUNTS for any LIMITATION YEAR shall
equal the lesser of: (1) $30,000 (or, if greater, 1/4th of the dollar
limitation in CODE SECTION 415(b)(1)(A)) or (2) 25% of the
PARTICIPANT'S COMPENSATION for such LIMITATION YEAR. For any short
LIMITATION YEAR, the dollar limitation in (1) above is reduced by a
fraction, the numerator of which is the number of full months in the
short LIMITATION YEAR and the denominator of which is 12.
(b) To apply the limitations in CODE SECTION 415, ANNUAL ADDITIONS
are the sum credited to a PARTICIPANT'S ACCOUNTS for any LIMITATION
YEAR of (1) EMPLOYER CONTRIBUTIONS, (2) EMPLOYEE CONTRIBUTIONS, (3)
FORFEITURES, (4) amounts allocated to an individual medical account in
CODE SECTION 415(l)(2) which is part of a pension or annuity plan
maintained by TOM BROWN, and (5) amounts derived from EMPLOYER
CONTRIBUTIONS paid or accrued, attributable to post-retirement medical
benefits allocated to the separate account of a KEY EMPLOYEE under a
welfare benefit plan (in CODE SECTION 419(e)) maintained by TOM BROWN.
However, the percentage limitation referred to in subparagraph (a)(2)
above does not apply to: (1) any contribution for medical benefits (in
CODE SECTION 419A(f)(2)) after separation from SERVICE which is
otherwise treated as an ANNUAL ADDITION or (2) any amount otherwise
treated as an ANNUAL ADDITION in CODE SECTION 415(l)(1).
(c) To apply the limitations in CODE SECTION 415, the transfer of
funds from 1 qualified plan to another is not an ANNUAL ADDITION. In
addition, the following are not EMPLOYEE CONTRIBUTIONS for
subparagraph (b)(2) above: (1) rollover contributions (in CODE
SECTIONS 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2)
repayments of PARTICIPANT LOANS; (3) repayments of distributions
received by a PARTICIPANT by CODE SECTION 411(a)(7)(B) (cash-outs);
(4) repayments of distributions received by an EMPLOYEE by CODE
SECTION 411(a)(3)(D) (mandatory contributions); and (5) employee
contributions to a simplified employee pension excludable from gross
income by CODE SECTION 408(k)(6).
(d) To apply the limitations of CODE SECTION 415, the "LIMITATION
YEAR" is the PLAN YEAR.
(e) The dollar limitation in CODE SECTION 415(b)(1)(A) stated in
subparagraph (a)(1) above shall be adjusted annually by CODE SECTION
415(d) and its REGULATIONS. The adjusted limitation is effective as
of January 1st of each PLAN YEAR.
(f) For this subsection, all qualified defined benefit plans
(whether terminated or not)
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ever maintained by TOM BROWN are treated as 1 defined benefit plan,
and all qualified defined contribution plans (whether terminated or
not) ever maintained by TOM BROWN are treated as 1 defined
contribution plan.
(g) For this subsection, if TOM BROWN is a member of a controlled
group of corporations, trades or businesses under common control (by
CODE SECTION 1563(a) or CODE SECTION 414(b) and (c) as modified by
CODE SECTION 415(h)), is a member of an affiliated service group (by
CODE SECTION 414(m)), or is a member of a group of entities required
to be aggregated by CODE SECTION 414(o) REGULATIONS, all EMPLOYEES of
such employers are considered to be employed by TOM BROWN.
(h) For this subsection, if THIS PLAN is a CODE SECTION 413(c)
plan, all employers of a PARTICIPANT who maintain THIS PLAN are
considered 1 employer.
(i) If an EMPLOYEE is (or has been) a PARTICIPANT in 1 or more
defined benefit plans and 1 or more defined contribution plans
maintained by TOM BROWN, the sum of the Defined Benefit Plan Fraction
and the Defined Contribution Plan Fraction for any LIMITATION YEAR may
not exceed 1.0.
(j) The "Defined Benefit Plan Fraction" for any LIMITATION YEAR is
a fraction, the numerator of which is the sum of the PARTICIPANT'S
projected annual benefits under all the defined benefit plans (whether
or not terminated) maintained by TOM BROWN, and the denominator of
which is the lesser of 125% of the dollar limitation determined for
the LIMITATION YEAR in CODE SECTION 415(b) and (d) or 140% of the
highest average compensation, including any adjustments in CODE
SECTION 415(b).
(k) The "Defined Contribution Plan Fraction" for any LIMITATION
YEAR is a fraction, the numerator of which is the sum of the ANNUAL
ADDITIONS to the PARTICIPANT'S ACCOUNT under all the defined
contribution plans (whether or not terminated) maintained by TOM BROWN
for the current and all prior LIMITATION YEARS (including the ANNUAL
ADDITIONS attributable to the PARTICIPANT'S nondeductible EMPLOYEE
CONTRIBUTIONS to all defined benefit plans, whether or not terminated,
maintained by TOM BROWN, and the ANNUAL ADDITIONS attributable to all
welfare benefit funds, in CODE SECTION 419(e), and individual medical
accounts, in CODE SECTION 415(l)(2), maintained by TOM BROWN, and the
denominator of which is the sum of the Maximum Aggregate Amounts for
the current and all prior LIMITATION YEARS of SERVICE with TOM BROWN
(regardless of whether a defined contribution plan was maintained by
TOM BROWN). The "Maximum Aggregate Amount" in any LIMITATION YEAR is
the lesser of 125% of the dollar limitation in CODE SECTIONS 415(b)
and (d) in effect in CODE SECTION 415(c)(1)(A) or 35% of the
PARTICIPANT'S COMPENSATION for such year.
If the EMPLOYEE was a PARTICIPANT as of the end of the 1st day
of the first LIMITATION YEAR beginning after December 31, 1986, in 1
or more defined contribution
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plans maintained by TOM BROWN which were in existence on May 6, 1986,
the numerator of this fraction is adjusted if the sum of this fraction
and the Defined Benefit Plan Fraction would otherwise exceed 1.0.
Under the adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator of this
fraction, is permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they
would be computed as of the end of the last LIMITATION YEAR beginning
before January 1, 1987, and disregarding any changes in THIS PLAN made
after May 5, 1986, but using the CODE SECTION 415 limitation
applicable to the first LIMITATION YEAR beginning on or after January
1, 1987. The ANNUAL ADDITION for any LIMITATION YEAR beginning before
January 1, 1987 shall not be recomputed to treat all EMPLOYEE
CONTRIBUTIONS as ANNUAL ADDITIONS.
(l) Notwithstanding the above, for any LIMITATION YEAR in which
THIS PLAN is a TOP HEAVY PLAN, 100% is substituted for 125% in this
subparagraph and subsection 2.21(j). However, for any LIMITATION YEAR
in which THIS PLAN is a SUPER TOP HEAVY PLAN, 100% is substituted for
125%.
(m) Notwithstanding the above, the limitations, adjustments and
other requirements in this subsection shall at all times comply with
CODE SECTION 415 and its REGULATIONS, incorporated by this reference.
2.22 ADJUSTMENT FOR EXCESS AMOUNTS
(a) If, by the allocation of FORFEITURES, a reasonable error in
estimating a PARTICIPANT'S COMPENSATION, a reasonable error in
determining the amount of ELECTIVE DEFERRALS (in CODE SECTION
402(g)(3)) that may be made for any PARTICIPANT by the limits of
subsection 2.21 or other facts and circumstances to which REGULATION
1.415(b)(6) is applicable, the ANNUAL ADDITIONS in THIS PLAN causes
the MAXIMUM ANNUAL ADDITIONS to be exceeded for any PARTICIPANT, the
ADMINISTRATOR shall (1) distribute any EXCESS ELECTIVE DEFERRALS (in
CODE SECTION 402(g)(3)) or return any VOLUNTARY EMPLOYEE CONTRIBUTIONS
credited for the LIMITATION YEAR to eliminate the excess amount in the
PARTICIPANT'S Accounts, (2) hold any remaining EXCESS ELECTIVE
DEFERRAL in a SECTION 415 SUSPENSE ACCOUNT, (3) allocate and
reallocate the SECTION 415 SUSPENSE ACCOUNT in the next LIMITATION
YEAR (and succeeding LIMITATION YEARS if necessary) to all
PARTICIPANTS before any EMPLOYER or EMPLOYEE CONTRIBUTIONS which would
constitute ANNUAL ADDITIONS are made for such LIMITATION YEAR, and (4)
reduce EMPLOYER CONTRIBUTIONS to THIS PLAN for such LIMITATION YEAR by
the amount of the SECTION 415 SUSPENSE ACCOUNT allocated and
reallocated during such LIMITATION YEAR.
(b) THIS PLAN cannot distribute EXCESS ELECTIVE DEFERRALS, other
than VOLUNTARY EMPLOYEE CONTRIBUTIONS, to PARTICIPANTS or FORMER
PARTICIPANTS.
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ROLLOVERS
2.23 ROLLOVERS TO THIS PLAN
(a) With the consent of the ADMINISTRATOR, AMOUNTS TRANSFERRED
FROM OTHER QUALIFIED PLANS by PARTICIPANTS may be accepted by THIS
PLAN if the trust from which such funds are transferred permits the
transfer to be made and the transfer will not jeopardize the tax
exempt status of THIS PLAN or TRUST or create adverse tax consequences
for TOM BROWN. Amounts transferred are maintained in a separate
account referred to as a "Participant's Rollover Account." Such
ACCOUNT shall be fully vested at all times and shall not be subject to
FORFEITURE.
(b) Amounts in a Participant's Rollover Account are held by the
TRUSTEE and may not be withdrawn by, or distributed to the
PARTICIPANT, in whole or in part, except as provided in subparagraphs
(c) and (d) of this subsection.
(c) Except as permitted by REGULATIONS (including REGULATION
1.411(d)-4), amounts attributable to ELECTIVE DEFERRALS (in REGULATION
1.401(k)-l(g)(31)), including amounts treated as ELECTIVE DEFERRALS,
which are transferred from another qualified plan in a plan-to-plan
transfer are subject to the distribution limitations in REGULATION
1.401(k)-l(d).
(d) At NORMAL RETIREMENT DATE, or such other date when the
PARTICIPANT or his BENEFICIARY is entitled to receive benefits, the
fair market value of the Participant's Rollover Account is used to
provide additional benefits to the PARTICIPANT or his BENEFICIARY.
Any distributions of amounts held in a Participant's Rollover Account
are made in a manner which is consistent with and satisfies subsection
3.4, including, but not limited to, all notice and consent
requirements of CODE SECTION 411(a)(11) and its REGULATIONS.
Furthermore, such amounts are considered as part of a PARTICIPANT'S
benefit in determining whether an involuntary cash-out of benefits
without PARTICIPANT consent may be made.
(e) The ADMINISTRATOR may direct that employee transfers made
after a VALUATION DATE be segregated in a separate account for each
PARTICIPANT in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the
TRUSTEE until the allocations in THIS PLAN have been made, at which
time they may remain segregated or be invested as part of the general
TRUST FUND, as determined by the ADMINISTRATOR.
(f) Prior to accepting any transfers in this subsection, the
ADMINISTRATOR may require the EMPLOYEE to establish that the amounts
to be transferred to THIS PLAN meet the requirements of this
subsection and may also require the EMPLOYEE to provide an opinion of
counsel satisfactory to TOM BROWN that the amounts to be transferred
meet the requirements of this subsection.
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(g) Notwithstanding the above, a transfer directly to THIS PLAN
from another QUALIFIED PLAN (or a transaction having the effect of
such a transfer) shall only be permitted if it will not result in the
elimination or reduction of any SECTION 411(D)(6) PROTECTED BENEFIT.
DEFINITIONS FOR CONTRIBUTIONS AND FORFEITURES
THE FOLLOWING ARE DEFINITIONS FOR THIS SECTION AND THIS PLAN.
2.24 ELECTIVE DEFERRALS
(a) "ELECTIVE DEFERRAL" is TOM BROWN'S contribution to THIS PLAN
of the PARTICIPANT'S ELECTIVE DEFERRAL in subsection 2.2, excluding
amounts distributed as Excess Annual Additions. ELECTIVE DEFERRALS
shall be subject to the requirements of subsection 2.2(b) and (c) and
shall further be required to satisfy the discrimination requirements
of REGULATION 1.401(k)-l(b)(3), specifically incorporated by this
reference.
(b) "EXCESS ELECTIVE DEFERRALS" is, for any taxable year of a
PARTICIPANT, the excess of the aggregate amount of such PARTICIPANT'S
ELECTIVE DEFERRALS and the ELECTIVE DEFERRALS in subsection 2.4
actually made on behalf of such PARTICIPANT for such taxable year,
over the dollar limitation in CODE SECTION 402(g), incorporated by
this reference. An EXCESS ELECTIVE DEFERRAL is treated as an ANNUAL
ADDITION in subsection 2.21 when contributed to THIS PLAN unless
distributed to the affected PARTICIPANT not later than the first April
15th following the close of the PARTICIPANT'S taxable year.
(c) "PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT" is the account
established and maintained by the ADMINISTRATOR for each PARTICIPANT
for his total interest in THIS PLAN from ELECTIVE DEFERRALS and
QUALIFIED NON-ELECTIVE DEFERRALS. A separate accounting is maintained
for that portion of the PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT
attributable to ELECTIVE DEFERRALS in subsection 2.2, and any
QUALIFIED NON-ELECTIVE CONTRIBUTIONS.
2.25 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) "QUALIFIED NON-ELECTIVE CONTRIBUTION" is TOM BROWN'S
contributions to THIS PLAN other than by the PARTICIPANT'S deferral
election in subsection 2.4 and any QUALIFIED NON-ELECTIVE
CONTRIBUTION.
(b) "PLAN YEAR" is the calendar year.
(c) "THIS PLAN" is this instrument, including all its amendments.
(d) "QUALIFIED NON-ELECTIVE DEFERRAL ACCOUNT" is the account in
THIS PLAN to which QUALIFIED NON-ELECTIVE DEFERRALS are allocated.
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(e) "QUALIFIED NON-ELECTIVE DEFERRAL" is TOM BROWN'S contributions
to THIS PLAN made pursuant to subsection 2.5(b)(1) used to satisfy the
"Actual Deferral Percentage" tests. QUALIFIED NON-ELECTIVE DEFERRALS
are nonforfeitable when made and are distributable only as specified
in subsections 2.2(c) and 3.5(e). In addition, TOM BROWN'S
contributions in subsection 2.11 used to satisfy the Actual
Contribution Percentage tests are considered QUALIFIED NON-ELECTIVE
DEFERRALS.
(f) "ACTUAL DEFERRAL PERCENTAGE" means, for a specified group of
PARTICIPANTS for a PLAN YEAR, the average of the ratios (calculated
separately for each PARTICIPANT in such group) of (i) the amount of
employer contributions actually paid over to THIS PLAN on behalf of
such PARTICIPANTS for the PLAN YEAR to (ii) the PARTICIPANT'S
COMPENSATION for such PLAN YEAR. Employer contributions on behalf of
any PARTICIPANT shall include: (i) any ELECTIVE DEFERRALS pursuant to
the PARTICIPANT'S DEFERRAL ELECTION (including EXCESS ELECTIVE
DEFERRALS of HIGHLY COMPENSATED EMPLOYEES), but excluding (a) EXCESS
ELECTIVE DEFERRALS of NONHIGHLY COMPENSATED EMPLOYEES that arise
solely from ELECTIVE DEFERRALS made under TOM BROWN plans and (b)
ELECTIVE DEFERRALS that are taken into account in the Actual
Contribution Percentage Test (if the Actual Deferral Percentage Test
is satisfied both with and without exclusion of these ELECTIVE
DEFERRALS; and (ii) at TOM BROWN'S election, QUALIFIED NON-ELECTIVE
CONTRIBUTIONS and QUALIFIED MATCHING CONTRIBUTIONS. To compute Actual
Deferral Percentages, an EMPLOYEE who would be a PARTICIPANT but for
the failure to make ELECTIVE DEFERRALS shall be treated as a
PARTICIPANT on whose behalf no ELECTIVE DEFERRALS are made.
(g) "MATCHING CONTRIBUTIONS" means an EMPLOYER CONTRIBUTION made
to this or any other defined contribution plan for a PARTICIPANT
because of an EMPLOYEE CONTRIBUTION made by such PARTICIPANT, or on
account of a PARTICIPANT'S ELECTIVE DEFERRAL, in a plan maintained by
TOM BROWN.
(h) "EXCESS CONTRIBUTIONS" means, as to any PLAN YEAR, the excess
of:
(1) the AGGREGATE AMOUNT of EMPLOYER CONTRIBUTIONS taken
into account in computing the Actual Deferral
Percentage of HIGHLY COMPENSATED EMPLOYEES for such
PLAN YEAR, over
(2) the maximum amount of such contributions permitted by
the Actual Deferral Percentage Test (determined by
reducing contributions made on behalf of HIGHLY
COMPENSATED EMPLOYEES in the order of the Actual
Deferral Percentages, beginning with the highest of
such percentages).
(i) "QUALIFIED MATCHING CONTRIBUTIONS" means MATCHING
CONTRIBUTIONS which are subject to the distribution and
nonforfeitability requirements under CODE SECTION 401(k) when made.
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2.26 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) "PARTICIPANT'S AGGREGATE ACCOUNT" is the value of all accounts
maintained for a PARTICIPANT, whether attributable to employer or
employee contributions, subject to subsection 2.16.
(b) "COMPENSATION" is a PARTICIPANT'S wages, salaries, fees for
professional services and other amounts received (whether or not an
amount is paid in cash) for personal services actually rendered in the
course of employment with TOM BROWN to the extent that the amounts are
includible in his gross income (including, but not limited to,
commissions paid salesmen, compensation for services as a percentage
of profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, and reimbursements or other expense allowances under a
nonaccountable plan (in REGULATION 1.62-2(c)) for a PLAN YEAR.
COMPENSATION excludes:
(1) (A) employer contributions to a plan of deferred
compensation which are not includible in the
PARTICIPANT'S gross income for the taxable
year of contribution,
(B) employer contributions to a simplified
employee pension plan in CODE SECTION 408(k)
excludable from the EMPLOYEE'S gross income,
(C) any distributions from a plan of deferred
compensation;
(2) amounts realized from the exercise of a non-qualified
stock option or when restricted stock (or property)
held by an EMPLOYEE that either is freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(3) amounts realized from the sale, exchange or other
disposition of stock acquired with a qualified stock
option; and
(4) other amounts which receive special tax benefits or
employer contributions (whether or not under a salary
reduction) for the purchase of any annuity contract
in CODE SECTION 403(b) (whether or not the
contributions are actually excludable from the gross
income of the EMPLOYEE).
For this subsection, COMPENSATION is determined by including
Employer Contributions to a salary reduction agreement not includible
in the PARTICIPANT'S gross income by CODE SECTIONS 125, 402(a)(8),
402(h), 403(b) or 457, and employee
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contributions treated as employer contributions by CODE SECTION
414(h)(2).
For a PARTICIPANT'S initial year of participation,
COMPENSATION is recognized as of the PARTICIPANT'S effective date of
participation.
COMPENSATION is limited to $150,000. COMPENSATION is adjusted
as permitted in CODE SECTION 415(d) except that the dollar increase in
effect on January 1 of any calendar year is effective for the PLAN
YEAR beginning with or within such calendar year and the 1st
adjustment to the $150,000 limitation shall be effective on January 1,
1994. For any short PLAN YEAR the COMPENSATION limit is an amount
equal to the COMPENSATION limit for the calendar year in which the
PLAN YEAR begins multiplied by the number of full months in the short
PLAN YEAR and divided by 12. The family group of a HIGHLY COMPENSATED
EMPLOYEE subject to the FAMILY MEMBER aggregation rules of CODE
SECTION 414(q)(6) because such PARTICIPANT is either a 5% OWNER or 1
of the 10 HIGHLY COMPENSATED EMPLOYEES paid the greatest COMPENSATION
during the year, is treated as a single PARTICIPANT, except FAMILY
MEMBERS include only the affected PARTICIPANT'S spouse and any lineal
descendants who do not attain age 19 before the close of the year.
If, as a result of the application of such rules the adjusted $150,000
limitation is exceeded, the limitation is prorated among the affected
FAMILY MEMBERS in proportion to each such FAMILY MEMBER'S COMPENSATION
prior to the application of this limitation or the limitation is
adjusted by any other method permitted by REGULATION.
If, as a result of the above, the "MAXIMUM ANNUAL ADDITION"
limit of subsection 2.21 is exceeded for 1 or more of the affected
FAMILY MEMBERS, the prorated COMPENSATION of all affected FAMILY
MEMBERS is adjusted to avoid or reduce any excess. The prorated
COMPENSATION of any affected FAMILY MEMBER whose allocation exceeds
the limit is adjusted downward to the level needed for an allocation
equal to such limit. The prorated COMPENSATION of affected FAMILY
MEMBERS not affected by such limit is adjusted upward on a pro rata
basis not to exceed each such affected FAMILY MEMBER'S COMPENSATION as
determined prior to application of the FAMILY MEMBER rule. The
resulting allocation cannot exceed such individual's "MAXIMUM ANNUAL
ADDITION" limit. If an EXCESS AMOUNT still results, such EXCESS
AMOUNT is allocated by subsection 2.22(a), pro rata among all affected
FAMILY MEMBERS.
If THIS PLAN is a plan in CODE SECTION 413(c) or 414(f) (a
plan maintained by more than 1 employer), the $150,000 limitation
applies separately for the COMPENSATION of any PARTICIPANT from each
employer maintaining THIS PLAN.
"414(S) COMPENSATION" means a PARTICIPANT'S COMPENSATION
actually paid.
(c) "EXCESS AGGREGATE CONTRIBUTIONS" means, for a PLAN YEAR, the
excess of the aggregate amount of the VOLUNTARY EMPLOYEE CONTRIBUTIONS
in subsection 2.22 and any QUALIFIED NON-ELECTIVE DEFERRALS or
ELECTIVE DEFERRALS taken into account in subsection
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2.10 for HIGHLY COMPENSATED EMPLOYEES for such PLAN YEAR, over the
maximum amount of such contributions permitted by subsection 2.2(a).
(d) "QUALIFIED NON-ELECTIVE DEFERRALS" is TOM BROWN'S
contributions to THIS PLAN other than by the PARTICIPANT'S Deferral
Election in subsection 2.3 and any QUALIFIED NON-ELECTIVE
CONTRIBUTION.
(e) "PLAN YEAR" is the calendar year.
(f) "THIS PLAN" is this instrument, including all its amendments.
(g) "QUALIFIED NON-ELECTIVE DEFERRAL ACCOUNT" is the account in
THIS PLAN to which QUALIFIED NON-ELECTIVE CONTRIBUTIONS are allocated.
(h) "QUALIFIED NON-ELECTIVE DEFERRAL" is TOM BROWN'S contributions
to THIS PLAN made pursuant to subsection 2.18(d), 2.10(c) and 2.11
used to satisfy the Actual Deferral Percentage tests. QUALIFIED
NON-ELECTIVE DEFERRALS are nonforfeitable when made and are
distributable only as specified in subsections 2.2(c) and 3.5(e).
(i) "EXCESS AGGREGATE CONTRIBUTIONS" means, for a PLAN YEAR, the
excess of the aggregate amount of the Voluntary Employee Contributions
in subsection 2.22 and any QUALIFIED NON-ELECTIVE DEFERRALS or
ELECTIVE DEFERRALS taken into account in subsection 2.10 for HIGHLY
COMPENSATED EMPLOYEES for such PLAN YEAR, over the maximum amount of
such deferrals permitted by subsection 2.10(a).
(j) "AGGREGATE LIMIT" means the sum of (i) 125% of the greater of
the Actual Deferral Percentage of the NONHIGHLY COMPENSATED EMPLOYEES
for the PLAN YEAR or the Actual Contribution Percentage of NONHIGHLY
COMPENSATED EMPLOYEES beginning with or within the PLAN YEAR of the
ELECTIVE DEFERRALS, and (ii) the lesser of 200% or 2 plus the lesser
of the Actual Deferral Percentage or the Actual Contribution
Percentage. "Lesser" is substituted for "greater" in "(i)", above,
and "greater" is substituted for "lesser" after "2 plus the" in "(ii)"
if it would result in a larger AGGREGATE LIMIT.
(k) "ACTUAL CONTRIBUTION PERCENTAGE" means the average of the
Contribution Percentages of the Eligible PARTICIPANTS in a group.
(l) "CONTRIBUTION PERCENTAGE" means the ratio (expressed as a
percentage) of the PARTICIPANT'S CONTRIBUTION PERCENTAGE AMOUNTS to
the PARTICIPANT'S COMPENSATION for the PLAN YEAR (whether or not the
EMPLOYEE was a PARTICIPANT for the entire PLAN YEAR).
(m) "CONTRIBUTION PERCENTAGE AMOUNTS" means the sum of the
EMPLOYEE CONTRIBUTIONS, MATCHING CONTRIBUTIONS, and QUALIFIED MATCHING
CONTRIBUTIONS (to the extent not taken into account for the Actual
Deferral Percentage Test) made under THIS
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PLAN on behalf of the PARTICIPANT for the PLAN YEAR. CONTRIBUTION
PERCENTAGE AMOUNTS shall not include MATCHING CONTRIBUTIONS that are
forfeited either to correct EXCESS AGGREGATE CONTRIBUTIONS or because
the CONTRIBUTIONS to which they relate are EXCESS DEFERRALS, EXCESS
CONTRIBUTIONS, or EXCESS AGGREGATE CONTRIBUTIONS. TOM BROWN may
include QUALIFIED NON-ELECTIVE CONTRIBUTIONS in the CONTRIBUTION
PERCENTAGE AMOUNTS. TOM BROWN may also elect to use ELECTIVE
DEFERRALS in the CONTRIBUTION PERCENTAGE AMOUNTS as long as the Actual
Deferral Percentage Test is met before the ELECTIVE DEFERRALS are used
in the Actual Contribution Percentage Test and continues to be met
following the exclusion of those ELECTIVE DEFERRALS that are used to
meet the Actual Contribution Percentage Tests.
(n) "EMPLOYEE CONTRIBUTIONS" means any contribution made to THIS
PLAN by or on behalf of a PARTICIPANT that is included in the
PARTICIPANT'S gross income for the year in which made and that is
maintained in a separate account to which earnings and losses are
allocated.
(o) "EXCESS AGGREGATE CONTRIBUTIONS" means, as to any Plan Year,
the excess of:
(1) the AGGREGATE CONTRIBUTION PERCENTAGE AMOUNTS taken
into account in computing the numerator of the
CONTRIBUTION PERCENTAGE actually made on behalf of
HIGHLY COMPENSATED EMPLOYEES for such PLAN YEAR, over
(2) the maximum CONTRIBUTION PERCENTAGE AMOUNTS permitted
by the Actual Contribution Percentage Test
(determined by reducing contributions made on behalf
of HIGHLY COMPENSATED EMPLOYEES in order of their
CONTRIBUTION PERCENTAGES beginning with the highest
of such percentages).
Such determination shall be made after first determining EXCESS
ELECTIVE DEFERRALS in subsection 2.2 and then determining EXCESS
CONTRIBUTIONS in subsection 2.25(h).
2.27 TOP HEAVY PLAN
(a) "FAMILY MEMBER" is, for a PARTICIPANT, such PARTICIPANT'S
spouse and such PARTICIPANT'S lineal descendants and ascendants and
their spouses, in CODE SECTION 414(q)(6)(B).
(b) "HIGHLY COMPENSATED EMPLOYEE" is an EMPLOYEE in CODE SECTION
414(q) and its REGULATIONS, and generally is an EMPLOYEE who performs
services for TOM BROWN during the determination year and is in 1 or
more of the following groups:
(1) EMPLOYEES who at any time during the determination
year or look-back year were 5% OWNERS as defined in
subsection 2.27(e)(3).
(2) EMPLOYEES who received COMPENSATION during the
look-back year in excess of $75,000.
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(3) EMPLOYEES who received COMPENSATION during the
look-back year in excess of $50,000 and were in the
top paid group of EMPLOYEES for the PLAN YEAR.
(4) EMPLOYEES who, during the look-back year, were
officers of TOM BROWN (in CODE SECTION 416
REGULATIONS) and received COMPENSATION during the
look-back year greater than 50% of the limit in
effect in CODE SECTION 415(b)(1)(A) for any such PLAN
YEAR. The number of officers is limited to the
lesser of (i) 50 employees; or (ii) the greater of 3
EMPLOYEES or 10% of all EMPLOYEES. To determine the
number of officers, EMPLOYEES in subsection
2.27(b)(1), (2), and (3) are excluded, but such
EMPLOYEES are still considered for identifying the
particular EMPLOYEEs who are officers. If TOM BROWN
has no 1 officer whose annual COMPENSATION is in
excess of 50% of the CODE SECTION 415(b)(1)(A) limit,
the highest paid officer of TOM BROWN is a HIGHLY
COMPENSATED EMPLOYEE.
(5) EMPLOYEES in the group consisting of the 100
EMPLOYEEs paid the greatest COMPENSATION during the
determination year and also described in subsection
2.27(b), (c) or (d) when these paragraphs are
modified to substitute determination year for
look-back year.
The "determination year" is the PLAN YEAR for which testing is
being performed, and the "look-back year" is the immediately preceding
12-month period.
Additionally, the dollar threshold amounts specified in (b)
and (c) above are adjusted as provided by REGULATIONS. For such an
adjustment, the dollar limits applied are those for the calendar year
in which the determination year or look-back year begins.
To determine a HIGHLY COMPENSATED EMPLOYEE, EMPLOYEES who are
non-resident aliens and who received no earned income (by CODE SECTION
911(d)(2)) from TOM BROWN constituting United States source income are
not treated as EMPLOYEEs. Additionally, each AFFILIATED EMPLOYER is a
single employer, and LEASED EMPLOYEES in CODE SECTIONS 414(n)(2) and
414(o)(2) are EMPLOYEES unless such LEASED EMPLOYEES are covered by a
plan in CODE SECTION 414(n)(5) and are not covered in any qualified
plan maintained by TOM BROWN. Exclusion of LEASED EMPLOYEES is
applied on a uniform and consistent basis for all TOM BROWN'S
retirement plans. HIGHLY COMPENSATED FORMER EMPLOYEES are treated as
HIGHLY COMPENSATED EMPLOYEES whether or not they performed SERVICE
during the determination year.
(c) "HIGHLY COMPENSATED FORMER EMPLOYEE" is a former EMPLOYEE who
had a separation year prior to the determination year and was a HIGHLY
COMPENSATED EMPLOYEE in the year of his TERMINATION or in any
determination year after he attains age 55. Notwithstanding the
above, an EMPLOYEE who separated from service prior to 1987 will
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be treated as a HIGHLY COMPENSATED FORMER EMPLOYEE only if during the
separation year (or year preceding the separation year) or any year
after the EMPLOYEE attains age 55 (or the last year ending before the
EMPLOYEE'S 55th birthday), the EMPLOYEE either received COMPENSATION
in excess of $50,000 or was a 5% OWNER. For this subsection,
determination year, COMPENSATION and 5% OWNER are determined by
subsection 2.27(b). HIGHLY COMPENSATED FORMER EMPLOYEES are treated
as HIGHLY COMPENSATED EMPLOYEES. The determination of who is a
HIGHLY COMPENSATED FORMER EMPLOYEE is applied on a uniform and
consistent basis.
(d) "HIGHLY COMPENSATED PARTICIPANT" is any HIGHLY COMPENSATED
EMPLOYEE eligible to participate in THIS PLAN.
(e) "KEY EMPLOYEE" is an EMPLOYEE in CODE SECTION 416(i) and its
REGULATIONS. Generally, any EMPLOYEE or former EMPLOYEE (as well as
each of his BENEFICIARIES) is a KEY EMPLOYEE if he, at any time
during the PLAN YEAR that contains the Determination Date or any of
the preceding 4 PLAN YEARS, is in 1 of the following categories:
(1) an officer of TOM BROWN (by CODE SECTION 416
REGULATIONS) with annual COMPENSATION greater than
50% of the amount in effect in CODE SECTION
415(b)(1)(A) for any such PLAN YEAR.
(2) 1 of the 10 employees with annual COMPENSATION for a
PLAN YEAR greater than the dollar limitation in
effect in CODE SECTION 415(c)(1)(A) for the calendar
year in which such PLAN YEAR ends and owning (or
considered as owning in CODE SECTION 318) both more
than 1/2% interest and the largest interests in TOM
BROWN.
(3) A person who owns (or is considered as owning in CODE
SECTION 318) more than 5% of the outstanding stock of
TOM BROWN or stock possessing more than 5% of the
total combined voting power of all TOM BROWN stock.
To determine percentage ownership, employers that
would otherwise be aggregated by CODE SECTIONS
414(b), (c), (m) and (o) are treated as separate
employers.
(4) A person who owns (or is considered as owning in CODE
SECTION 318) more than 1% of outstanding stock or
stock possessing more than 1% of the total combined
voting power of all TOM BROWN stock and having an
annual compensation of more than $150,000. To
determine percentage ownership, employers that would
otherwise be aggregated by CODE SECTIONS 414(b), (c),
(m) and (o) are treated as separate employers. To
determine whether an individual has COMPENSATION of
more than $150,000, COMPENSATION from each employer
required to be aggregated under CODE SECTIONS 414(b),
(c), (m) and (o) is taken into account.
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(f) "NON-HIGHLY COMPENSATED EMPLOYEE" is any PARTICIPANT who is
neither a HIGHLY COMPENSATED EMPLOYEE nor his FAMILY MEMBER.
(g) "NON-KEY EMPLOYEE" is any EMPLOYEE or former EMPLOYEE (and his
beneficiaries) who is not a KEY EMPLOYEE.
(h) "PARTICIPANT'S ACCOUNTS" are the accounts established and
maintained by the ADMINISTRATOR for each PARTICIPANT for his total
interest in THIS PLAN.
(i) "TOP HEAVY PLAN YEAR" is a PLAN YEAR when THIS PLAN is a TOP
HEAVY PLAN.
(j) "TOP PAID GROUP" is the top 20% of EMPLOYEES for an applicable
year, ranked according to the amount of COMPENSATION (determined by
subsection 2.27(b)) received during such year. Each AFFILIATED
EMPLOYER is taken into account as 1 employer, and LEASED EMPLOYEES are
considered EMPLOYEES unless such LEASED EMPLOYEES are covered by a
plan in CODE SECTION 414(n)(5) and are not covered in any qualified
plan maintained by TOM BROWN. Additionally, to determine the number
of active EMPLOYEES in any year, the following additional EMPLOYEES
are also excluded; however, such EMPLOYEES shall still be considered
in identifying the EMPLOYEES in the TOP PAID GROUP:
(1) EMPLOYEES with less than 6 months of service;
(2) EMPLOYEES who normally work less than 17 1/2 hours
per week;
(3) EMPLOYEES who normally work less than 6 months during
a year; and
(4) EMPLOYEES under age 21.
In addition, if 90% or more of the EMPLOYEES are covered in
agreements the Secretary of Labor finds to be collective bargaining
agreements between EMPLOYEE representatives and TOM BROWN, and THIS
PLAN covers only EMPLOYEES who are not covered under such agreements,
EMPLOYEES covered by such agreements shall be excluded from both the
total number of active EMPLOYEES and from the identification of
particular EMPLOYEES in the TOP PAID GROUP.
The exclusions in this subsection are applied on a uniform and
consistent basis.
(k) "AGGREGATION GROUP" is either a REQUIRED AGGREGATION GROUP or
a PERMISSIVE AGGREGATION GROUP as follows:
(1) "REQUIRED AGGREGATION GROUP": In determining a
REQUIRED AGGREGATION GROUP for THIS PLAN, each plan
of TOM BROWN in which a KEY EMPLOYEE is a PARTICIPANT
in the PLAN YEAR containing the determination date or
any
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of the 4 preceding PLAN YEARS, and each other plan of
TOM BROWN which enables any plan in which a KEY
EMPLOYEE participates to meet the requirements of
CODE SECTIONS 401 (a)(4) or 410, are required to be
aggregated. Such group is a REQUIRED AGGREGATION
GROUP.
For a REQUIRED AGGREGATION GROUP, each plan
in the group is considered a TOP HEAVY PLAN if the
REQUIRED AGGREGATION GROUP is a TOP HEAVY GROUP. No
plan in the REQUIRED AGGREGATION GROUP is considered
a TOP HEAVY PLAN if the REQUIRED AGGREGATION GROUP is
not a TOP HEAVY GROUP.
(2) "PERMISSIVE AGGREGATION GROUP": TOM BROWN may also
include any other plan not required to be included in
the REQUIRED AGGREGATION GROUP, if the resulting
group, taken as a whole, continues to satisfy the
provisions of CODE SECTIONS 401(a)(4) and 410. Such
group is a PERMISSIVE AGGREGATION GROUP.
For a PERMISSIVE AGGREGATION GROUP, only a
plan that is part of the REQUIRED AGGREGATION GROUP
is considered a TOP HEAVY PLAN if the PERMISSIVE
AGGREGATION GROUP is a TOP HEAVY GROUP. No plan in
the PERMISSIVE AGGREGATION GROUP is considered a TOP
HEAVY PLAN if the PERMISSIVE AGGREGATION GROUP is not
a TOP HEAVY GROUP.
(3) Only those plans of TOM BROWN in which the
determination dates are within the same calendar year
are aggregated to determine whether such plans are
TOP HEAVY PLANS.
(4) An AGGREGATION GROUP includes any terminated plan of
TOM BROWN if it was maintained within the last 5
years ending on the determination date.
2.28 OTHER CONTRIBUTIONS AND FORFEITURES
(a) "QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTION ACCOUNT" is the
account established and maintained by the ADMINISTRATOR for each
PARTICIPANT for his total interest in THIS PLAN from the PARTICIPANT'S
tax deductible qualified voluntary EMPLOYEE contributions in
subsection 2.19, if any.
(b) "VOLUNTARY CONTRIBUTION ACCOUNT" is the account established
and maintained by the ADMINISTRATOR for each PARTICIPANT for his total
interest from the PARTICIPANT'S nondeductible voluntary contributions
in subsection 2.19.
(c) "FORFEITURE" is the portion of a PARTICIPANT'S ACCOUNT that is
not vested, and occurs on the earlier of:
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(1) the distribution of the entire vested portion of a
TERMINATED PARTICIPANT'S ACCOUNT, or
(2) the last day of the PLAN YEAR in which the
PARTICIPANT incurs 5 consecutive 1-YEAR BREAKS IN
SERVICE.
Furthermore, for subparagraph (1), above, a TERMINATED
PARTICIPANT whose vested benefit is zero is deemed to have received a
distribution of his vested benefit on his TERMINATION. Restoration of
FORFEITURES occurs by subsection 3.5(d). In addition, the term
FORFEITURE includes amounts deemed to be FORFEITURES by THIS PLAN.
2.29 MAXIMUM ANNUAL ADDITIONS
(a) For subsection 2.22, "EXCESS AMOUNT" for any PARTICIPANT for a
LIMITATION YEAR means the excess, if any, of (1) the ANNUAL ADDITIONS
which would be credited to his ACCOUNT in THIS PLAN without regard to
the limitations of CODE SECTION 415 over (2) the "MAXIMUM ANNUAL
ADDITIONS" in subsection 2.21.
(b) For subsection 2.22, "SECTION 415 SUSPENSE ACCOUNT" is an
unallocated account equal to the sum of EXCESS AMOUNTS for all
PARTICIPANTS in THIS PLAN during the LIMITATION YEAR. The SECTION 415
SUSPENSE ACCOUNT does not share in any earnings or losses of the TRUST
FUND.
(c) For SUBSECTION 2.23, "QUALIFIED PLAN" is any plan in CODE
SECTION 401(a); "AMOUNTS TRANSFERRED FROM OTHER QUALIFIED PLANS" are:
(i) amounts transferred to THIS PLAN directly from another QUALIFIED
PLAN; (ii) distributions from another QUALIFIED PLAN which are
eligible rollover distributions and which are either transferred by
the EMPLOYEE to THIS PLAN within 60 days following his receipt thereof
or are transferred in a direct rollover; (iii) amounts transferred to
THIS PLAN from a conduit individual retirement account if the conduit
individual retirement account has no assets other than assets which
(A) were previously distributed to the EMPLOYEE by another qualified
plan as a lump-sum distribution (B) were eligible for tax-free
rollover to a qualified plan and (C) were deposited in such conduit
individual retirement account within 60 days of receipt thereof and
other than earnings on such assets; and (iv) amounts distributed to
the EMPLOYEE from a conduit individual retirement account meeting the
requirements of clause (iii) above, and transferred by the EMPLOYEE to
THIS PLAN within 60 days of his receipt thereof from such conduit
individual retirement account.
2.30 ROLLOVERS
(a) An "ELIGIBLE ROLLOVER DISTRIBUTION" is any distribution of all
or any portion of the balance to the credit of the DISTRIBUTEE, except
an ELIGIBLE ROLLOVER DISTRIBUTION does not include: any distribution
that is 1 of a series of substantially equal periodic payments (not
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less frequently than annually) made for the life (or life expectancy)
of the DISTRIBUTEE or the joint lives (or joint life expectancies) of
the DISTRIBUTEE and the DISTRIBUTEE's designated beneficiary, or for a
specified period of 10 years or more; any distribution to the extent
such distribution is required by CODE SECTION 401(a)(9); and the
portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation for employer securities).
(b) An "ELIGIBLE RETIREMENT PLAN" is an individual retirement
account in CODE SECTION 408(a), an individual retirement annuity in
CODE SECTION 408(b), an annuity plan in CODE SECTION 403(a), or a
qualified trust in CODE SECTION 401(a), that accepts the DISTRIBUTEE'S
ELIGIBLE ROLLOVER DISTRIBUTION. For an ELIGIBLE ROLLOVER DISTRIBUTION
to the surviving spouse, an ELIGIBLE RETIREMENT PLAN is an individual
retirement account or individual retirement annuity.
(c) A "DISTRIBUTEE" is a PARTICIPANT or FORMER PARTICIPANT. In
addition, the PARTICIPANT'S or FORMER PARTICIPANT'S surviving spouse
and the PARTICIPANT'S or FORMER PARTICIPANT'S spouse or former spouse
who is the alternative payee in a QUALIFIED DOMESTIC RELATIONS ORDER,
in CODE SECTION 414(p), are DISTRIBUTEES of the interest of the spouse
or former spouse.
(d) A "DIRECT ROLLOVER" is a payment by THIS PLAN to the ELIGIBLE
RETIREMENT PLAN specified by the DISTRIBUTEE.
SECTION 3
BENEFITS
3.1 TOM BROWN STOCK
Each QUALIFIED PARTICIPANT may elect within 90 days after the close of
each PLAN YEAR during the QUALIFIED ELECTION PERIOD to direct the TRUSTEE in
writing as to the distribution in cash and/or TOM BROWN STOCK of 25% of the
total number of shares of TOM BROWN STOCK acquired by or contributed to THIS
PLAN that have ever been allocated to such QUALIFIED PARTICIPANT'S ACCOUNTS
(reduced by the number of shares of TOM BROWN STOCK previously distributed in
cash and/or TOM BROWN STOCK pursuant to a prior election). For the election
year in which the PARTICIPANT can make his last election, the preceding
sentence shall be applied by substituting "50%" for "25%." If the QUALIFIED
PARTICIPANT elects to direct the TRUSTEE for the distribution of TOM BROWN
STOCK in his ACCOUNT, such direction is effective no later than 180 days after
the close of the PLAN YEAR to which such direction applies. Any such
distribution of TOM BROWN STOCK is subject to subsection 3.3.
Notwithstanding the above, if the fair market value (determined by
subsection 4.7(b) at a
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VALUATION DATE immediately preceding the 1st day on which a QUALIFIED
PARTICIPANT is eligible to make an election) of TOM BROWN STOCK acquired by or
contributed to THIS PLAN and allocated to a QUALIFIED PARTICIPANT'S ACCOUNTS is
$500 or less, such TOM BROWN STOCK shall not be subject to this subsection. To
determine whether the fair market value exceeds $500, TOM BROWN STOCK held in
accounts of all employee stock ownership plans (in CODE SECTION 4975(e)(7)) and
tax credit employee stock ownership plans (in CODE SECTION 409(a)) maintained
by TOM BROWN shall be considered as held by THIS PLAN.
3.2 RIGHT OF FIRST REFUSAL
(a) If any PARTICIPANT, his BENEFICIARY or any other person to
whom shares of TOM BROWN STOCK are distributed from THIS PLAN (the
SELLING PARTICIPANT) desires to sell some or all of such shares (the
OFFERED SHARES) to a third party (the THIRD PARTY), the SELLING
PARTICIPANT shall give written notice of such desire to TOM BROWN and
the ADMINISTRATOR, which notice shall contain the number of shares
offered for sale, the proposed terms of the sale and the names and
addresses of both the SELLING PARTICIPANT and THIRD PARTY. Both the
TRUST FUND and TOM BROWN shall each have the right of first refusal
for a period of 14 days from the date the SELLING PARTICIPANT gives
such written notice to TOM BROWN and the ADMINISTRATOR (such 14 day
period to run concurrently against the TRUST FUND and TOM BROWN) to
acquire the OFFERED SHARES. Between the TRUST FUND and TOM BROWN the
TRUST FUND shall have priority to acquire the shares by to the right
of first refusal. The selling price and terms shall be the same as
offered by the THIRD PARTY.
(b) If the TRUST FUND and TOM BROWN do not exercise their right of
first refusal within such 14 day period, the SELLING PARTICIPANT has
the right, at any time after the expiration of such 14 day period, to
dispose of the OFFERED SHARES to the THIRD PARTY; however, (i) no
disposition shall be made to the THIRD PARTY on terms more favorable
to the THIRD PARTY than those in the written notice delivered by the
SELLING PARTICIPANT above, and (ii) if such disposition shall not be
made to the THIRD PARTY on the terms offered to TOM BROWN and the
TRUST FUND, the OFFERED SHARES shall again be subject to the right of
first refusal in (a), above.
(c) The closing of the exercise of the right of first refusal in
(a), above, shall take place at such place agreed to between the
ADMINISTRATOR and the SELLING PARTICIPANT, but not later than 10 days
after TOM BROWN or the TRUST FUND shall have notified the SELLING
PARTICIPANT of the exercise of the right of first refusal. At such
closing, the SELLING PARTICIPANT shall deliver certificates of the
OFFERED SHARES duly endorsed in blank for transfer, or with stock
powers attached duly executed in blank with all required transfer tax
stamps attached or provided for, and TOM BROWN or the TRUST FUND shall
deliver the purchase price, or an appropriate portion thereof, to the
SELLING PARTICIPANT.
3.3 PUT OPTION
(a) If TOM BROWN STOCK is distributed to a PARTICIPANT
and such TOM BROWN STOCK is not readily tradeable on an established
securities market, such PARTICIPANT has a right to
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require TOM BROWN to repurchase the TOM BROWN STOCK distributed to
such PARTICIPANT under a fair valuation formula. Such stock shall be
subject to (b), below.
(b) The put option must be exercisable only by a PARTICIPANT, by
the PARTICIPANT'S donees, or by a person (including an estate or its
DISTRIBUTEE) to whom the TOM BROWN STOCK passes on a PARTICIPANT'S
death. (Under this paragraph PARTICIPANT or FORMER PARTICIPANT means a
PARTICIPANT or FORMER PARTICIPANT and the BENEFICIARIES of the
PARTICIPANT or FORMER PARTICIPANT of THIS PLAN.) The put option must
permit a PARTICIPANT to put the TOM BROWN STOCK to TOM BROWN. Under
no circumstances may the put option bind THIS PLAN. However, the put
option shall grant THIS PLAN an option to assume the rights and
obligations of TOM BROWN at the time the put option is exercised. If
it is known at the time a loan is made that Federal or State law will
be violated by TOM BROWN'S honoring such put option, the put option
must permit the TOM BROWN STOCK to be put, in a manner consistent with
such law, to a third party (e.g., an affiliate of TOM BROWN or a
shareholder other than THIS PLAN) that has substantial net worth at
the time the loan is made and whose net worth is reasonably expected
to remain substantial.
The period to exercise a put option begins as of the day
following the date the TOM BROWN STOCK is distributed to the FORMER
PARTICIPANT and ends 60 days thereafter, and, if not exercised within
such 60-day period, an additional 60-day option begins on the first
day of the 5th month of the PLAN YEAR after the stock was distributed
to the FORMER PARTICIPANT (or such other 60-day period as provided in
REGULATIONS). However, for TOM BROWN STOCK publicly traded without
restrictions when distributed but ceases to be so traded within either
of the 60-day periods described after distribution, TOM BROWN must
notify each holder of such TOM BROWN STOCK in writing on or before the
10th day after the date the TOM BROWN STOCK ceases to be so traded
that for the remainder of the applicable 60-day period the TOM BROWN
STOCK is subject to the put option. The number of days between the
10th day and the date notice is actually given, if later than the 10th
day, must be added to the duration of the put option. The notice must
inform distributees of the term of the put options that they are to
hold. The terms must satisfy the requirements of this paragraph.
The holder may exercise the put option by notifying TOM BROWN
in writing that the put option is being exercised; the notice shall
state the name and address of the holder and the number of shares to
be sold. The period for exercising a put option does not include any
time when exercise of the put option is prohibited by applicable
Federal or State law. The price at which a put option must be
exercisable is the value of the TOM BROWN STOCK determined by
subsection 4.8(b). Payment of the put option for a TOTAL DISTRIBUTION
shall be paid in substantially equal monthly, quarterly, semiannual or
annual installments over a period certain beginning not later than 30
days after the exercise of the put option and not extending beyond 45
years. The deferral of payment is reasonable if adequate security and
a reasonable interest rate on the unpaid amounts are provided. The
amount to be paid for the put option of installment distributions must
be paid not
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later than 30 days after the exercise of the put option. Payment for
a put option must not be restricted by the provisions of a loan or any
other arrangement, including the terms of TOM BROWN'S articles of
incorporation, unless required by applicable state law.
(c) An arrangement when THIS PLAN creates a put option must not
provide for the issuance of put options other than those in this
subsection. THIS PLAN (and the TRUST FUND) must not be obligated to
acquire TOM BROWN STOCK from a particular holder at an indefinite time
determined upon the happening of an event such as the death of the
holder.
3.4 DISTRIBUTIONS OF TOM BROWN STOCK
(a) Distribution of a PARTICIPANT'S benefit may be made in cash or
TOM BROWN STOCK or both; however, if a PARTICIPANT or BENEFICIARY
demands, such benefit shall be distributed only in TOM BROWN STOCK.
Prior to making a distribution of benefits, the ADMINISTRATOR shall
advise the PARTICIPANT or his BENEFICIARY, in writing, of the right to
demand that benefits be distributed solely in TOM BROWN STOCK.
(b) If a PARTICIPANT or BENEFICIARY demands that benefits be
distributed solely in TOM BROWN STOCK, distribution of the
PARTICIPANT'S benefit will be made entirely in whole shares or other
units of TOM BROWN STOCK. Any balance in a PARTICIPANT'S ACCOUNT will
be applied to acquire for distribution the maximum number of whole
shares or other units of TOM BROWN STOCK at its then fair market
value. Any fractional unit value unexpended will be distributed in
cash. If TOM BROWN STOCK is not available for purchase by the
TRUSTEE, the TRUSTEE shall hold such balance until TOM BROWN STOCK is
acquired and then make such distribution, subject to subsection
3.3(e).
(c) The TRUSTEE makes distribution from the TRUST only on
instructions from the ADMINISTRATOR.
(d) Notwithstanding the above, if TOM BROWN'S articles of
incorporation or by-laws restrict ownership of substantially all
shares of TOM BROWN STOCK to Employees and the TRUST FUND, by CODE
SECTION 409(h)(2), the ADMINISTRATOR shall distribute a PARTICIPANT'S
ACCOUNT entirely in cash without the PARTICIPANT'S having the right to
demand distribution in shares of TOM BROWN STOCK.
(e) Except as otherwise provided, TOM BROWN STOCK distributed by
the TRUSTEE may be restricted as to sale or transfer by TOM BROWN'S
by-laws or articles of incorporation, if restrictions are applicable
to all TOM BROWN STOCK of the same class. If a PARTICIPANT is
required to offer the sale of his TOM BROWN STOCK to TOM BROWN before
offering to sell his TOM BROWN STOCK to a third party, TOM BROWN shall
pay the price offered to the distributes by another potential buyer
making a bona fide offer, and the TRUSTEE shall pay at least the fair
market value of the TOM BROWN STOCK.
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3.5 DISTRIBUTION EVENTS
Benefits by THIS PLAN shall be paid, subject to subsection 3.5 only
upon normal or early retirement, death, DISABILITY, TERMINATION, or upon plan
termination.
(a) RETIREMENT
Every PARTICIPANT may retire on his NORMAL RETIREMENT DATE.
However, a PARTICIPANT may postpone his retirement to a later date,
and the participation of such PARTICIPANT in THIS PLAN, including the
right to receive allocations by subsection 2.18, continues until his
LATE RETIREMENT DATE. On a PARTICIPANT'S RETIREMENT DATE or
attainment of his NORMAL RETIREMENT DATE without his TERMINATION, or
as soon thereafter as is practicable, the TRUSTEE shall distribute all
amounts credited to such PARTICIPANT'S ACCOUNT by subsection 3.7.
(b) DEATH
(i) When a PARTICIPANT (or FORMER PARTICIPANT) dies, all
amounts credited to his PARTICIPANT'S ACCOUNT are
fully vested. The ADMINISTRATOR shall direct the
TRUSTEE, by subsection 3.7, to distribute the value
of the deceased PARTICIPANT'S (or FORMER
PARTICIPANT'S) ACCOUNTS to the PARTICIPANT'S (or
FORMER PARTICIPANT'S) BENEFICIARY.
(ii) Any security interest held by THIS PLAN in an
outstanding loan to the PARTICIPANT or FORMER
PARTICIPANT shall be taken into account in
determining the amount payable on his death.
(iii) The ADMINISTRATOR may require proof of death and such
evidence of the right of any person to receive
payment of the value of the ACCOUNT of a DECEASED
PARTICIPANT or FORMER PARTICIPANT as the
ADMINISTRATOR may deem desirable. The
ADMINISTRATOR'S determination of death and of the
right of any person to receive payment is conclusive.
(c) DISABILITY
On his DISABILITY, all amounts credited to a PARTICIPANT'S
ACCOUNT are fully vested. On a PARTICIPANT'S DISABILITY, the TRUSTEE,
by the provisions of subsection 3.7, shall distribute to such
PARTICIPANT all amounts credited to such PARTICIPANT'S ACCOUNT as
though he had retired. If such PARTICIPANT elects, distribution shall
begin not later than 1 year after the close of the PLAN YEAR in which
his DISABILITY occurs.
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<PAGE> 50
(d) TERMINATION
(i) On or before the end of the PLAN YEAR coinciding with
or subsequent to a PARTICIPANT'S TERMINATION other
than for death, DISABILITY or retirement, the
ADMINISTRATOR may direct the TRUSTEE to segregate the
vested portion of such TERMINATED PARTICIPANT'S
ACCOUNT and invest such amount in a separate,
federally insured savings account, certificate of
deposit, common or collective trust fund of a bank or
a deferred annuity. If the vested portion of a
TERMINATED PARTICIPANT'S ACCOUNT is not segregated,
such amount shall remain in a separate account for
the TERMINATED PARTICIPANT and share in allocations
in subsection 2.18 until such time as a distribution
is made to the TERMINATED PARTICIPANT.
If a portion of a PARTICIPANT'S ACCOUNT is
forfeited, TOM BROWN STOCK allocated to the
PARTICIPANT'S ACCOUNT is forfeited only after the
PARTICIPANT'S ACCOUNT other than of TOM BROWN STOCK
has been depleted. If interest in more than 1 class
of TOM BROWN STOCK has been allocated to a
PARTICIPANT'S ACCOUNT, the PARTICIPANT must be
treated as forfeiting the same proportion of each
such class.
If the vested portion of the TERMINATED
PARTICIPANT'S ACCOUNT equals or exceeds the fair
market value of any CONTRACTS, the TRUSTEE, when so
directed by the ADMINISTRATOR and agreed to by the
TERMINATED PARTICIPANT, shall transfer to such
TERMINATED PARTICIPANT all CONTRACTS on his life in
such form or with such endorsements so that the
settlement options and forms of payment are
consistent with subsection 3.6. If the TERMINATED
PARTICIPANT'S vested portion of his ACCOUNT does not
at least equal the fair market value of the
CONTRACTS, if any, the TERMINATED PARTICIPANT may pay
over to the TRUSTEE the sum needed to make the
distribution equal to the value of the CONTRACTS
being assigned or transferred, or the TRUSTEE, by the
PARTICIPANT'S election, may borrow the cash value of
the CONTRACTS from the insurer so that the value of
the CONTRACTS is equal to the vested portion of the
TERMINATED PARTICIPANT'S ACCOUNT and then assign the
CONTRACTS to the TERMINATED PARTICIPANT.
Distribution of the funds due to a TERMINATED
PARTICIPANT shall be made when an event which would
result in the distribution had the TERMINATED
PARTICIPANT continued his SERVICE (on the
PARTICIPANT'S death, DISABILITY or NORMAL RETIREMENT)
occurs. However, at the election of the PARTICIPANT,
the ADMINISTRATOR shall direct the TRUSTEE to
distribute the entire vested portion of the
TERMINATED PARTICIPANT'S ACCOUNT to the TERMINATED
PARTICIPANT on or after the VALUATION DATE coinciding
with or next following his TERMINATION. Any
distribution under this paragraph
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<PAGE> 51
shall be made in a manner consistent with and
satisfying the provisions of subsection 3.6,
including, but not limited to, all notice and consent
requirements of CODE SECTION 411(a)(11) and its
REGULATIONS.
If the value of a TERMINATED PARTICIPANT'S
vested benefit from EMPLOYER and EMPLOYEE
CONTRIBUTIONS does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior
distribution, the ADMINISTRATOR may direct the
TRUSTEE to cause the entire vested benefit to be paid
to such PARTICIPANT in a single lump sum.
For this subsection, if the value of a
TERMINATED PARTICIPANT'S vested benefit is 0, the
TERMINATED PARTICIPANT shall be deemed to have
received a distribution of such vested benefit.
(ii) The vested portion of any PARTICIPANT'S ACCOUNT shall
be a percentage of the total amount credited to his
PARTICIPANT'S ACCOUNT on the basis of the
PARTICIPANT'S number of YEARS OF SERVICE according to
the following schedule:
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
1 10%
2 25%
3 40%
4 55%
5 70%
6 85%
7 100%
</TABLE>
(iii) Notwithstanding the vesting schedule above, for any
TOP HEAVY PLAN YEAR, the vested portion of the
PARTICIPANT'S ACCOUNT of any PARTICIPANT who has an
HOUR OF SERVICE after THIS PLAN becomes a TOP HEAVY
PLAN shall be a percentage of the total amount
credited to his PARTICIPANT'S ACCOUNT on the basis of
the PARTICIPANT'S number of YEARS OF SERVICE
according to the following schedule:
48
<PAGE> 52
Top Heavy
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
If in any subsequent PLAN YEAR, THIS PLAN is
no longer a TOP HEAVY PLAN, the ADMINISTRATOR shall
revert to the vesting schedule in effect before THIS
PLAN became a TOP HEAVY PLAN. Any such reversion
shall be treated as an amendment of THIS PLAN.
(iv) Notwithstanding the vesting schedules above, the
vested percentage of a PARTICIPANT'S ACCOUNT shall
not be less than the vested percentage attained as of
the later of the effective date or adoption date of
this amendment and restatement.
(v) Notwithstanding the vesting schedules above, on the
complete discontinuance of TOM BROWN'S contributions
to THIS PLAN or upon any full or partial termination
of THIS PLAN, all amounts credited to the account of
any affected PARTICIPANT are 100% vested and are not
thereafter subject to FORFEITURE.
(vi) The computation of a PARTICIPANT'S nonforfeitable
percentage of his interest in THIS PLAN shall not be
reduced as the result of any direct or indirect
amendment to THIS PLAN. For this purpose, THIS PLAN
shall be treated as having been amended if THIS PLAN
provides for an automatic change in vesting for a
change in top heavy status. If THIS PLAN is amended
to change or modify any vesting schedule, a
PARTICIPANT with at least 3 YEARS OF SERVICE as of
the expiration date of the election period may elect
to have his nonforfeitable percentage computed by
THIS PLAN without such amendment. If a PARTICIPANT
fails to make such election, such PARTICIPANT shall
be subject to the new vesting schedule. The
PARTICIPANT'S election period shall begin on the
adoption date of the amendment and shall end 60 days
after the latest of:
(A) the adoption date of the amendment,
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<PAGE> 53
(B) the effective date of the amendment, or
(C) the date the PARTICIPANT receives written
notice of the amendment from TOM BROWN or
ADMINISTRATOR.
(vii) (A) If any FORMER PARTICIPANT is reemployed by
TOM BROWN before he has a 1-YEAR BREAK IN
SERVICE, he shall continue to participate in
THIS PLAN in the same manner as if his
TERMINATION had not occurred.
(B) If any FORMER PARTICIPANT is reemployed by
TOM BROWN before 5 consecutive 1-YEAR BREAKS
IN SERVICE, and such FORMER PARTICIPANT had
received, or was deemed to have received, a
distribution of his entire vested interest
prior to his reemployment, his forfeited
account shall be reinstated only if he repays
the full amount distributed to him before the
earlier of 5 years after the first date on
which the PARTICIPANT is subsequently
reemployed by TOM BROWN or the close of the
1st period of 5 consecutive 1-YEAR BREAKS IN
SERVICE beginning after the distribution, or
for a deemed distribution, upon the
reemployment of such FORMER PARTICIPANT.
If the FORMER PARTICIPANT does repay the full
amount distributed to him, or on a deemed
distribution, the undistributed portion of
the PARTICIPANT'S ACCOUNT must be restored in
full, unadjusted by any gains or losses
occurring after the VALUATION DATE coinciding
with or preceding his TERMINATION. The
source for such reinstatement shall first be
any FORFEITURES occurring during the year.
If such source is insufficient, TOM BROWN
shall contribute an amount sufficient to
restore any such forfeited ACCOUNTS; however,
if a discretionary contribution is made for
such year, such contribution shall first be
applied to restore any such ACCOUNTS and the
remainder shall be allocated by subsection
2.18.
(C) If any FORMER PARTICIPANT is reemployed after
he has a 1-YEAR BREAK IN SERVICE, his YEARS
OF SERVICE shall include YEARS OF SERVICE
prior to his 1-YEAR BREAK IN SERVICE, subject
to the following rules:
(1) If a FORMER PARTICIPANT has a 1-YEAR
BREAK IN SERVICE, his pre-break and
post- break service are used for
computing YEARS OF SERVICE for
vesting only after he has a 1-YEAR
OF SERVICE following the date of his
reemployment with TOM BROWN;
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<PAGE> 54
(2) Any FORMER PARTICIPANT who does not
have a nonforfeitable right to any
interest in THIS PLAN from EMPLOYER
CONTRIBUTIONS loses credits
otherwise allowable under (1) above
if his consecutive 1-YEAR BREAKS IN
SERVICE equal or exceed the greater
of (A) 5 or (B) the aggregate number
of his pre-break YEARS OF SERVICE;
(3) After 5 consecutive 1-YEAR BREAKS IN
SERVICE, a FORMER PARTICIPANT'S
vested ACCOUNT balance attributable
to pre-break service shall increase
from post-break service;
(4) If a FORMER PARTICIPANT who has not
had his YEARS OF SERVICE before a
1-YEAR BREAK IN SERVICE disregarded
by (2) above completes a YEAR OF
SERVICE (a 1-YEAR BREAK IN SERVICE
previously occurred, but employment
had not terminated), he shall
participate in THIS PLAN
retroactively from the first day of
the PLAN YEAR during which he
completes a YEAR OF SERVICE.
(D) If a PARTICIPANT becomes ineligible to
participate in THIS PLAN, such FORMER
PARTICIPANT continues to vest in his
interest in THIS PLAN for each YEAR OF
SERVICE completed while ineligible, until his
PARTICIPANT'S ACCOUNT is forfeited or
distributed. Additionally, his interest in
THIS PLAN continues to share in the earnings
of the TRUST FUND.
(viii) In determining YEARS OF SERVICE for vesting in THIS
PLAN, YEARS OF SERVICE prior to an EMPLOYEE'S 18th
birthday are excluded.
If the PARTICIPANT elects, the distribution
of the PARTICIPANT'S ACCOUNT BALANCES will begin not
later than 1 year after the close of the PLAN YEAR:
(A) of the PARTICIPANT'S NORMAL RETIREMENT AGE,
DISABILITY, or death, or
(B) which is the 5th year following the PLAN YEAR
of the PARTICIPANT'S TERMINATION unless the
PARTICIPANT is reemployed by TOM BROWN before
distribution is required to begin under this
subsection.
Unless the PARTICIPANT elects otherwise, the
distribution of the PARTICIPANT'S ACCOUNT BALANCE
will be in substantially equal periodic payments, not
less frequently than annually, over a period not
longer than the greater of:
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<PAGE> 55
(C) 5 years, or
(D) if a PARTICIPANT'S ACCOUNT BALANCE exceeds
$500,000, 5 years plus 1 additional year, not
to exceed 5 additional years, for each
$100,000 or fraction thereof by which such
balance exceeds $500,000.
(e) HARDSHIP
(i) Amounts held in the PARTICIPANT'S ELECTIVE DEFERRAL
ACCOUNT and QUALIFIED NON-ELECTIVE DEFERRAL ACCOUNT
may be distributable as permitted in THIS PLAN, but
not prior to the earlier of:
(A) a PARTICIPANT'S TERMINATION, DISABILITY, or
death;
(B) a PARTICIPANT'S attainment of age 59 1/2;
(C) the proven financial hardship of a
PARTICIPANT, subject to subsection 3.5(e)(ii);
(D) the termination of THIS PLAN without the
existence at the time of such termination of
another defined contribution plan (other than
an employee stock ownership plan in CODE
SECTION 4975(e)(7)) or the establishment of a
successor defined contribution plan (other
than an employee stock ownership plan in CODE
SECTION 4975(e)(7)) by TOM BROWN within the
period ending 12 months after distribution of
all assets from THIS PLAN;
(E) the date of the sale by TOM BROWN to an
entity that is not an AFFILIATED EMPLOYER of
substantially all of its assets (in CODE
SECTION 409(d)(2)) for a PARTICIPANT who
continues employment with the corporation
acquiring such assets; or
(F) the date of the sale by TOM BROWN or an
AFFILIATED EMPLOYER of its interest in a
subsidiary (in CODE SECTION 409(d)(3)) to an
entity that is not an AFFILIATED EMPLOYER for
a PARTICIPANT who continues employment with
such subsidiary.
(ii) The ADMINISTRATOR, at the election of the
PARTICIPANT, shall direct the TRUSTEE to distribute
to any PARTICIPANT in any 1 PLAN YEAR up to the
lesser of (1) his Elective Deferral Account and
earnings attributable thereto up to
52
<PAGE> 56
December 31, 1988 valued as of the last VALUATION
DATE, or (2) the amount necessary to satisfy the
immediate and heavy financial need of the
PARTICIPANT. Any distribution in this subsection
shall be deemed to be made as of the 1st day of the
PLAN YEAR or, if later, the VALUATION DATE
immediately preceding the date of distribution, and
the account from which the distribution is made shall
be reduced accordingly. Withdrawal by this
subsection shall be authorized only if the
distribution is on account of 1 of the following or
any other items permitted by the Internal Revenue
Service:
(A) Medical expenses in CODE SECTION 213(d)
incurred by the PARTICIPANT, his spouse, or
any of his dependents (in CODE SECTION 152)
or expenses necessary for these persons to
obtain medical care;
(B) The purchase (excluding mortgage payments) of
a principal residence for the PARTICIPANT;
(C) Funeral expenses for a member of the
PARTICIPANT'S family;
(D) Payment of tuition and related educational
fees for the next 12 months of post-
secondary education for the PARTICIPANT, his
spouse, children, or dependents; or
(E) The need to prevent the eviction of the
PARTICIPANT from his principal residence or
foreclosure on the mortgage of the
PARTICIPANT'S principal residence.
(iii) No such distribution shall be made from the
PARTICIPANT'S ACCOUNT until such ACCOUNT has become
fully vested.
(iv) No distribution shall be made by this subsection
unless the ADMINISTRATOR, based upon the
PARTICIPANT'S representation and such other facts as
are known to the ADMINISTRATOR, determines that all
of the following conditions are satisfied:
(A) The distribution is not in excess of the
amount of the immediate and heavy financial
need of the PARTICIPANT (including any
amounts necessary to pay any federal, state,
or local taxes or penalties reasonably
anticipated to result from the distribution);
(B) The PARTICIPANT has obtained all
distributions, other than hardship
distributions, and all nontaxable loans
currently available under all plans
maintained by TOM BROWN;
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<PAGE> 57
(C) THIS PLAN, and all other plans maintained by
TOM BROWN, provide that the PARTICIPANT'S
ELECTIVE DEFERRALS and VOLUNTARY EMPLOYEE
CONTRIBUTIONS will be suspended for at least
12 months after receipt of the hardship
distribution; and
(D) THIS PLAN, and all other plans maintained by
TOM BROWN, provide that the PARTICIPANT may
not make ELECTIVE DEFERRALS for the
PARTICIPANT'S taxable year immediately
following the taxable year of the hardship
distribution in excess of the applicable
limit under CODE SECTION 402(g) for such next
taxable year less the amount of such
PARTICIPANT'S ELECTIVE DEFERRALS for the
taxable year of the hardship distribution.
(v) Notwithstanding the above, distributions from the
PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT and QUALIFIED
NON-ELECTIVE ACCOUNT in this subsection are limited
solely to the PARTICIPANT'S ELECTIVE DEFERRALS and
any income attributable thereto credited to the
PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT as of
December 31, 1988.
(vi) Any distribution made by this subsection shall be
made in a manner which is consistent with and
satisfies subsection 3.5(d), including, but not
limited to, all notice and consent requirements, if
any, of CODE SECTIONS 411(a)(11) and 417 and their
REGULATIONS.
3.6 DIRECT ROLLOVER
Notwithstanding anything that would otherwise limit a DISTRIBUTEE'S
election in this subsection, a DISTRIBUTEE may elect, at the time and in the
manner prescribed by the ADMINISTRATOR, for any portion of an ELIGIBLE ROLLOVER
DISTRIBUTION paid directly to an ELIGIBLE RETIREMENT PLAN specified by the
DISTRIBUTEE in a DIRECT ROLLOVER.
3.7 SEGREGATION OR DISTRIBUTION
Except for this subsection, whenever the TRUSTEE is to make a
distribution or to begin a series of payments on or as of a VALUATION DATE, the
distribution shall be made or begin on such date or as soon thereafter as is
practicable. However, unless a FORMER PARTICIPANT elects in writing to defer
the receipt of benefits (such election may not result in a death benefit that
is more than incidental), and payment of benefits shall begin not later than
the 60th day after the close of the PLAN YEAR in which the latest of the
following occurs: (a) the date the PARTICIPANT attains his NORMAL RETIREMENT
AGE; (b) the 10th anniversary of the year in which the PARTICIPANT began
participation in THIS PLAN; or (c) the date the PARTICIPANT terminates his
SERVICE with TOM BROWN.
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<PAGE> 58
(a) MINORS
If a distribution is to be made to a minor, the ADMINISTRATOR
may direct such distribution be paid to the minor's legal guardian,
or, if none, to a parent of such BENEFICIARY or a responsible adult
with whom the BENEFICIARY resides, or to the custodian for such
BENEFICIARY under the Uniform Gift to Minors Act or Gift to Minors
Act, if such is permitted by the laws of the state in which the
BENEFICIARY resides. Such a payment to the legal guardian, custodian
or parent of a minor BENEFICIARY fully discharges the TRUSTEE, TOM
BROWN, and PLAN from further liability.
(b) UNKNOWN LOCATIONS
If all, or any portion, of the distribution payable to a
PARTICIPANT or his BENEFICIARY, at the later of the PARTICIPANT'S
attainment of age 62 or his NORMAL RETIREMENT AGE, remains unpaid
solely by the inability of the ADMINISTRATOR, after sending a
registered letter, return receipt requested, to the last known
address, and after further diligent effort, to ascertain the address
of such PARTICIPANT or his BENEFICIARY, the amount so distributable
shall be treated as a FORFEITURE by THIS PLAN. If a PARTICIPANT or
BENEFICIARY is located after his benefit being reallocated, such
benefit shall be restored.
(c) LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, for a
PARTICIPANT in THIS PLAN are subject to the rights afforded to any
ALTERNATE PAYEE under a QUALIFIED DOMESTIC RELATIONS ORDER.
Furthermore, a distribution to an ALTERNATE PAYEE is permitted if such
distribution is authorized by a QUALIFIED DOMESTIC RELATIONS ORDER,
even if the affected PARTICIPANT has not reached the EARLIEST
RETIREMENT AGE under THIS PLAN. For this SUBSECTION, ALTERNATE PAYEE,
QUALIFIED DOMESTIC RELATIONS ORDER and EARLIEST RETIREMENT AGE have
the meanings in CODE SECTION 414(p).
DEFINITIONS FOR BENEFITS
THE FOLLOWING ARE DEFINITIONS FOR THIS SECTION AND THIS PLAN.
3.7 "VALUATION DATE" is March 31, June 30, September 30 and December 31 of
each PLAN YEAR.
3.8 "BENEFICIARY" is the person to whom the share of a deceased
PARTICIPANT'S total ACCOUNT is payable, subject to the restrictions of
SUBSECTIONS 3.5(b).
3.9 "CONTRACT" or "POLICY" is any life insurance policy, retirement income
or annuity policy, or annuity CONTRACT (group or individual) issued pursuant to
THIS PLAN.
3.10 "LATE RETIREMENT DATE" is the 1st day of the month coinciding with or
next following a PARTICIPANT'S actual RETIREMENT DATE after his NORMAL
RETIREMENT DATE.
3.11 "NORMAL RETIREMENT AGE" is a PARTICIPANT'S 65th birthday. A
PARTICIPANT shall become fully vested in his PARTICIPANT'S ACCOUNTS on his
NORMAL RETIREMENT AGE.
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<PAGE> 59
3.12 "NORMAL RETIREMENT DATE" is the 1st day of the month coinciding with
or next following the PARTICIPANT'S NORMAL RETIREMENT AGE.
3.13 "RETIRED PARTICIPANT" is a person who has been a PARTICIPANT, but who
is entitled to retirement benefits from THIS PLAN.
3.14 "RETIREMENT DATE" is the date when a PARTICIPANT actually retires
whether such retirement occurs on a PARTICIPANT'S NORMAL RETIREMENT DATE or
LATE RETIREMENT DATE (see subsection 3.5(b).
3.15 "TERMINATED PARTICIPANT" is a person who has been a PARTICIPANT, but
whose HOURS OF SERVICE have terminated other than by death, DISABILITY or
retirement.
3.16 "DISABILITY" is a physical or mental condition of a PARTICIPANT
resulting from bodily injury, disease, or mental disorder which renders him
incapable of continuing any gainful occupation and which condition constitutes
total disability under the federal Social Security Acts.
3.17 "VESTED" is the nonforfeitable portion of any ACCOUNT maintained for a
PARTICIPANT.
3.18 For this subsection the following definitions shall apply:
(1) "QUALIFIED PARTICIPANT" is any PARTICIPANT or FORMER
PARTICIPANT who has completed 10 YEARS OF SERVICE as
a PARTICIPANT and has attained age 55.
(2) "QUALIFIED ELECTION PERIOD" is the PLAN YEAR in which
the PARTICIPANT first became a QUALIFIED PARTICIPANT.
3.19 For subsection 3.4, "TOTAL DISTRIBUTION" is payment of the entire
vested PARTICIPANT'S ACCOUNT to a PARTICIPANT or his BENEFICIARY within 1
taxable year.
3.20 For subsection 3.6, the following definitions apply:
(1) An "ELIGIBLE ROLLOVER DISTRIBUTION" is any
distribution of all or any portion of the balance to
the credit of the DISTRIBUTEE, except an ELIGIBLE
ROLLOVER DISTRIBUTION does not include: any
distribution that is 1 of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of
the DISTRIBUTEE or the joint lives (or joint life
expectancies) of the DISTRIBUTEE and the
DISTRIBUTEE's designated beneficiary, or for a
specified period of 10 years or more; any
distribution to the extent such distribution is
required by CODE SECTION 401(a)(9); and the portion
of any distribution that is not includible in gross
income (determined without regard to the exclusion
for net unrealized appreciation for employer
securities).
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<PAGE> 60
(2) An "ELIGIBLE RETIREMENT PLAN" is an individual
retirement account in CODE SECTION 408(a), an
individual retirement annuity in CODE SECTION 408(b),
an annuity plan in CODE SECTION 403(a), or a
qualified trust in CODE SECTION 401(a), that accepts
the DISTRIBUTEE'S ELIGIBLE ROLLOVER DISTRIBUTION.
For an ELIGIBLE ROLLOVER DISTRIBUTION to the
surviving spouse, an ELIGIBLE RETIREMENT PLAN is an
individual retirement account or individual
retirement annuity.
(3) A "DISTRIBUTEE" is a PARTICIPANT or FORMER
PARTICIPANT. In addition, the PARTICIPANT'S or
FORMER PARTICIPANT'S surviving spouse and the
PARTICIPANT'S or FORMER PARTICIPANT'S spouse or
former spouse who is the alternative payee in a
QUALIFIED DOMESTIC RELATIONS ORDER, in CODE SECTION
414(p), are DISTRIBUTEES of the interest of the
spouse or former spouse.
(4) A "DIRECT ROLLOVER" is a payment by THIS PLAN to the
ELIGIBLE RETIREMENT PLAN specified by the
DISTRIBUTEE.
SECTION 4
OTHER
4.1 TOM BROWN
(a) TOM BROWN is empowered to appoint and remove the TRUSTEE and
the ADMINISTRATOR from time to time as it deems necessary for the
proper administration of THIS PLAN to assure that THIS PLAN is being
operated for the exclusive benefit of the PARTICIPANTS and their
BENEFICIARIES with the terms of THIS PLAN, the CODE, and the ACT.
(b) TOM BROWN shall establish a FUNDING POLICY AND METHOD, i.e.,
it shall determine whether THIS PLAN has a short run need for
liquidity (e.g., to pay benefits) or whether liquidity is a long run
goal and investment growth (and stability) is a more current need, or
shall appoint a qualified person to do so. TOM BROWN or its delegate
shall communicate such needs and goals to the TRUSTEE, who shall
coordinate such Plan needs with its investment policy. The
communication of such a FUNDING POLICY AND METHOD shall not, however,
constitute a directive to the TRUSTEE as to investment of the TRUST
FUNDS. Such FUNDING POLICY AND METHOD shall be consistent with the
objectives of THIS PLAN and with the requirements of Title I of the
ACT.
(c) TOM BROWN shall periodically review the performance of any
FIDUCIARY or other person to whom duties have been delegated or
allocated by THIS PLAN or by procedures established hereunder. This
requirement may be satisfied by formal periodic review by TOM BROWN or
by a qualified person specifically designated by TOM BROWN,
through day-to-day conduct and evaluation, or through other appropriate
ways.
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(d) TOM BROWN will furnish FIDUCIARIES and PARTICIPANTS with
notices and information statements when voting rights must be
exercised in subsection 4.4(d).
4.2 ACTION BY TOM BROWN
Whenever TOM BROWN is permitted or required to do or perform any act
or matter or thing, it shall be done and performed by a person duly authorized
by its legally constituted authority.
4.3 ADMINISTRATOR
(a) TOM BROWN shall appoint 1 or more ADMINISTRATORS. Any person,
including, but not limited to, the EMPLOYEES, may serve as an
ADMINISTRATOR. Any person so appointed shall signify his acceptance
by filing written acceptance with TOM BROWN. An ADMINISTRATOR may
resign by delivering his written resignation to TOM BROWN or be
removed by TOM BROWN by delivery of written notice of removal, to take
effect at a date specified therein, or upon delivery to the
ADMINISTRATOR if no date is specified.
TOM BROWN, upon the resignation or removal of an
ADMINISTRATOR, shall promptly designate in writing a successor to such
position. If TOM BROWN does not appoint an ADMINISTRATOR, TOM BROWN'S
BOARD OF DIRECTORS shall be the ADMINISTRATOR.
(b) If more than 1 person is appointed as ADMINISTRATOR, the
responsibilities of each ADMINISTRATOR may be specified by TOM BROWN
and accepted in writing by each ADMINISTRATOR. If no such delegation
is made by TOM BROWN, the ADMINISTRATORS may allocate the
responsibilities among themselves, and the ADMINISTRATORS shall notify
TOM BROWN and the TRUSTEE in writing of such action and specify the
responsibilities of each ADMINISTRATOR. The TRUSTEE shall accept and
rely upon any documents executed by the appropriate ADMINISTRATOR
until TOM BROWN or the ADMINISTRATORS file a written revocation of
such designation with the TRUSTEE.
(c) The primary responsibility of the ADMINISTRATOR is to
administer THIS PLAN for the exclusive benefit of the PARTICIPANTS and
their BENEFICIARIES, subject to the specific terms of THIS PLAN. The
ADMINISTRATOR shall administer THIS PLAN with its terms and shall have
the power and discretion to construe THIS PLAN and to determine all
questions of the administration, interpretation, and application of
THIS PLAN. Any such determination by the ADMINISTRATOR is conclusive
and binding upon all persons. The ADMINISTRATOR may establish
procedures, correct any defect, supply any information, or reconcile
any inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of THIS PLAN; however,
any procedure, discretionary act, interpretation or construction shall
be done in a nondiscriminatory manner based upon uniform principles
consistently applied and shall be consistent with the intent that
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THIS PLAN shall continue to be a qualified plan in CODE SECTION
401(a), and shall comply with the terms of the ACT and all regulations
issued pursuant thereto. The ADMINISTRATOR shall have all powers
necessary or appropriate to accomplish his duties under THIS PLAN.
The ADMINISTRATOR is charged with the duties of the general
administration of THIS PLAN, including, but not limited to, the
following:
(1) the discretion to determine all questions of the
eligibility of EMPLOYEES to participate or remain a
PARTICIPANT and to receive benefits from THIS PLAN;
(2) to compute, certify, and direct the TRUSTEE of the
amount and the kind of benefits to which any
PARTICIPANT are entitled;
(3) to authorize and direct the TRUSTEE of all
nondiscretionary or otherwise directed disbursements
from the TRUST;
(4) to maintain all necessary records for the
administration of THIS PLAN;
(5) to interpret THIS PLAN and to make and publish such
rules for regulation of THIS PLAN as are consistent
with its terms;
(6) to determine the size and type of any CONTRACT to be
purchased from any insurer, and to designate the
insurer from which such CONTRACT shall be purchased;
(7) to compute and certify to TOM BROWN and to the
TRUSTEE the contributions necessary or desirable;
(8) to consult with TOM BROWN and the TRUSTEE as to the
short and long-term liquidity needs of THIS PLAN for
the TRUSTEE to exercise any investment discretion to
accomplish specific objectives;
(9) to establish and communicate to PARTICIPANTS a
procedure for allowing each PARTICIPANT to direct the
TRUSTEE in the distribution of TOM BROWN STOCK in his
ACCOUNT in subsection 3.4;
(10) to establish and communicate to PARTICIPANTS a
procedure and method to insure that each PARTICIPANT
will vote TOM BROWN STOCK allocated to such
PARTICIPANT'S ACCOUNT in subsection 4.4(d);
(11) to enter into a written agreement for the payment of
federal estate tax by CODE SECTION 2210(b);
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(12) to assist any PARTICIPANT as to his rights, benefits,
or elections available in THIS PLAN.
(d) The ADMINISTRATOR shall keep a record of all actions taken and
shall keep all other books of account, records, and other data
necessary for proper administration of THIS PLAN and shall supply all
information and reports to the Internal Revenue Service, Department of
Labor, PARTICIPANTS, BENEFICIARIES and others as required by law.
(e) The ADMINISTRATOR, or the TRUSTEE with the consent of the
ADMINISTRATOR, may appoint counsel, specialists, advisers, and other
persons deemed necessary or desirable with the administration of THIS
PLAN.
(f) To enable the ADMINISTRATOR to perform his functions, TOM
BROWN shall supply full and timely information to the ADMINISTRATOR on
all matters of the COMPENSATION of all PARTICIPANTS, their HOURS OF
SERVICE, their YEARS OF SERVICE, their retirement, death, disability,
or TERMINATION, and such other facts as the ADMINISTRATOR may require;
and the ADMINISTRATOR shall advise the TRUSTEE of the foregoing facts
for the TRUSTEE'S duties under THIS PLAN. The ADMINISTRATOR may rely
upon such information as is supplied by TOM BROWN and shall have no
duty or responsibility to verify such information.
(g) All expenses of administration may be paid from the TRUST FUND
unless paid by TOM BROWN. Such expenses shall include expenses of the
ADMINISTRATOR, including, but not limited to, fees of accountants,
counsel, and other specialists and their agents, and other costs of
administering THIS PLAN. Until paid, the expenses shall constitute a
liability of the TRUST FUND. However, TOM BROWN may reimburse the
TRUST FUND for any administration expense incurred.
(h) Except for an allocation and delegation of administrative
authority in subsection 4.3(b), if there is more than 1 ADMINISTRATOR,
they shall act by a majority of their number, but may authorize 1 or
more of them to sign all papers on their behalf.
(i) The ADMINISTRATOR shall have authority to make any and all
necessary rules or regulations, binding upon each PARTICIPATING
EMPLOYER and all PARTICIPANTS, to effectuate the purpose of this
subsection.
4.4 TRUSTEE
(a) The TRUSTEE shall have the following categories of
responsibilities:
(1) Consistent with the FUNDING POLICY AND METHOD, to
invest, manage, and control the Plan assets subject, however,
to the direction of an INVESTMENT MANAGER if the TRUSTEE
appoints such manager as to all or a portion of the assets of
THIS PLAN;
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(2) At the direction of the ADMINISTRATOR, to pay
benefits required under THIS PLAN to be paid to PARTICIPANTS,
or, on their death, to their BENEFICIARIES;
(3) To maintain records of receipts and disbursements and
furnish to TOM BROWN and/or ADMINISTRATOR for each PLAN YEAR a
written annual report by subsection 4.3(g); and
(4) If there is more than 1 TRUSTEE, they shall act by a
majority of their number, but may authorize 1 or more of them
to sign papers on their behalf.
(b) (1) The TRUSTEE shall invest and reinvest the TRUST FUND
to keep the TRUST FUND invested without distinction
between principal and income and in such securities
or property, real or personal, wherever situated, as
the TRUSTEE deems advisable, including, but not
limited to, stocks, common or preferred, bonds and
other evidences of indebtedness or ownership, and
real estate or any interest therein. The TRUSTEE
shall at all times in making investments of the TRUST
FUND consider, among other factors, the short and
long-term financial needs of THIS PLAN on the basis
of information furnished by TOM BROWN. In making
such investments, the TRUSTEE shall not be restricted
to securities or other property of the character
expressly authorized by the applicable law for trust
investments; however, the TRUSTEE shall give due
regard to any limitations imposed by the CODE or the
ACT so that at all times THIS PLAN may qualify as an
Employee Stock Ownership Plan and Trust.
(2) The TRUSTEE may employ a bank or trust company by the
terms of its usual and customary bank agency
agreement, for which the duties of such bank or trust
company shall be of a custodial, clerical and
record-keeping nature.
(3) The TRUSTEE may from time to time with the consent of
TOM BROWN transfer to a common, collective, or pooled
TRUST FUND maintained by any corporate TRUSTEE
hereunder, all or such part of the TRUST FUND as the
TRUSTEE deems advisable, and such part or all of the
TRUST FUND so transferred shall be subject to all the
terms and provisions of the common, collective, or
pooled trust fund which contemplate the commingling
for investment purposes of such trust assets with
trust assets of other trusts. The TRUSTEE may, from
time to time with the consent of TOM BROWN, withdraw
from such common, collective, or pooled TRUST FUND
all or such part of the TRUST FUND as the TRUSTEE
deems advisable.
(4) If the TRUSTEE invests any part of the TRUST FUND, by
the directions of the ADMINISTRATOR, in any shares of
TOM BROWN STOCK, and the ADMINISTRATOR
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thereafter directs the TRUSTEE to dispose of such
investment, or any part thereof, under circumstances
which, in the opinion of counsel for the TRUSTEE,
require registration of the securities under the
Securities Act of 1933 and/or qualification of the
securities under the Blue Sky laws of any state or
states, TOM BROWN, at its own expense, will take or
cause to be taken any and all such action as may be
necessary or appropriate to effect such registration
and/or qualification.
(5) The TRUSTEE, at the direction of the ADMINISTRATOR,
shall ratably apply for, own and pay premiums on
CONTRACTS on the lives of the PARTICIPANTS. If a
life insurance policy is to be purchased for a
PARTICIPANT, the aggregate premium for ordinary life
insurance for each PARTICIPANT must be less than 50%
of the aggregate of the contributions and FORFEITURES
to the credit of the PARTICIPANT at any particular
time. If term insurance is purchased with such
contributions, the aggregate premium must be less
than 25% of the aggregate CONTRIBUTIONS and
FORFEITURES allocated to a PARTICIPANT'S ACCOUNT. If
both term insurance and ordinary life insurance are
purchased with such contributions, the amount
expended for term insurance plus 1/2 of the premium
for ordinary life insurance may not in the aggregate
exceed 25% of the aggregate contributions and
FORFEITURES allocated to a PARTICIPANT'S ACCOUNT.
The TRUSTEE must convert the entire value of the life
insurance contracts at or before retirement into cash
or provide for a periodic income so that no portion
of such value may be used to continue life insurance
protection beyond retirement, or distribute the
CONTRACTS to the PARTICIPANT. On any conflict
between the terms of THIS PLAN and the terms of any
insurance CONTRACT purchased hereunder, these Plan
provisions shall control.
(c) The TRUSTEE, in addition to all powers and authorities under
common law, statutory authority, including the ACT, and other
provisions of THIS PLAN, shall have the following powers and
authorities, to be exercised in the TRUSTEE'S sole discretion:
(1) To purchase, or subscribe for and retain, any
securities or other property. With the purchase of
securities, margin accounts may be opened and
maintained;
(2) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or
other property held by the TRUSTEE, by private
CONTRACT or at public auction. No person dealing
with the TRUSTEE shall be bound to see to the
application of the purchase money or to inquire into
the validity, expediency, or propriety of any such
sale or other disposition, with or without
advertisement;
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(3) To vote any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney
with or without power of substitution; to exercise
any conversion privileges, subscription rights or
other options, and to make any payments incidental
thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other
changes affecting corporate securities, to delegate
discretionary powers, to pay any assessments or
charges in connection therewith; and, generally, to
exercise any of the powers of an owner with respect
to stocks, bonds, securities, or other property;
(4) To cause any securities or other property to be
registered in the TRUSTEE'S own name or in the name
of one or more of the TRUSTEE'S nominees, and to hold
any investments in bearer form, but the books and
records of the TRUSTEE shall at all times show that
all such investments are part of the TRUST FUND;
(5) To borrow or raise money for THIS PLAN in such
amount, and upon such terms and conditions, as the
TRUSTEE shall deem advisable; and, for any sum so
borrowed, to issue a promissory note as TRUSTEE, and
to secure the repayment thereof by pledging all, or
any part, of the TRUST FUND; and no person lending
money to the TRUSTEE shall be bound to see to the
application of the money lent or to inquire into the
validity, expediency, or propriety of any borrowing;
(6) To keep such portion of the TRUST FUND in cash or
cash balances as the TRUSTEE may, from time to time,
deem to be in the best interests of THIS PLAN,
without liability for interest thereon;
(7) To accept and retain for such time as the TRUSTEE may
deem advisable any securities or other property
received or acquired as TRUSTEE, whether or not such
securities or other property would normally be
purchased as investments;
(8) To make, execute, acknowledge, and deliver any and
all documents of transfer and conveyance and any and
all other instruments that may be necessary or
appropriate to carry out the powers herein granted;
(9) To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from
THIS PLAN, to begin or defend suits or legal or
administrative proceedings, and to represent THIS
PLAN in all suits and legal and administrative
proceedings;
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(10) To employ suitable agents and counsel and to pay
their reasonable expenses and compensation, and such
agent or counsel may or may not be agent or counsel
for TOM BROWN;
(11) To apply for and purchase from responsible insurance
companies, to be selected by the ADMINISTRATOR, as an
investment of the TRUST FUND such annuity, or other
CONTRACTS (on the life of any PARTICIPANT), as the
ADMINISTRATOR shall deem proper; to exercise, at any
time or from time to time, whatever rights and
privileges be granted by such annuity, or other
CONTRACTS; to collect, receive, and settle for the
proceeds of all such annuity or other CONTRACTS as
and when entitled to do so;
(12) To invest funds of the TRUST in time deposits or
savings accounts bearing a reasonable rate of
interest in the TRUSTEE'S bank;
(13) To invest in Treasury Bills and other forms of United
States government obligations;
(14) To invest in shares of investment companies
registered under the Investment Company Act of 1940;
(15) To sell, purchase and acquire put or call options if
the options are traded on and purchased through a
national securities exchange registered under the
Securities Exchange Act of 1934, as amended, or, if
the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New
York Stock Exchange;
(16) To deposit monies in federally insured savings
accounts or certificates of deposit in banks or
savings and loan associations;
(17) To vote TOM BROWN STOCK as provided by subsection
4.3(d).
(18) To sell or exercise any options, subscription rights
and conversion privileges and to make any payments
incidental thereto;
(19) To exercise any of the powers of an owner, for such
TOM BROWN STOCK and other securities or other
property of the TRUST FUND. The ADMINISTRATOR, with
the TRUSTEE'S approval, may authorize the TRUSTEE to
act on any administrative matter or class of matters
for which direction or instruction to the TRUSTEE by
the ADMINISTRATOR is called for without specific
direction or other instruction from the
ADMINISTRATOR;
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(20) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned
herein, as the TRUSTEE may deem necessary to carry
out the purposes of THIS PLAN.
(21) To pool all or any of the TRUST FUND, from time to
time, with assets belonging to any other qualified
employee pension benefit trust created by TOM BROWN
or an affiliated company of TOM BROWN, and to
commingle such assets and make joint or common
investments and carry joint accounts for THIS PLAN
and such other trust or trusts, allocating undivided
shares or interests in such investments or accounts
or any pooled assets of the 2 or more trusts with
their respective interests;
(22) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned
herein, as the TRUSTEE may deem necessary to carry
out the purposes of THIS PLAN.
(23) The powers granted to the TRUSTEE shall be exercised
in the sole fiduciary discretion of the TRUSTEE.
However, each PARTICIPANT may direct the TRUSTEE to
separate and keep separate all or a portion of his
account; and further each PARTICIPANT is authorized
and empowered, in his sole and absolute discretion,
to give directions to the TRUSTEE in such form as the
TRUSTEE may require for the investment of the
PARTICIPANT'S ACCOUNT, which directions must be
followed by the TRUSTEE subject, however, to
restrictions on payment of life insurance premiums.
Neither the TRUSTEE nor any other persons including
the ADMINISTRATOR or otherwise shall be under any
duty to question any such direction of the
PARTICIPANT or to review any securities or other
property, real or personal, or to make any
suggestions to the PARTICIPANT, and the TRUSTEE shall
comply as promptly as practicable with such
directions given by the PARTICIPANT. Any such
direction may be of a continuing nature or otherwise
and may be revoked by the PARTICIPANT at any time in
such form as the TRUSTEE may require. The TRUSTEE
shall not be responsible or liable for any loss or
expense from compliance with any directions from the
PARTICIPANT nor shall the TRUSTEE be responsible for,
or liable for, any loss or expense which may result
from the TRUSTEE'S refusal or failure to comply with
any directions from the PARTICIPANT. The TRUSTEE may
refuse to comply with any direction from the
PARTICIPANT if the TRUSTEE, in its sole and absolute
discretion, deems such directions improper by
applicable law. Any costs and expenses for
compliance with the PARTICIPANT'S directions shall be
borne by the PARTICIPANT'S ACCOUNT.
(d) The TRUSTEE shall vote all TOM BROWN STOCK held by it as part of the
Plan assets. However, if any agreement entered into by the TRUST calls for
voting of any shares of TOM
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BROWN STOCK pledged as security for any obligation of THIS PLAN, such
shares of TOM BROWN STOCK shall be voted with such agreement. The
TRUSTEE shall not vote TOM BROWN STOCK which a PARTICIPANT or
BENEFICIARY does not exercise by this subsection.
Notwithstanding the above, if TOM BROWN has a
registration-type class of securities, each PARTICIPANT or BENEFICIARY
shall be entitled to direct the TRUSTEE as to the manner in which the
TOM BROWN STOCK which is entitled to vote and which is allocated to
the ACCOUNT of such PARTICIPANT or BENEFICIARY is to be voted. If TOM
BROWN does not have a registration-type class of securities, each
PARTICIPANT or BENEFICIARY of THIS PLAN may direct the TRUSTEE as to
the manner in which voting rights on shares of TOM BROWN STOCK which
are allocated to the ACCOUNT of such PARTICIPANT or BENEFICIARY are
to be exercised for any corporate matter for the voting of such shares
for the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or business,
or such similar transaction.
If TOM BROWN does not have a REGISTRATION-TYPE CLASS OF
SECURITIES and the by-laws of TOM BROWN require THIS PLAN to vote an
issue in a manner that reflects a 1-man, 1-vote philosophy, each
PARTICIPANT or BENEFICIARY shall be entitled to cast 1 vote on an
issue and the TRUSTEE shall vote the shares held by THIS PLAN in
proportion to the results of the votes cast on the issue by the
PARTICIPANTS and BENEFICIARIES.
(e) (1) The TRUSTEE shall make distributions from the TRUST
FUND at such times and in such numbers of shares or
other units of TOM BROWN STOCK and amounts of cash to
or for the benefit of the person entitled thereto by
THIS PLAN as the ADMINISTRATOR directs in writing.
Any undistributed part of a PARTICIPANT'S interest in
his Account shall be retained in the TRUST FUND until
the ADMINISTRATOR directs its distribution. Where
distribution is directed in TOM BROWN STOCK, the
TRUSTEE shall cause an appropriate certificate to be
issued to the person entitled thereto and mailed to
the address furnished it by the ADMINISTRATOR. Any
portion of a PARTICIPANT'S ACCOUNT to be distributed
in cash shall be paid by the TRUSTEE mailing its
check to the same person at the same address. If a
dispute arises as to who is entitled to or should
receive any benefit or payment, the TRUSTEE may
withhold or cause to be withheld such payment until
the dispute is resolved.
(2) As directed by the ADMINISTRATOR, the TRUSTEE shall
make payments from the TRUST FUND. Such directions
or instructions need not specify the purpose of the
payments so directed, and the TRUSTEE shall not be
responsible in any way for the purpose or propriety
of such payments except as mandated by the ACT.
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(3) If any distribution or payment directed by the
ADMINISTRATOR is mailed by the TRUSTEE to the person
specified in such direction at the latest address of
such person filed with the ADMINISTRATOR, and shall
be returned to the TRUSTEE because such person cannot
be located at such address, the TRUSTEE shall
promptly notify the ADMINISTRATOR of such return, and
60 days after such notification, such direction shall
become void and unless and until a further direction
by the Administrator is received by the TRUSTEE for
such distribution or payment, the TRUSTEE shall
continue to administer the TRUST as if such direction
had not been made by the ADMINISTRATOR. The TRUSTEE
shall not be obligated to search for or locate any
such person.
(f) The TRUSTEE shall be paid reasonable compensation agreed upon
in writing by TOM BROWN and the TRUSTEE. An individual serving as
TRUSTEE who already receives full-time pay from TOM BROWN shall not
receive compensation from THIS PLAN. In addition, the TRUSTEE shall
be reimbursed for any reasonable expenses, including reasonable
counsel fees incurred by it as TRUSTEE. Such compensation and
expenses shall be paid from the TRUST FUND unless paid or advanced by
TOM BROWN. All taxes of any kind and all kinds whatsoever that may be
levied or assessed under existing or future laws on the TRUST FUND or
the income thereof, shall be paid from the TRUST FUND.
(g) Within a reasonable period of time after the later of the
VALUATION DATE or receipt of TOM BROWN'S contribution for each PLAN
YEAR, the TRUSTEE shall furnish to TOM BROWN and the ADMINISTRATOR a
written statement of account for the PLAN YEAR for which such
contribution was made setting forth:
(1) the net income, or loss, of the TRUST FUND;
(2) the gains, or losses, realized by the TRUST FUND upon
sales or other disposition of the assets;
(3) the increase, or decrease, in the value of the TRUST
FUND;
(4) all payments and distributions made from the TRUST
FUND; and
(5) such further information as the TRUSTEE and/or
ADMINISTRATOR deems appropriate. TOM BROWN,
forthwith upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing
and advise the TRUSTEE and/or ADMINISTRATOR of its
approval or disapproval thereof. Failure by TOM
BROWN to disapprove any such statement of account
within 30 days after its receipt shall be deemed an
approval. The approval by TOM BROWN of any statement
of account shall be binding as to all matters
embraced therein as between TOM BROWN and the TRUSTEE
to
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the same extent as if the account of the TRUSTEE had
been settled by judgment or decree in an action for a
judicial settlement of its account in a court of
competent jurisdiction in which the TRUSTEE, TOM
BROWN and all persons having or claiming an interest
in THIS PLAN were parties; however, nothing shall
deprive the TRUSTEE of its right to have its accounts
judicially settled if the TRUSTEE so desires.
(h) (1) If an audit of THIS PLAN'S records is required by the
ACT and its Regulations for any PLAN YEAR, the
ADMINISTRATOR directs the TRUSTEE to engage on behalf
of all PARTICIPANTS an independent qualified public
accountant for that purpose. Such accountant, after
an audit of the books and records of THIS PLAN with
generally accepted auditing standards, within a
reasonable period after the close of the PLAN YEAR,
furnishes to the ADMINISTRATOR and the TRUSTEE a
report of his audit setting forth his opinion as to
whether any statements, schedules or lists that are
required by ACT Section 103 or the Secretary of Labor
to be filed with THIS PLAN'S annual report, are
presented fairly in conformity with generally
accepted accounting principles applied consistently.
All auditing and accounting fees are an expense of
and may, at the election of the ADMINISTRATOR, be
paid from the TRUST FUND.
(2) If some or all of the information for the
ADMINISTRATOR to comply with ACT Section 103 is
maintained by a bank, insurance company, or similar
institution, regulated and supervised and subject to
periodic examination by a state or federal agency, it
transmitted and certified the accuracy of that
information to the ADMINISTRATOR in ACT Section
103(b) within 120 days after the end of the PLAN YEAR
or by such other date as may be prescribed under
regulations of the Secretary of Labor.
(i) (1) The TRUSTEE may resign at any time by delivering to
TOM BROWN, at least 30 days before its effective
date, a written notice of his resignation.
(2) TOM BROWN may remove the TRUSTEE by mailing by
registered or certified mail addressed to such
TRUSTEE at his last known address, at least 30 days
before its effective date, a written notice of his
removal.
(3) On the death, resignation, incapacity, or removal of
any TRUSTEE, a successor may be appointed by TOM
BROWN; and such successor, upon accepting such
appointment in writing and delivering same to TOM
BROWN, without further act, becomes vested with all
the estate, rights, powers, discretions, and duties
of his predecessor as if he were originally named as
a TRUSTEE herein. Until such a successor is
appointed, the remaining TRUSTEE or TRUSTEES have
full authority to act by THIS PLAN.
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(4) TOM BROWN may designate 1 or more successors prior to
the death, resignation, incapacity, or removal of a
TRUSTEE. If a successor is designated by TOM BROWN
and accepts such designation, the successor, without
further act, becomes vested with all the estate,
rights, powers, discretions and duties of his
predecessor with the like effect as if he were
originally named as TRUSTEE herein immediately upon
the death, resignation, incapacity, or removal of his
predecessor.
(5) Whenever any TRUSTEE ceases to serve as such, he
shall furnish to TOM BROWN and ADMINISTRATOR a
written statement of account for the portion of the
PLAN YEAR during which he served as TRUSTEE. This
statement shall be either (i) included as part of the
annual statement of account for the PLAN YEAR
required by subsection 4.3(g) or (ii) set forth in a
special statement. Any such special statement of
account should be rendered to TOM BROWN no later than
the due date of the annual statement of account for
the PLAN YEAR. The procedures in subsection 4.3(g)
for the approval by TOM BROWN of annual statements of
account apply to any special statement of account
rendered, and approval by TOM BROWN of any such
special statement as provided in subsection 4.3(g)
has the same effect upon the statement as TOM BROWN's
approval of an annual statement of account. No
successor to the TRUSTEE has any duty or
responsibility to investigate the acts or
transactions of any predecessor who has rendered all
statements of account required by subsection 4.3(g)
and this subparagraph.
(j) Notwithstanding the above, the TRUSTEE at the direction of the
ADMINISTRATOR transfers the vested interest, if any, of such
PARTICIPANT in his account to another trust forming part of a pension,
profit sharing or stock bonus plan maintained by such PARTICIPANT'S
new employer and represented by such employer in writing as meeting
the requirements of CODE SECTION 401(a), if the trust to which such
transfers are made permits the transfer to be made.
(k) TOM BROWN agrees to indemnify and save harmless the TRUSTEE
against any and all claims, losses, damages, expenses and liabilities
the TRUSTEE may incur in the exercise and performance of the TRUSTEE'S
powers and duties hereunder, unless they are determined to be due to
gross negligence or willful misconduct.
(l) The TRUSTEE is empowered to acquire and hold Qualifying
Employer Securities and Qualifying Employer Real Property, as are
defined in the ACT. However, no more than 100% of the fair market
value of all the assets in the TRUST FUND may be invested in
Qualifying Employer Securities and Qualifying Employer Real Property.
(m) Neither TOM BROWN nor the TRUSTEE, nor their successors, are
responsible for the validity of any CONTRACT issued to THIS PLAN, for
the failure of the insurer to make
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payments provided by any such CONTRACT, nor for the action of any
person which may delay payment or render a CONTRACT null and void or
unenforceable.
(n) Any payment to any PARTICIPANT, his legal representative,
BENEFICIARY, or to any guardian or committee appointed for such
PARTICIPANT or BENEFICIARY by THIS PLAN shall, be in full satisfaction
of all claims against the TRUSTEE and TOM BROWN, either of whom may
require such PARTICIPANT, legal representative, BENEFICIARY, guardian
or committee, as a condition precedent to such payment, to execute a
receipt and release in such form as shall be determined by the TRUSTEE
or TOM BROWN.
4.5 AMENDMENT, TERMINATION, MERGER OR CONSOLIDATION
(a) (1) TOM BROWN has the right to amend THIS PLAN at any
time, subject to the limitations of this subsection.
Any such amendment shall be adopted by formal action
of TOM BROWN's board of directors and executed by an
officer authorized to act on behalf of TOM BROWN.
However, any amendment which affects the rights,
duties or responsibilities of the TRUSTEE and
ADMINISTRATOR may only be made with the TRUSTEE'S and
ADMINISTRATOR'S written consent. Any such amendment
shall become effective on its execution. The TRUSTEE
shall not be required to execute any such amendment
unless the TRUST provisions contained herein are a
part of THIS PLAN and the amendment affects the
duties of the TRUSTEE.
(2) No amendment to THIS PLAN shall be effective if it
authorizes or permits any part of the TRUST FUND
(other than such part as is required to pay taxes and
administration expenses) to be used for or diverted
to any purpose other than for the exclusive benefit
of the PARTICIPANTS or their BENEFICIARIES or
estates; or causes any reduction in the amount
credited to the account of any PARTICIPANT; or causes
or permits any portion of the TRUST FUND to revert to
or become property of TOM BROWN.
(3) Except as permitted by REGULATIONS, no PLAN amendment
or transaction having the effect of THIS PLAN
amendment (such as a merger, plan transfer or similar
transaction) shall be effective to the extent it
eliminates or reduces any CODE SECTION 411(d)(6)
protected benefit or adds or modifies conditions for
CODE SECTION 411(d)(6) protected benefit the result
of which is a further restriction on such benefit
unless such protected benefits are preserved for
benefits accrued as of the later of the adoption date
or effective date of the amendment. "CODE SECTION
411(d)(6) protected benefit" is benefits described in
CODE SECTION 411(d)(6)(A), early retirement benefits
and retirement-type subsidies, and optional forms of
benefit.
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(b) (1) TOM BROWN may terminate THIS PLAN by delivering to
the TRUSTEE and ADMINISTRATOR written notice of such
termination. On any full or partial termination, all
amounts credited to the affected PARTICIPANTS'
ACCOUNTS shall become 100% vested and shall not
thereafter be subject to forfeiture, and all
unallocated amounts shall be allocated to the
accounts of all PARTICIPANTS.
(2) On the full termination of THIS PLAN, TOM BROWN shall
direct the distribution of the assets of the TRUST
FUND to PARTICIPANTS in a manner which is consistent
with and satisfies subsection 3.4 and 3.5.
Distributions to a PARTICIPANT may be in cash or in
property or the purchase of irrevocable
nontransferable deferred commitments from an insurer.
Except as permitted by Regulations, termination of
THIS PLAN shall not result in the reduction of CODE
SECTION 411(d)(6) protected benefit.
(c) THIS PLAN and Trust may be merged or consolidated with, or its
assets and/or liabilities may be transferred to any other plan and
trust only if the benefits which would be received by a PARTICIPANT of
THIS PLAN, on termination of the plan immediately after such transfer,
merger or consolidation, are at least equal to the benefits the
PARTICIPANT would have received if THIS PLAN had terminated
immediately before the transfer, merger or consolidation, and such
transfer, merger or consolidation does not otherwise result in the
elimination or reduction of any SECTION 411(d)(6) protected benefit.
4.6 PARTICIPANT RIGHTS/CLAIMS
(a) THIS PLAN is not a CONTRACT between TOM BROWN and any
PARTICIPANT nor a consideration or an inducement for the employment of
any PARTICIPANT or EMPLOYEE. Nothing contained in THIS PLAN gives any
PARTICIPANT or EMPLOYEE the right to be retained in the service of TOM
BROWN or to interfere with the right of TOM BROWN to discharge any
PARTICIPANT or EMPLOYEE at any time regardless of the effect which
such discharge has upon him as a PARTICIPANT of THIS PLAN.
(b) Claims for benefits under THIS PLAN may be filed in writing
with the ADMINISTRATOR. Written notice of the disposition of a claim
shall be furnished to the claimant within 90 days after the
application is filed. If the claim is denied, the reasons for the
denial shall be specifically set forth in the notice in language
calculated to be understood by the claimant, pertinent provisions of
THIS PLAN shall be cited, and, where appropriate, an explanation as to
how the claimant can perfect the claim will be provided. In addition,
the claimant shall be furnished with an explanation of THIS PLAN's
claims review procedure.
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(c) Any EMPLOYEE, FORMER EMPLOYEE, or BENEFICIARY of either, who
has been denied a benefit by a decision of the ADMINISTRATOR pursuant
to subsection 4.6(b) shall be entitled to request the ADMINISTRATOR to
give further consideration to his claim by filing with the
ADMINISTRATOR (on a form which may be obtained from the ADMINISTRATOR)
a request for a hearing. Such request, together with a written
statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the ADMINISTRATOR no later than 60 days
after receipt of the written notification provided for in subsection
4.6(b).
The ADMINISTRATOR shall then conduct a hearing within the next
60 days, at which the claimant may be represented by an attorney or
any other representative of his choosing and at which the claimant
shall have an opportunity to submit written and oral evidence and
arguments in support of his claim.
At the hearing (or prior thereto upon 5 business days written
notice to the ADMINISTRATOR) the claimant or his representative shall
have an opportunity to review all documents in the possession of the
ADMINISTRATOR which are pertinent to the claim at issue and its
disallowance.
Either the claimant or the ADMINISTRATOR may cause a court
reporter to attend the hearing and record the proceedings. In such
event, a complete written transcript of the proceedings shall be
furnished to both parties by the court reporters. The full expense of
any such court reporter and such transcripts shall be borne by the
party causing the court reporter to attend the hearing.
A final decision as to the allowance of the claim shall be
made by the ADMINISTRATOR within 60 days of receipt of the appeal
(unless there has been an extension of 60 days due to special
circumstances provided the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day
period). Such communication shall be written in a manner calculated
to be understood by the claimant and shall include specific reasons
for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
(d) (1) Subject to the exceptions below, no benefit payable
out of the TRUST FUND to any person (including a
PARTICIPANT or his BENEFICIARY) shall be subject in
any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge,
and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge such
shall be void; and no such benefit shall in any
manner be liable for, or subject to, the debts,
contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or
legal process for or against such person, and the
benefit shall not be recognized by the TRUSTEE,
except as may be required by law.
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(2) This subsection shall not apply if a PARTICIPANT or
BENEFICIARY is indebted to THIS PLAN for a loan from
THIS PLAN. At the time a distribution is to be made
to or for a PARTICIPANT'S or BENEFICIARY'S benefit,
such proportion of the amount distributed as shall
equal such loan indebtedness shall be paid by the
TRUSTEE to the TRUSTEE or the ADMINISTRATOR, at the
direction of the ADMINISTRATOR, to apply against or
discharge such loan indebtedness. Prior to making a
payment, however, the PARTICIPANT or BENEFICIARY must
be given written notice by the ADMINISTRATOR that
such loan indebtedness is to be so paid in whole or
part from his PARTICIPANT'S ACCOUNT. If the
PARTICIPANT or BENEFICIARY does not agree that the
loan indebtedness is a valid claim against his vested
PARTICIPANT'S ACCOUNT, he shall be entitled to a
review of the validity of the claim with procedures
in subsections 4.6(b) and 4.6(c).
(3) This subsection shall not apply to a QUALIFIED
DOMESTIC RELATIONS ORDER in CODE SECTION 414(p), and
those other domestic relations orders permitted to be
so treated by the ADMINISTRATOR by the Retirement
Equity Act of 1984. The ADMINISTRATOR shall
establish a written procedure to determine the
qualified status of domestic relations orders and to
administer distributions by such qualified orders.
Further, if provided under a QUALIFIED DOMESTIC
RELATIONS ORDER, a former spouse of a PARTICIPANT
shall be treated as the spouse or surviving spouse by
THIS PLAN.
4.7 TOM BROWN STOCK
(a) (1) THIS PLAN is designed to invest primarily in TOM
BROWN STOCK.
(2) The ADMINISTRATOR may also direct the TRUSTEE to
invest funds of THIS PLAN in other property described
in the TRUST or in life insurance policies to the
extent permitted by subsection 4.4(b)(5) or the
TRUSTEE may hold such funds in cash equivalents.
(3) The ADMINISTRATOR may also direct the TRUSTEE to
invest funds of THIS PLAN in insurance policies on
the life of any "keyman" EMPLOYEE. The proceeds of a
"keyman" insurance policy may not be used for the
repayment of any indebtedness owed by THIS PLAN which
is secured by TOM BROWN STOCK. If any "keyman"
insurance is purchased by the TRUSTEE, the premiums
paid thereon during any PLAN YEAR, net of any policy
dividends and increases in cash surrender values,
shall be treated as the cost of the investment and
any death benefit or cash surrender value received
shall be treated as proceeds from the investment.
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(4) THIS PLAN may not obligate itself to acquire TOM
BROWN STOCK from a particular holder thereof at an
indefinite time determined upon the happening of an
event such as the death of the holder.
(5) THIS PLAN may not obligate itself to acquire TOM
BROWN STOCK under a PUT OPTION binding upon THIS
PLAN. However, at the time a PUT OPTION is
exercised, THIS PLAN may be given an option to assume
the rights and obligations of TOM BROWN of a PUT
OPTION binding upon TOM BROWN.
(6) All purchases of TOM BROWN STOCK shall be made at a
price which, in the judgment of the ADMINISTRATOR,
does not exceed its fair market value. All sales of
TOM BROWN STOCK shall be made at a price which, in
the judgment of the ADMINISTRATOR, is not less than
its fair market value. The valuation rules in
subsection 4.8 shall be applicable.
(b) (1) No part of the TRUST FUND attributable to (or
allocable in lieu of) TOM BROWN STOCK acquired by
THIS PLAN after October 22, 1986 in a sale to which
CODE SECTION 1042 or, for estates of decedents who
died prior to December 20, 1989, CODE SECTION 2057
applies may accrue or be allocated directly or
indirectly under any plan maintained by TOM BROWN
meeting the requirements of CODE SECTION 401(a):
(A) during the Nonallocation Period, for the
benefit of
(i) any taxpayer who makes an election
in CODE SECTION 1042(a) for TOM
BROWN STOCK or any decedent if the
executor of the estate of the
decedent makes a qualified sale in
CODE SECTION 2057,
(ii) any individual who is related to the
taxpayer or the decedent (in CODE
SECTION 267(b)), or
(B) for the benefit of any other person who owns
(after application of CODE SECTION 318(a)
applied without regard to the employee trust
exception in CODE SECTION 318(a)(2)(B)(i))
more than 25% of
(i) any class of outstanding stock of
TOM BROWN or AFFILIATED EMPLOYERS
which issued such TOM BROWN STOCK,
or
(ii) the total value of any class of
outstanding stock of TOM BROWN or
AFFILIATED EMPLOYERS.
(2) However, the subparagraph (a) above shall not apply
to lineal descendants of the taxpayer, if the
aggregate amount allocated to the benefit of all such
lineal descendants during the Nonallocation Period
does not exceed more than 5% of the TOM BROWN STOCK
(or amounts allocated in lieu thereof) held by THIS
PLAN which are attributable to a sale to THIS PLAN by
any person related to such descendants (in CODE
SECTION 267(c)(4)) in a transaction to which CODE
SECTION 1042 or CODE SECTION 2057 applies.
(3) A person shall be treated as failing to meet the
stock ownership limitation under subparagraph (a)(2)
above if such person fails such limitation:
(1) at any time during the year period ending on
the date of sale of TOM BROWN STOCK to THIS
PLAN, or
(2) on the date as of which TOM BROWN STOCK is
allocated to PARTICIPANTS in THIS PLAN.
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<PAGE> 78
(c) PAYMENT OF BENEFITS
Benefits by THIS PLAN shall be paid, subject to subsection 3.5
only upon death, DISABILITY, normal or early retirement, TERMINATION,
or upon Plan termination.
(d) Certificates for shares distributed by THIS PLAN shall contain
the following legend:
"The shares represented by this certificate are transferable
only upon compliance with the terms of TOM BROWN KSOP effective as of
January 1, 1996, which grants to TOM BROWN, INC. a right of first
refusal, a copy of such Plan is on file in the office of the TOM
BROWN, INC."
4.8 VALUATIONS
(a) The ADMINISTRATOR shall direct the TRUSTEE, as of each
VALUATION DATE, and at such other date or dates deemed necessary by
the ADMINISTRATOR, herein called "VALUATION DATE," to determine the
net worth of the assets of the TRUST FUND as it exists on the
"VALUATION DATE." In determining such net worth, the TRUSTEE shall
value the assets of the TRUST FUND at their fair market value as of
the "VALUATION DATE" and shall deduct all expenses for which the
TRUSTEE has not yet obtained reimbursement from TOM BROWN or the TRUST
FUND.
(b) To determine the fair market value of securities of the TRUST
FUND which are listed on a registered stock exchange, the
ADMINISTRATOR shall direct the TRUSTEE to value such securities at the
prices they were last traded on such exchange preceding the close of
business on the VALUATION DATE. If such securities were not traded on
the VALUATION DATE, or if the exchange on which they are traded was
not open for business on the VALUATION DATE, the securities shall be
valued at the prices at which they were last traded prior to the
VALUATION DATE. Any unlisted security held in the TRUST FUND shall be
valued at its bid price next precluding the close of business on the
VALUATION DATE, which bid price shall be obtained from a registered
broker or an investment banker. Except for TOM BROWN STOCK, to
determine the fair market value of assets other than securities for
which trading or bid prices can be obtained, the TRUSTEE may appraise
such assets itself, or in its discretion, employ 1 or more appraisers
for that purpose and rely on the values established by such appraiser
or appraisers. TOM BROWN STOCK not readily tradeable on an
established securities market shall be valued by an independent
appraiser meeting requirements similar to the requirements of the CODE
SECTION 170(a)(1) REGULATIONS.
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<PAGE> 79
4.9 PARTICIPATING EMPLOYER
(a) Any other corporation or entity, whether an affiliate or
subsidiary or not, may, with TOM BROWN'S and the TRUSTEE'S consent,
adopt THIS PLAN and all its provisions, and be known as a
PARTICIPATING EMPLOYER.
(b) (1) Each PARTICIPATING EMPLOYER shall be required to use
the TRUSTEE.
(2) The TRUSTEE may commingle, hold and invest all
contributions as 1 TRUST FUND. The assets of THIS
PLAN shall be available to pay benefits to all
PARTICIPANTS and BENEFICIARIES of THIS PLAN
regardless of who contributed such assets.
(3) The transfer of any PARTICIPANT from or to an
employer participating in THIS PLAN, whether he be an
EMPLOYEE of TOM BROWN or a Participating Employer,
shall not affect such PARTICIPANT'S rights in THIS
PLAN, and all amounts credited to such PARTICIPANT'S
ACCOUNT as well as his accumulated service time with
the transferor or predecessor, and his length of
participation in THIS PLAN, shall continue to his
credit.
(4) All Forfeitures from TERMINATION shall only inure to
the benefit of the PARTICIPANTS of the employer of
the forfeiting PARTICIPANT, except if the FORFEITURE
is for an employee whose employer is an AFFILIATED
EMPLOYER, the FORFEITURE shall be allocated to the
PARTICIPANTS employed by TOM BROWN or a PARTICIPATING
EMPLOYER who is an AFFILIATED EMPLOYER. If an
EMPLOYEE of one ("First") employer be transferred to
an associated ("Second") employer which is an
AFFILIATED EMPLOYER, the transfer shall not cause his
account balance (generated while an EMPLOYEE of
"First" employer) in any manner, or by any amount to
be forfeited. Such EMPLOYEE'S PARTICIPANT ACCOUNT
balance for THIS PLAN, including length of service,
shall be considered as though he had always been
employed by the "Second" employer and as such had
received contributions, forfeitures, earnings or
losses, and appreciation or depreciation in value of
assets totaling the amount so transferred.
(5) The expenses of the TRUST shall be paid by each
employer in the same proportion that the total amount
standing to the credit of all PARTICIPANTS employed
by such employer bears to the total standing to the
credit of all PARTICIPANTS.
(c) Each PARTICIPATING EMPLOYER shall be a party to THIS PLAN;
however, for all of its relations with the TRUSTEE and ADMINISTRATOR
in THIS PLAN, each PARTICIPATING EMPLOYER irrevocably designates TOM
BROWN as its agent.
(d) Amendment of THIS PLAN by TOM BROWN when there shall be a
PARTICIPATING
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<PAGE> 80
EMPLOYER shall only be by the written action of each and every
Participating Employer and with the consent of the TRUSTEE where such
consent is necessary with the terms of THIS PLAN.
(e) Any PARTICIPATING EMPLOYER may discontinue or revoke its
participation in THIS PLAN. On any such discontinuance or revocation,
satisfactory evidence thereof and of any conditions imposed shall be
delivered to the TRUSTEE. The TRUSTEE shall thereafter transfer,
deliver and assign CONTRACTS and other TRUST FUND assets allocable to
the PARTICIPANTS of such Participating Employer to the new TRUSTEE
designated by such Participating Employer, if it has established a
separate pension plan for its EMPLOYEES; however, that no such
transfer shall be made if the result is the elimination or reduction
of any SECTION 411(d)(6) PROTECTED BENEFITS. If no successor is
designated, the TRUSTEE shall retain the assets for the EMPLOYEES of
such PARTICIPATING EMPLOYER. No part of the principal or income of
the TRUST, as it relates to such PARTICIPATING EMPLOYER, will be used
for or diverted to purposes other than for the exclusive benefit of
the EMPLOYEES of such PARTICIPATING EMPLOYER.
4.10 OTHER
(a) (1) Subject to the exceptions below, no benefit payable
out of the TRUST FUND to any person (including a
PARTICIPANT or his BENEFICIARY) shall be subject in
any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge,
and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge such
shall be void; and no such benefit shall in any
manner be liable for, or subject to, the debts,
contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or
legal process for or against such person, and the
benefit shall not be recognized by the TRUSTEE,
except as may be required by law.
(2) This subsection shall not apply if a PARTICIPANT or
BENEFICIARY is indebted to THIS PLAN for a loan from
THIS PLAN. At the time a distribution is to be made
to or for a PARTICIPANT'S or BENEFICIARY'S benefit,
such proportion of the amount distributed as shall
equal such loan indebtedness shall be paid by the
TRUSTEE to the TRUSTEE or the ADMINISTRATOR, at the
direction of the ADMINISTRATOR, to apply against or
discharge such loan indebtedness. Prior to making a
payment, however, the PARTICIPANT or BENEFICIARY must
be given written notice by the ADMINISTRATOR that
such loan indebtedness is to be so paid in whole or
part from his PARTICIPANT'S ACCOUNT. If the
PARTICIPANT or BENEFICIARY does not agree that the
loan indebtedness is a valid claim against his vested
PARTICIPANT'S ACCOUNT, he shall be entitled to a
review of the validity of the claim with procedures
in subsections 4.6(b) and 4.6(c).
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(3) This subsection shall not apply to a QUALIFIED
DOMESTIC RELATIONS ORDER in CODE SECTION 414(p), and
those other domestic relations orders permitted to be
so treated by the ADMINISTRATOR by the Retirement
Equity Act of 1984. The ADMINISTRATOR shall
establish a written procedure to determine the
qualified status of domestic relations orders and to
administer distributions by such qualified orders.
Further, if provided under a QUALIFIED DOMESTIC
RELATIONS ORDER, a former spouse of a PARTICIPANT
shall be treated as the spouse or surviving spouse by
THIS PLAN.
(b) (1) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation
of THIS PLAN or of the TRUST, by termination of
either, by power of revocation or amendment, by the
happening of any contingency, by collateral
arrangement or by any other means, for any part of
the corpus or income of any TRUST FUND maintained by
THIS PLAN or any funds contributed thereto to be used
for, or diverted to, purposes other than the
exclusive benefit of PARTICIPANTS, FORMER
PARTICIPANTS, or their BENEFICIARIES.
(2) If TOM BROWN makes an excessive contribution under a
mistake of fact in ACT Section 403(c)(2)(A), TOM
BROWN may demand repayment of such excessive
contribution at any time within 1 year following the
time of payment, and the TRUSTEES shall return such
amount to TOM BROWN within the 1 year period.
Earnings of THIS PLAN attributable to the excess
contributions may not be returned to TOM BROWN but
any losses attributable thereto must reduce the
amount so returned.
(c) THIS PLAN and Trust shall be construed and enforced according
to the ACT and the laws of the State of Texas, other than its laws for
choice of law, to the extent not preempted by the ACT.
(d) In THIS PLAN, the gender of all words shall include the
masculine, feminine, and neuter, and the number of all words shall
include the singular and the plural.
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(e) If any claim, suit, or proceeding is brought against the TRUST
and/or THIS PLAN to which the TRUSTEE or the ADMINISTRATOR may be a
party, and such claim, suit, or proceeding is resolved in favor of the
TRUSTEE or ADMINISTRATOR, they shall be entitled to be reimbursed from
the TRUST FUND for any and all costs, attorney's fees, and other
expenses incurred by them for which they shall have become liable.
(f) Every FIDUCIARY, except a bank or an insurance company, unless
exempted by the ACT and its regulations, shall be bonded in an amount
not less than 10% the amount of the funds such FIDUCIARY handles;
however, the minimum bond shall be $1,000 and the maximum bond,
$500,000. The amount of funds handled are determined at the beginning
of each PLAN YEAR by the amount of funds handled by such person,
group, or class to be covered and their predecessors, if any, during
the preceding PLAN YEAR, by the amount of the funds to be handled
during the then current year. The bond shall provide protection to
THIS PLAN against any loss for acts of fraud or dishonesty by the
FIDUCIARY alone or in connivance with others. The surety shall be a
corporate surety company (as is used in ACT Section 412(a)(2)), and
the bond shall be in a form approved by the Secretary of Labor.
Notwithstanding the above, the cost of such bonds shall be an expense
of and may, at the election of the ADMINISTRATOR, be paid from the
TRUST FUND or by TOM BROWN.
(g) Any insurer who issues CONTRACTS has no responsibility for
the validity of THIS PLAN nor for the tax or legal aspects of THIS
PLAN. The insurer is protected and held harmless in acting by any
written direction of the TRUSTEE, and has no duty to see to the
application of any funds paid to the TRUSTEE, nor be required to
question any actions directed by the TRUSTEE. Regardless of THIS
PLAN, the insurer has not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any CONTRACT
which it issues, nor the rules of the insurer.
(h) The "NAMED FIDUCIARIES" of THIS PLAN are (1) TOM BROWN, (2)
the ADMINISTRATOR and (3) the TRUSTEE. The NAMED FIDUCIARIES shall
have only those specific powers, duties, responsibilities, and
obligations as are specifically given them in THIS PLAN. In general,
TOM BROWN has the sole responsibility for making the CONTRIBUTIONS in
subsection 2.18; and has the sole authority to appoint and remove the
TRUSTEE and the ADMINISTRATOR; to formulate THIS PLAN's "FUNDING
POLICY AND METHOD"; and to amend or terminate, in whole or in part,
THIS PLAN.
The ADMINISTRATOR has the sole responsibility for the
administration of THIS PLAN, specifically described in THIS PLAN.
The TRUSTEE has the sole responsibility of management of the
assets held in the TRUST FUND, except those assets, the management of
which has been assigned to an INVESTMENT MANAGER, who is solely
responsible for the management of the assets assigned to it, as
specifically provided in THIS PLAN.
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Each named FIDUCIARY warrants that any directions given,
information furnished, or action taken by it shall be by the provisions
of THIS PLAN, authorizing or providing for such direction, information
or action. Furthermore, each named FIDUCIARY may rely upon any such
direction, information or action of another named FIDUCIARY as being
proper by THIS PLAN, and is not required by THIS PLAN to inquire into
the propriety of any such direction, information or action. By THIS
PLAN each named FIDUCIARY shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations in THIS
PLAN. No named FIDUCIARY shall guarantee the TRUST FUND in any manner
against investment loss or depreciation in asset value. Any person or
group may serve in more than 1 FIDUCIARY capacity. The "NAMED
FIDUCIARIES" shall be empowered to interpret THIS PLAN and Trust and to
resolve ambiguities, inconsistencies and omissions, which findings
shall be binding, final and conclusive.
(i) The headings and subheadings of THIS PLAN are inserted for
convenience of reference and are to be ignored in any construction of
THIS PLAN.
(j) (1) Notwithstanding anything in THIS PLAN, CONTRIBUTIONS
to THIS PLAN for 1996 and thereafter are conditioned
upon the qualification of THIS PLAN as amended and
restated by CODE SECTION 401. If THIS PLAN receives
an adverse determination for its restatement and
amendment, THIS PLAN may return such Contributions to
TOM BROWN within 1 year after such determination, if
the application for the determination is made by the
time prescribed by law for filing TOM BROWN'S return
for the taxable year in which THIS PLAN was adopted,
or such later date as the Secretary of the Treasury
may prescribe.
(2) Notwithstanding the above, except in subsections 1.5,
1.6, and 2.18, any CONTRIBUTION by TOM BROWN to the
TRUST FUND is conditioned upon the deductibility of
the CONTRIBUTION by TOM BROWN by the CODE, and, to
the extent any such deduction is disallowed, TOM
BROWN may, within 1 year following the disallowance
of the deduction, demand repayment of such disallowed
contribution, and the TRUSTEE shall return such
contribution within 1 year following the
disallowance. Earnings of THIS PLAN attributable to
the excess contribution may not be returned to TOM
BROWN, but any losses attributable thereto must
reduce the amount so returned.
(k) All THIS PLAN shall be interpreted and applied in a uniform,
nondiscriminatory manner. In any conflict between THIS PLAN and any
CONTRACT, THIS PLAN'S provisions control.
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IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on this ___________ day of ______________________, 19____.
EMPLOYER:
TOM BROWN, INC. TRUSTEE:
By: By:
---------------------------- --------------------------------
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INDEX
<TABLE>
<S> <C>
1-Year Break in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6, 50, 51
414(s) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 15, 16, 18, 34
5% Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 16, 34, 38
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-23, 25-36, 38-42, 45-57, 59, 60, 62, 65-70, 73, 76, 78
Account Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 51
Accounts . . . . . . . . . . . . . . 7, 15, 19-21, 23-25, 27-29, 33, 39, 42, 43, 46, 50, 55, 62, 64, 65, 68, 71
Terminated Participant's Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 7, 19, 20, 23
Participant's Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 23
Present Value of Accrued Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6, 54, 57-62, 64, 66, 68-70, 73, 78, 79
Actual Contribution Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 15-18, 26, 32, 33, 35, 36
Actual Deferral Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-13, 17, 25, 26, 31, 32, 35, 36
Administrator . . . . . . . 2, 4, 8, 10, 13, 15, 17, 18, 21, 24-26, 29-31, 39, 40, 43, 45-50, 52-55, 57-62, 64-75, 77-79
Aggregate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-21, 33
Aggregation Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20, 22, 23, 39, 40
Alternate Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
amounts transferred from other Qualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 41
Annual Addition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 27-29, 31, 34, 41
Maximum Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 29, 41
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 25, 30, 42, 43, 45, 46, 54-56, 66, 70, 72, 73, 77, 78
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 38, 39, 44, 57, 58, 60, 61, 66, 70, 76, 78
Code Section . . 1, 3, 4, 6, 8, 10-17, 19, 21, 22, 24, 25, 27-34, 36-39, 41-43, 45, 48, 52-57, 59, 69-71, 73-76, 78, 80
Code Sections . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 11, 12, 16, 23, 27, 28, 33, 37, 38, 40, 54
Compensation . . . . . . . . . . . . . . . . . . . . . . . 3-5, 7, 8, 11, 14-16, 18, 19, 21-23, 25-29, 32-39, 60, 64, 67
Participant's Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21, 22, 26-29, 32, 34, 35
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 55, 59, 62, 69-71, 79, 80
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 24, 47, 62, 64, 72, 77, 79
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 55, 57, 60, 62, 73, 79
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5, 7, 9-29, 31-36, 40, 48-50, 53, 59, 62, 76, 78-80
Excess Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 14, 17, 32, 35, 36, 78
Qualified Non-Elective Contributions . . . . . . . . . . . . . . . . . 7, 10, 11, 13, 14, 17-19, 31, 32, 35, 36
Deferral Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 31, 32, 35
Determination Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Direct Rollover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 54
Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 6, 22, 46, 47, 51, 52, 56, 60, 75
Distributee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 42, 44, 54, 56, 57
DOL Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21, 25, 36, 41, 51, 52, 76, 78, 80
</TABLE>
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Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-11, 13, 14, 24, 26, 29, 31, 32, 35, 52, 54
Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-18, 21, 24, 25, 29-32, 34-36, 53, 54
Employer's Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 26
Participant's Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . 8-10, 13, 26, 31, 32, 52, 54
Participant's Elective Deferral Account . . . . . . . . . . . . . . . . . . . . . . . 9, 10, 13, 26, 31, 52, 54
Eligible Rollover Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 42, 54, 56, 57
Excess Aggregate Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Excess Aggregate Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 17-19, 34-36
Excess Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 29, 34
Excess Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 35
Excess Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 9, 29, 31
Excess Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . 8-11, 13, 15, 17, 29, 31, 32, 36
Family Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12, 16, 18, 34, 36, 39
Family Member's Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Family Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12, 16, 18, 34
Fiduciary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57, 65, 79, 80
Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58, 79, 80
named Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79, 80
Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 25, 30, 33, 40, 41, 49, 55, 71, 76
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21-24, 26, 27, 29, 31, 40, 41, 50, 62, 76
funding policy and method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57, 60, 79
Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-12, 14, 16-19, 34, 36-39
Highly Compensated Employee group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 11, 17, 18
Highly Compensated Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-14, 16-19, 32, 34-38
Highly Compensated Former Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 38
Highly Compensated Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12, 15, 16, 38
Income . . . . . . . . . . . . . . . . . . . . 3, 6, 8, 9, 13, 14, 17, 18, 27, 33, 36, 37, 42, 54-56, 61, 62, 67, 77, 78
Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60, 79
Key and Non-Key Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20
Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20, 22, 26, 27, 38-40
Key Employee's Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 9, 10, 13, 15-17, 21, 26, 32, 35
Maximum Aggregate Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Non-Elective Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 11, 14, 19, 31, 35
Non-Elective Contribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 11
Non-Elective Contributions . . . . . . . . . . . . . . . . . . . . . . 7, 10, 11, 13, 14, 18, 19, 31, 32, 35, 36
Non-Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 26, 31, 32, 35, 52
Non-Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 16, 18, 24, 25, 31, 32, 34, 35
Non-Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 17-19, 39
Non-Highly Compensated Employee group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 17, 18
Non-Highly Compensated Employee's Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 19
Non-Highly Compensated Employee's Elective Deferral Account . . . . . . . . . . . . . . . . . . . . . . . . 11
Non-Highly Compensated Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 19
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Non-Highly Compensated Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Non-Highly Compensated Participant group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Non-Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 26, 39
Non-Key Employee's Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Non-Key Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20
Nonallocation Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74, 75
Participant . . . . . . . . . . . . . . 2-4, 7, 8, 10-12, 15-17, 19, 21-23, 25-36, 38-57, 59, 60, 62, 64-66, 69-73, 76-78
Employee . . . . . . . . . . . . . . . . . . 1-8, 10-12, 14-20, 22-30, 32-41, 43, 48, 52, 53, 61, 65, 71-74, 76
Employee's Participant Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Employees . . . . . . . . . . . . . . . . . . . . . . . . 1, 3-5, 11-20, 22, 24, 28, 32, 34-39, 45, 58, 59, 77
Former Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 19, 23, 42, 44, 46, 50, 51, 54, 56, 57
Former Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 29, 78
Leased Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 37, 39
Participants . . . . . . . . . . . 1, 9, 11, 12, 16, 21-24, 26, 29, 30, 32, 35, 41, 57-62, 66, 68, 70, 71, 75-78
Qualified Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42, 56
Retired Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Participant Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Permissive Aggregation Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39, 40
Plan Year . . . . . . . . . . . . . . . . . . . . 1, 2, 6-27, 32-39, 41, 42, 44, 46-49, 51, 52, 54-56, 61, 67-69, 73, 79
Limitation Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-29, 41
Plan Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 17, 20, 38, 39
Put Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43-45, 74
Qualified Domestic Relations Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42, 55, 57, 73, 78
Qualified Election Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Qualified Non-Elective Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Qualified Non-Elective Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 11, 14, 19, 31, 35
Qualified Non-Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 26, 31, 32, 35, 52
Participant's Qualified Non-Elective Deferral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Qualified Non-Elective Deferral Account . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 26, 31, 35, 52
Qualified Non-Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . 15, 16, 18, 24, 25, 31, 32, 34, 35
Qualified Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 30, 31, 37, 39, 41, 59
Qualified Voluntary Employee Contribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Qualifying Employer Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Qualifying Employer Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
registration-type class of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Regulations . . . . . . . . . . . . . . . . . . 5, 6, 8, 15, 23, 25, 27-30, 36-38, 44, 48, 54, 59, 60, 68, 70, 71, 76, 79
Required Aggregation Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 23, 39, 40
Retirement . . . . . . . . . . . . . 1, 3, 6, 10, 22, 25, 27, 30, 37, 41, 42, 46, 47, 51, 54-57, 60, 62, 70, 73, 75, 78
Earliest Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Eligible Retirement Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42, 54, 57
Late Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46, 55, 56
Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51, 54-56
Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 25, 30, 46, 55, 56
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Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 25, 30, 46, 55, 56
Section 411(d)(6) protected benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 70, 71, 77
Section 415 Suspense Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29, 41
Service . . . . . . . . . . . . . . . . . . . . . 1, 2, 4-6, 19, 22, 23, 26-28, 37, 39, 41, 47-51, 53, 54, 56, 60, 71, 76
authorized leave of absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
authorized leaves of absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6, 48
Hours of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6, 23, 56, 60
maternity and paternity leaves of absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5, 6, 22, 26, 50, 51
Years of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 28, 48-51, 56, 60
Super Top Heavy Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20, 29
Termination . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6, 8, 23, 37, 41, 46, 47, 49-52, 60, 70, 71, 75, 76, 78
Participant's Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47, 51, 52
Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71, 79
Terminated Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 47, 48, 56
This Plan . . . . . . . . . . . . . . . . . . . . . 1-3, 6-11, 14, 18-20, 22-26, 28-32, 34-36, 38-46, 48-63, 65-71, 73-81
Tom Brown . . . . . . . i, 1-6, 8, 10-12, 14, 16, 17, 19, 21-28, 30, 32, 33, 35-40, 42-45, 47, 50-55, 57-62,64-71, 73-81
Affiliated Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5, 6, 37, 39, 52, 76
Affiliated Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Employer . . . . . . . . . . . . . . . 1-7, 13, 14, 20-29, 32-34, 37-39, 42, 48, 50, 52, 56, 60, 69, 76, 77, 81
Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 28, 38, 74
Participating Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3, 6, 24, 60, 76, 77
Tom Brown, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 1, 6, 75, 81
Tom Brown Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 24, 38, 42-45, 47, 59, 61, 64-66, 73-76
Offered Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Selling Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Third Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43-45
Top Heavy Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 40
Top Heavy Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20, 22, 29, 36, 39, 40, 48, 49
Top Heavy Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 22, 39, 48
Top Paid Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 39
Total Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . 5, 21, 25, 26, 30, 41, 43, 45, 47, 51, 60, 61, 63-72, 74-80
Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 10, 18, 24-26, 30, 42, 45-48, 52, 54, 55, 57-73, 75-81
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68, 78
Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . 20, 21, 25, 26, 30, 42, 47, 50, 52, 54, 55, 67, 75, 76
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 13, 25, 30, 40, 41, 46-51, 53, 55, 56, 68, 69, 71, 73, 78
Voluntary Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 40
Voluntary Employee Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-20, 29, 34, 35, 40, 53
</TABLE>
85
<PAGE> 1
EXHIBIT NO. 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Primary
Weighted average common
shares outstanding 21,116 16,292 15,464
Net effect of dilutive
stock options,
treasury stock method 1,107 560 --
-------- -------- --------
Total common
shares 22,223 16,852 15,464
======== ======== ========
Net income to common
shareholders $ 6,263 $ 5,785 $ (160)
======== ======== ========
Primary earnings per
common share $ .28 $ .34 $ (.01)
======== ======== ========
Fully Diluted
Weighted average common
shares outstanding 21,116 16,292 15,464
Net effect of dilutive
stock options,
treasury stock method 1,107 560 457
Effect of convertible
preferred stock 1,525 -- --
-------- -------- --------
Total common
shares 23,748 16,292 15,921
======== ======== ========
Net income to common
shareholders $ 7,935 $ 5,785 $ (160)
======== ======== ========
Fully diluted earnings
per common share $ .33 $ .34 $ (.01)
======== ======== ========
</TABLE>
-65-
<PAGE> 1
EXHIBIT 21.1
TOM BROWN, INC.
Subsidiaries of Registrant
December 31, 1996
<TABLE>
<CAPTION>
Jurisdiction of Percent
Name of Subsidiary Incorporation/Organization of Ownership
- ------------------ -------------------------- ------------
<S> <C> <C>
Retex Gathering Company, Inc. Wyoming 100%
Rocno Corporation Texas 100%
TBI Production Company Delaware 100%
TBI Oil Company Delaware 100%
TBI Exploration, Inc. Colorado 100%
Palisade Oil, Inc. Colorado 100%
TBI West Virginia, Inc. Delaware 100%
Wildhorse Energy Partners, L.L.C. Delaware 45%
</TABLE>
-66-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Tom Brown, Inc.'s
previously filed Registration Statements on Form S-8 Nos. 33-42991, 33-44225,
33-60191, 33- 60842, and 333-13157.
ARTHUR ANDERSEN LLP
March 25, 1997
-67-
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Tom Brown, Inc.'s
previously filed Registration Statements on Form S-8 Nos. 33-42991, 33-44225,
33-60191, 33- 60842, and 333-13157.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
March 25, 1997
-68-
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Tom Brown, Inc.'s
previously filed Registration Statements on Form S-8 Nos. 33-42991, 33-44225,
33-60191, 33- 60842, and 333-13157.
RYDER SCOTT COMPANY
March 25, 1997
-69-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,504
<SECURITIES> 0
<RECEIVABLES> 33,080
<ALLOWANCES> 0
<INVENTORY> 1,374
<CURRENT-ASSETS> 55,847
<PP&E> 472,095
<DEPRECIATION> 124,834
<TOTAL-ASSETS> 406,374
<CURRENT-LIABILITIES> 35,595
<BONDS> 119,000
0
100
<COMMON> 2,390
<OTHER-SE> 243,646
<TOTAL-LIABILITY-AND-EQUITY> 406,374
<SALES> 41,056
<TOTAL-REVENUES> 66,720
<CGS> 30,330
<TOTAL-COSTS> 55,447
<OTHER-EXPENSES> 5,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 389
<INCOME-PRETAX> 11,273
<INCOME-TAX> (3,338)
<INCOME-CONTINUING> 6,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,263
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
</TABLE>
