<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____________)
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
TMBR/SHARP DRILLING, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[ x ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
TMBR/SHARP DRILLING, INC.
4607 West Industrial Boulevard
Midland, Texas 79703
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To The Shareholders of
TMBR/Sharp Drilling, Inc.:
The Annual Meeting of Shareholders of TMBR/Sharp Drilling,
Inc. (the "Company"), a Texas corporation, will be held on Friday,
August 28, 1998, at 10:00 a.m., local time, in the Derrick Room,
Midland Petroleum Club, 501 West Wall, Midland, Texas 79701, for the
following purposes:
(1) To elect four Directors to hold office until the
next succeeding annual meeting of shareholders and until
their successors have been duly qualified and elected; and
(2) To transact such other business as may properly
come before the meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on
July 22, 1998 as the record date for the determination of shareholders
entitled to notice of and to vote at such meeting and any adjournments
thereof. Only shareholders of record at the close of business on
July 22, 1998 will be entitled to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors
James M. Alsup
Secretary
Midland, Texas
July 23, 1998
Whether or not you plan to be present at the meeting in
person, please complete, sign, date and mail the enclosed
Proxy in the accompanying return envelope to which no postage
need be affixed by the sender if mailed within the United
States. If you receive more than one Proxy because your shares
are registered in different names or addresses, each such
Proxy should be signed and returned to assure that all of your
shares will be voted.
<PAGE> 3
TMBR/SHARP DRILLING, INC.
4607 West Industrial Boulevard
Midland, Texas 79703
PROXY STATEMENT
The accompanying Proxy is solicited on behalf of the Board of
Directors of TMBR/Sharp Drilling, Inc. (the "Company") to be voted at
the Annual Meeting of Shareholders of the Company to be held on
Friday, August 28, 1998, at the time and place and for the purposes
set forth in the accompanying Notice of Annual Meeting, and at any
adjournments thereof.
This Proxy Statement and the accompanying form of Proxy are
first being mailed to the shareholders on or about July 24, 1998.
Proxies, Solicitation and Voting
The record date for the determination of shareholders entitled
to notice of and to vote at the meeting is the close of business on
July 22, 1998. On the record date, there were 4,710,886 shares of the
Company's $.10 par value common stock (the "Common Stock") issued and
outstanding. Each share of Common Stock is entitled to one vote on
all matters to be acted upon at the meeting. The Company's Articles
of Incorporation deny cumulative voting rights.
With respect to matters to be voted upon at the Annual
Meeting, the attendance, in person or by Proxy, of the holders of a
majority of the shares of Common Stock entitled to vote at the meeting
is necessary to constitute a quorum. For quorum purposes, the total
votes received, including abstentions and broker non-votes, are
counted in determining the number of shares present. A broker
non-vote occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee does not
have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner.
Directors will be elected by a plurality of votes cast.
"Plurality" means that the individuals who receive the largest number
of votes cast are elected as Directors up to the maximum number of
Directors to be chosen at the meeting. Consequently, any shares not
voted (whether by abstention, broker non-vote, or otherwise) have no
impact in the election of Directors, except to the extent the failure
to vote for an individual results in another individual receiving a
larger number of votes. Under the Company's bylaws, when a quorum
is present, with respect to any other matter, the affirmative vote of
the holders of a majority of the shares entitled to vote on such
matter and represented in person or by Proxy shall be the act of the
shareholders. An abstention has the effect of a vote against a
particular matter and broker non-votes are not counted for purposes of
approving other matters.
<PAGE> 4
Properly executed Proxies will be voted in accordance with
the instructions thereon or, if no instructions are indicated thereon,
the shares will be voted FOR the election of management's nominees to
the Board of Directors, and in the discretion of the persons named as
proxies, upon such other matters as may properly come before the
meeting.
Any shareholder giving a Proxy has the power to revoke it at
any time before it is voted by appearing and voting personally at the
Annual Meeting, by delivering a later dated Proxy or by delivering to
the Secretary of the Company a written revocation of such Proxy prior
to the Annual Meeting.
The cost of preparing, assembling, printing and mailing this
Proxy Statement and enclosed Proxy and the cost of soliciting Proxies
relating to the Annual Meeting will be borne solely by the Company.
The Company may request banks and brokers to solicit their customers
who beneficially own shares of Common Stock of the Company listed of
record in names of nominees and will reimburse such banks and brokers
for their reasonable out-of-pocket expenses of such solicitation. It
is contemplated that the original solicitation of Proxies by mail will
be supplemented by telephone, telegram and personal solicitation by
officers, Directors and other regular employees of the Company. No
additional compensation will be paid to such individuals for such
activities.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of
July 22, 1998 (unless otherwise indicated) with respect to the
Company's Common Stock beneficially owned by (i) each person known to
the Company to be the beneficial owner of more than five percent of
the outstanding shares of the Company's Common Stock, (ii) the
executive officers named in the Summary Compensation Table under
"Executive Compensation", (iii) each Director and nominee for Director
of the Company and (iv) all Directors (and nominees) and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name and Address Beneficial of
of Beneficial Owner Ownership(1) Class
------------------- ------------ -------
<S> <C> <C>
Thomas C. Brown . . . . . . . . . . . . . . . . . . 574,153(2) 11.20%
4607 West Industrial Blvd.
Midland, Texas 79703
Donald L. Evans . . . . . . . . . . . . . . . . . . 7,146 *
500 Empire Plaza
Midland, Texas 79701
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
David N. Fitzgerald . . . . . . . . . . . . . . . . 15,182 *
2300 West 42nd Street
Odessa, Texas 79764
Joe G. Roper . . . . . . . . . . . . . . . . . . . 859,310(3) 17.52%
4607 West Industrial Blvd.
Midland, Texas 79703
Metropolitan Life Insurance Company . . . . . . . 291,400(4) 6.19%
One Madison Avenue
New York, New York 10010
State Street Research & Management
Company, Inc. . . . . . . . . . . . . . . . . . . 852,500(4) 18.10%
One Financial Center
Boston Massachusetts 02111
F. Howard Walsh, Jr. . . . . . . . . . . . . . . . 274,300(5) 5.82%
500 West Seventh St., Suite 1007
Fort Worth, Texas 76102
All Directors (and nominees . . . . . . . . . . . . 1,505,730(6) 28.20%
and executive officers as a
group (8 persons)
____________
</TABLE>
* Less than 1%.
(1) Unless otherwise indicated, all shares of Common Stock are
held directly with sole voting and investment powers.
(2) Includes 414,500 shares of Common Stock underlying presently
exercisable stock options and 19,856 shares of Common Stock
owned by the Estate of C. V. Lyman, deceased, of which estate
Mr. Brown serves as Co-Executor.
(3) Includes 195,000 shares of Common Stock underlying presently
exercisable stock options.
(4) In Amendment No. 3 to Schedule 13G, dated February 6, 1998,
filed with the Securities and Exchange Commission (the
"Commission") by Metropolitan Life Insurance Company ("Met
Life"), Met Life reported beneficial ownership of such
shares. Met Life further reported that State Street
Research & Management Company, Inc. ("State Street"), an
affiliate of Met Life and registered investment adviser, has
sole voting and dispositive powers with respect to such
shares. In Schedule 13G, dated February 11, 1998, filed by
State Street with the Commission, State Street reported
beneficial ownership of 852,500 shares, of which it reported
sole voting power with respect to 543,700 shares and sole
dispositive power with respect to 852,500 shares. State
Street disclaimed any beneficial interest in such securities.
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<PAGE> 6
(5) As reported in Amendment No. 2 to Schedule 13D, dated
November 3, 1997, filed with the Commission.
(6) Includes 629,500 shares of Common Stock underlying presently
exercisable stock options.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires,
among other things, that the Company's Directors and officers file at
specified times reports of beneficial ownership and changes in
beneficial ownership of the Company's Common Stock and other equity
securities. To the Company's knowledge, all Section 16(a) filing
requirements for the year ended March 31, 1998 have been complied with.
ELECTION OF DIRECTORS
Directors of the Company are elected annually by the
shareholders to hold office until the next succeeding annual meeting
of shareholders and until their successors are duly qualified and
elected.
In accordance with the Company's bylaws, the Board of
Directors by resolution has fixed the total number of directors at
four. Accordingly, the Board of Directors is recommending that the
four current Directors of the Company be re-elected to serve until the
next annual meeting of shareholders is held and their respective
successors have been duly elected.
If any nominee becomes unavailable for any reason, which is
not anticipated, a substitute nominee may be designated by the Board
of Directors and the shares represented by Proxy will be voted for
any such substitute nominee, unless the Board reduces the number of
Directors. All of the nominees listed below were previously elected
Directors by the shareholders at the last annual meeting of
shareholders. There are no family relationships among any of these
nominees, or among any of these nominees and any officer, except
Patricia R. Elledge, the Controller of the Company, is the daughter of
Joe G. Roper, the President and a Director of the Company. There are
no arrangements or understandings between any nominee and any other
person pursuant to which the nominee was selected. The four nominees
for the Board of Directors are as follows:
<TABLE>
<CAPTION>
Position with Company and Director
Nominee Age Principal Occupation Since
---------------- --- ------------------------- --------
<S> <C> <C> <C>
Thomas C. Brown . . . . . . . . . . . 71 Chairman of the Board 1982
of Directors and Chief
Executive Officer of the
Company; Director of
Tom Brown, Inc.
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Position with Company and Director
Nominee Age Principal Occupation Since
---------------- --- -------------------------- --------
<S> <C> <C> <C>
Joe G. Roper . . . . . . . . . . . 70 Director and President 1982
of the Company.
Donald L. Evans . . . . . . . . . . 51 Director of the Company; 1982
Chairman of the Board of
Directors and Chief Executive
Officer of Tom Brown, Inc.
David N. Fitzgerald . . . . . . . . 75 Director of the Company; 1984
President and shareholder
of Dave Fitzgerald, Inc., a
privately held investment
company.
</TABLE>
Unless otherwise directed on any duly executed and dated
Proxy, it is the intention of the persons named in such Proxy to vote
the shares of Common Stock represented by such Proxy for the election
of the nominees listed in the preceding table for the office of
Director of the Company.
The Board of Directors recommends that the shareholders vote
FOR the proposal to elect its nominees to the Board of Directors.
Other Information
The Board of Directors held five meetings during the year
ended March 31, 1998 at which all Directors were present. The
Directors also took action by unanimous written consent on two
occasions.
The Company does not have a standing nominating committee.
The review of recommendations for nominees for Directors is made by
the full Board of Directors.
Messrs. Donald L. Evans and David N. Fitzgerald served as
members of the Audit Committee of the Board of Directors during fiscal
year 1998. The Audit Committee was created for the purposes of
recommending the firm to be employed by the Company as its independent
auditors, consulting with the persons chosen to be the independent
auditors with regard to the plan of audit, reviewing with the
independent auditors the report of audit and management letters, if
any, consulting with the independent auditors with regard to the
adequacy of internal accounting controls and performing such other
duties as may be advised or requested from time to time by the Board
of Directors of the Company. The Audit Committee held one meeting
during the year ended March 31, 1998.
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<PAGE> 8
The Company's Compensation Committee, which also consists of
Messrs. Evans and Fitzgerald, oversees and is responsible for the
administration of the Company's stock option plans. Members of the
Compensation Committee are appointed annually by the Board of
Directors. Members serve at the pleasure of the Board of Directors
and may be appointed or removed by the Board of Directors at will.
The Compensation Committee did not hold any meetings during the year
ended March 31, 1998.
EXECUTIVE COMPENSATION
Summary of Annual Compensation
The following table sets forth for each of the three fiscal
years ended March 31, 1998, a summary of the types and amounts of
compensation paid to the Chief Executive Officer of the Company and
the only other executive officer of the Company whose salary and
bonuses for the fiscal year ended March 31, 1998 exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
--------------------------- -------------------------- -------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Salary Bonus sation Awards SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------- ----- ------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas C. Brown, 1998 120,462 0 (1) 0 0 0 1,506(2)
Chairman of the Board 1997 72,000 0 (1) 0 195,000 0 762(2)
of Directors and 1996 72,000 0 (1) 0 0 0 0
Chief Executive
Officer
Joe G. Roper, 1998 162,771 0 (1) 0 0 0 1,956(3)
President and Director 1997 156,251 0 (1) 0 100,000 0 12,902(3)
1996 150,615 0 (1) 0 0 0 244,803(3)
_________________
</TABLE>
(1) The named executive officers of the Company were also
provided certain non-cash compensation and personal
benefits. However, the aggregate amount of such other
compensation did not exceed $50,000 or 10% of the named
executive officer's salary during such fiscal year.
(2) Such amount was allocated to Mr. Brown's account under
the Company's 401(k) Profit Sharing Plan.
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<PAGE> 9
(3) Such amount includes (i) $1,956 allocated to Mr. Roper's
account under the Company's 401(k) profit sharing plan
for the fiscal year ended March 31, 1998; $1,587 for
1997; and $1,152 for 1996; (ii) insurance premiums paid
by the Company in the amounts of $11,315 and $38,896 for
the years ended March 31, 1997 and 1996, respectively,
for a whole life insurance policy on the life of
Mr. Roper; and (iii) for fiscal year 1996, $204,760 for
premiums under a split-dollar life insurance plan
maintained by the Company on behalf of Mr. Roper, of
which $17,697 was attributable to term life insurance
for the fiscal year ended March 31, 1996. During
fiscal year 1997, and without having paid any premiums
for the split-dollar life insurance policy during such
fiscal year, the Company terminated both the whole life
insurance policy and the split-dollar agreement. During
fiscal year 1996, and pursuant to the terms of the
split-dollar agreement, the Company borrowed the
aggregate amount of $339,855 against the cash value of
such insurance policy to pay the policy premiums and a
portion of the accrued interest on the cumulative amount
of such borrowings. The remaining portion of the
accrued interest on such borrowings was paid annually by
the Company. At March 31, 1996, the outstanding loan
balance was $3,174,386. The interest expense paid by
the Company for the fiscal year ended March 31, 1996 was
$91,412. A portion of the death benefit of the
split-dollar policy equal to the Company's net premium
outlay was payable to the Company upon the death of
Mr. Roper, and the aggregate loan amount was deducted
from the insurance proceeds payable to the beneficiaries
of the policy. The balance of the proceeds were payable
to Mr. Roper's beneficiaries. The Company was not the
beneficiary of either insurance policy.
Stock Options
The Company has in the past utilized stock options as
part of its overall compensation of Directors, officers and
employees. However, no stock options were granted to the named
executive officers during the fiscal year ended March 31, 1998.
The following table sets forth certain information
with respect to stock option exercises during the fiscal year
ended March 31, 1998 by the named executive officers of the
Company, and the value of each such officer's unexercised stock
options at March 31, 1998.
-7-
<PAGE> 10
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year - End Option/SAR Values
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
on Value at Fiscal Year-End (#) at Fiscal Year-End ($)(2)
Exercise Realized ------------------------------ ----------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---------- ------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T.C. Brown 100,000 2,450,000 414,500 0 3,200,625 0
J.G. Roper 49,300 457,813 195,000 0 1,154,000 0
_________
</TABLE>
(1) The "value realized" is equal to the fair market value
of a share of Common Stock on the date of exercise
(based on the closing price of the Company's Common
Stock), less the exercise price.
(2) Value of in-the-money options is equal to the fair
market value of a share of Common Stock at fiscal year-
end (based on the closing price of the Company's Common
Stock), less the exercise price.
Profit Sharing Plan
The Company maintains under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), a
profit sharing plan (the "Profit Sharing Plan") for the
benefit of all employees. Under the Profit Sharing Plan, the
Company contributes to a trust administered by a third party
trustee, out of current or accumulated net profits, such
amounts as it may, from time to time, deem advisable. The
contributions are invested by the Profit Sharing Trustee in
various investments selected by employee participants.
Company contributions to the Profit Sharing Plan are allocated
monthly to the individual accounts of employee-participants.
A participant's accrued benefit derived from Company
contributions is 100% vested after seven years of continuous
employment, upon attaining age 65, or upon death or disability.
Each employee of the Company becomes eligible to participate
in the Profit Sharing Plan after one year of continuous
employment. Directors of the Company who are not also
employees of the Company are not eligible to participate in
the Profit Sharing Plan. In addition to Company contributions,
participants may also contribute such amount as the participant
determines each year, subject to certain annual maximum
limitations. Participants are always 100% vested in their
individual contributions. For the year ended March 31, 1998,
the Company contributed an amount equal to 25% of the
contributions made by eligible employees, limited, however, to
a maximum of 5% of each eligible employee's compensation.
During the fiscal year ended March 31, 1998, the Company made
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<PAGE> 11
cash contributions in the total amount of $29,358 to the
Profit Sharing Plan on behalf of participating employees, of
which $1,956 was allocated to the account of Mr. Roper and
$1,506 was allocated to Mr. Brown's account.
Compensation of Directors
The Company has, from time to time, paid fees to its
Directors for attending Directors' meetings and reimbursed
Directors for their expenses incurred in connection with
attending meetings. However, no such fees or reimbursements
were paid to any Director of the Company during the fiscal
year ended March 31, 1998.
Directors who are employees of the Company are
eligible to participate in the Company's stock option plans
and 401(k) profit sharing plan, but do not receive
compensation for service on the Board of Directors. Directors
who are not employees of the Company are not eligible to
participate in the Company's benefit plans and do not receive
retainer fees or other compensation for their services.
In October, 1997, the Company entered into Bonus
Agreements with Donald L. Evans and David N. Fitzgerald, non-
employee Directors of the Company, providing for cash bonus
payments in the amount of $100,000.00 to each of Messrs. Evans
and Fitzgerald within ten days after the occurrence of (i) an
"Asset Acquisition" or (ii) a "Change in Control".
For purposes of the Bonus Agreements, an "Asset
Acquisition" is deemed to have occurred if any person, or a
group of persons, acquires more than 51% in value of the
assets of the Company pursuant to one or more transactions
with the Company during the term of the Bonus Agreement. A
"Change in Control" is deemed to have occurred if (i) any
person becomes the beneficial owner of securities of the
Company representing 51% or more of the voting power of the
outstanding securities of the Company having the right under
ordinary circumstances to vote at an election of the Board of
Directors of the Company, (ii) a change in the composition of
a majority of the Board occurs which has not been approved by
a majority of the Board as constituted immediately prior to
the change, (iii) at any meeting of the shareholders of the
Company called for the purpose of electing directors, more
than one of the persons nominated by the Board for election as
directors fails to be elected, or (iv) upon the consummation
of a merger, consolidation, sale of substantially all of the
assets or other reorganization of the Company, other than a
reincorporation, in which the Company does not survive.
The Bonus Agreements with Messrs. Evans and
Fitzgerald remain in effect through December 31, 1998 and,
beginning each January 1st thereafter, the agreements are
automatically extended for additional one-year periods, unless
by September 30th of any year the Company gives notice that
the agreements will not be extended. See "Bonus Agreements
and Change of Control Arrangements".
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<PAGE> 12
1984 Stock Option Plan
The Board of Directors authorized and adopted the
TMBR/Sharp Drilling, Inc. Stock Option Plan (the "1984 Plan")
in August, 1984. Although the 1984 Plan expired by its own
terms on August 8, 1994, options granted under the 1984 Plan
prior to August 8, 1994 will remain outstanding until such
options are exercised or expire by their own terms, and will
continue to be subject to all terms and conditions of the
1984 Plan. No additional options may be granted under the
1984 Plan. Options granted under the 1984 Plan are either
incentive stock options within the meaning of Section 422 of
the Code, or options which do not constitute incentive stock
options. Options granted under the 1984 Plan have been, as
provided in the 1984 Plan, granted only to key employees
(including officers and Directors who were also key employees)
of the Company.
The 1984 Plan is administered by the Compensation
Committee of the Board of Directors. Members of the
Compensation Committee were not eligible for selection as a
person to whom options could be granted pursuant to the 1984
Plan, and were not eligible to participate in the 1984 Plan or
any other stock plan of the Company during the one year period
prior to their appointment to the Compensation Committee.
Options granted under the 1984 Plan have exercise prices equal
to the fair market value of the shares at the time the options
were granted, as determined by the Compensation Committee.
Options granted under the 1984 Plan are exercisable for such
periods as have been approved by the Compensation Committee,
except that such options are not exercisable, in any event,
for a period in excess of ten years from the date of grant.
An aggregate of 475,000 shares of the Company's
Common Stock, $.10 par value, are authorized to be issued
under the 1984 Plan. Common Stock issued under the 1984 Plan
may be from authorized but unissued shares of Common Stock or
previously issued shares reacquired by the Company. The
shares of Common Stock with respect to which options have
been granted are subject to adjustment upon the occurrence of
certain corporate reorganizations or recapitalizations,
including stock splits or stock dividends.
As required by the terms of the 1984 Plan, for an
option granted under the 1984 Plan to qualify as an incentive
stock option, the aggregate fair market value (determined at
the time of grant) of the stock with respect to which the
incentive stock option was exercisable for the first time by
an employee during any calendar year could not exceed
$100,000 and could not be issued to an employee if, at the
time the option was granted, such employee owned stock
possessing more than 10% of the combined voting power of all
classes of the Company's outstanding stock, unless (i) at the
time the option was granted the exercise price of such option
was at least 110% of the fair market value of the Common Stock
on the date of grant and (ii) such option was not exercisable
after five years from the date of grant.
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<PAGE> 13
All or part of an option may be exercised by
tendering cash or shares of Common Stock having a fair market
value equal to the option price, or a combination of shares
and cash. At the discretion of the Compensation Committee, an
option agreement may provide for the right to surrender an
option in return for a payment in cash and/or shares of Common
Stock equal to the excess of the fair market value of the
shares with respect to which the option is surrendered over
the option price therefor, on such terms and conditions as
the Compensation Committee shall determine.
1994 Stock Option Plan
In July, 1994, the Board of Directors adopted the
Company's 1994 Stock Option Plan (the "1994 Plan"), which was
ratified and adopted by the Company's shareholders at the 1994
annual meeting of shareholders held on August 30, 1994.
Options granted under the 1994 Plan may be either incentive
stock options within the meaning of Section 422 of the Code,
or options which do not constitute incentive stock options.
Key employees (including officers and Directors who are also
key employees) of the Company are eligible to receive options
under the 1994 Plan.
The 1994 Plan is administered by the Compensation
Committee, none of whom are eligible to participate in the
1994 Plan. The Compensation Committee has the authority to
select the employees who are to be granted options and to
establish the number of shares issuable under each option.
Options granted to an employee contain such terms and
conditions and may be exercisable for such periods as may be
approved by the Compensation Committee. The purchase price of
Common Stock issued under each option will not be less than
the fair market value of the stock subject to the option at
the time of grant. The Compensation Committee, in its
discretion, may provide for the payment of the option price,
in whole or in part, (i) in cash at the time of such exercise,
(ii) by the delivery of a number of shares of Common Stock
(plus cash if necessary) having a fair market value on the
date of delivery equal to such option price, or (iii) any
combination of cash and stock.
The aggregate number of shares of Common Stock which
may be issued pursuant to the exercise of stock options
granted under the 1994 Plan may not exceed 750,000 shares,
subject to adjustment in the number of shares with respect to
options and purchase prices therefor in the event of stock
splits or stock dividends, and for equitable adjustments in
the event of certain recapitalizations, mergers,
consolidations or acquisitions. If any outstanding option
granted under the 1994 Plan expires or terminates prior to its
exercise in full, the shares allocable to the unexercised
portion of such option may be subsequently granted under the
1994 Plan.
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<PAGE> 14
The 1994 Plan provides that to the extent the
aggregate fair market value of the Common Stock (determined
at the time of grant) with respect to which incentive options
are exercisable for the first time by an individual during any
calendar year under all incentive stock option plans of the
Company exceeds $100,000, such incentive stock options shall
be treated as options which do not constitute incentive stock
options. The Compensation Committee determines, in accordance
with applicable provisions of the Code, which of an optionee's
incentive stock options will not constitute incentive stock
options because of such limitation. No incentive stock option
may be granted to an individual if, at the time the option is
granted, such individual owns stock possessing more than 10%
of the total combined voting power of all classes of stock of
the Company, unless (i) at the time such option is granted the
option price is at least 110% of the fair market value of the
stock subject to the option and (ii) such option by its terms
is not exercisable after the expiration of five years from the
date of grant.
An option may be granted in exchange for an
individual's right and option to purchase shares of Common
Stock pursuant to the terms of an agreement that existed prior
to the date such option is granted ("Prior Option"). An
option agreement that grants an option in exchange for a Prior
Option must provide for the surrender and cancellation of the
Prior Option. The purchase price of Common Stock issued under
an option granted in exchange for a Prior Option shall be
determined by the Compensation Committee and, such purchase
price may, without limitation, be equal to the price for which
the optionee could have purchased Common Stock under the Prior
Option.
The Board of Directors of the Company may amend or
terminate the 1994 Plan at any time, but may not in any way
impair the rights of an optionee under an outstanding option
without the consent of such optionee. In addition, in order
to obtain the benefits provided by Section 422 of the Code,
the Board of Directors will determine at the time of making
each amendment whether or not it is necessary to submit the
amendment to the shareholders for approval. Generally,
however, no amendment may be made without shareholder approval
if such amendment would materially increase the benefits
accruing to employee optionees under the 1994 Plan; materially
increase the number of securities issuable under the 1994
Plan; or materially modify the requirements as to eligibility
for participation in the 1994 Plan. Unless earlier terminated,
the 1994 Plan will terminate upon and no further options may
be granted after the expiration of ten years from the date of
its adoption by the Board of Directors.
Bonus Agreements and Change of Control Arrangements
In October, 1997, the Company entered into Bonus
Agreements with 48 employees, including Joe G. Roper and
Thomas C. Brown, which provide for cash bonus payments to the
employees within ten days after the occurrence of (i) an
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<PAGE> 15
"Asset Acquisition", (ii) a "Change in Control" or (iii) the
termination of employment by the Company for reasons other
than for "Cause." Generally, the bonus payment amounts are
specified multiples of an employee's cash compensation. In
the case of Messrs. Brown and Roper, each is entitled to
receive a lump sum cash bonus payment in an amount equal to
2.99 times his base salary and the amount contributed by the
Company to his 401(k) plan account.
For purposes of the Bonus Agreements, an "Asset
Acquisition" is deemed to have occurred if any person, or a
group of persons, acquires more than 51% in value of the
assets of the Company pursuant to one or more transactions
with the Company during the term of the Bonus Agreement. A
"Change in Control" is deemed to have occurred if (i) any
person becomes the beneficial owner of securities of the
Company representing 51% or more of the voting power of the
outstanding securities of the Company having the right under
ordinary circumstances to vote at an election of the Board of
Directors of the Company, (ii) a change in the composition of
a majority of the Board occurs which has not been approved by
a majority of the Board as constituted immediately prior to
the change, (iii) at any meeting of the shareholders of the
Company called for the purpose of electing directors, more
than one of the persons nominated by the Board for election as
directors shall fail to be elected, or (iv) upon the
consummation of a merger, consolidation, sale of substantially
all of the assets or other reorganization of the Company,
other than a reincorporation, in which the Company does not
survive.
The Bonus Agreements with Messrs. Roper and Brown
remain in effect through December 31, 1998 and, beginning each
January 1st thereafter, the agreements are automatically
extended for additional one-year periods, unless by September
30th of any year the Company gives notice that the agreements
will not be extended or unless the employee's employment
terminates earlier.
The Company's 1984 and 1994 stock option plans, and
its stock option agreements with Messrs. Brown and Roper and
other employees of the Company, contain provisions which, upon
the occurrence of certain events, could result in additional
compensation to such option holders, including Mr. Brown and
Mr. Roper. Such events include the following: if (i) the
Company is not the surviving entity in any merger or
consolidation, (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of
its assets, (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, acquires or gains ownership or
control of more than 50% of the outstanding shares of Common
Stock, or (v) as a result of or in connection with a contested
election of directors, the persons who were directors of the
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<PAGE> 16
Company before such election shall cease to constitute a
majority of the Board (each such event is referred to herein
as a "Corporate Change"), then the Compensation Committee
shall effect one or more of the following alternatives with
respect to the then outstanding options held by employees,
which may vary among individual employee optionees:
(1) accelerate the time at which such options may be exercised
so that such options may be exercised in full for a limited
period of time on or before a specified date (before or after
such Corporate Change) fixed by the Compensation Committee,
after which specified date all unexercised options and all
rights of employee optionees thereunder shall terminate,
(2) require the mandatory surrender to the Company by selected
optionees of some or all of such options as of a date
specified by the Compensation Committee, in which event the
Compensation Committee shall cancel such options and pay to
each optionee an amount of cash per share equal to the excess
of the fair market value, or in the case of stock options
granted under the 1994 stock option plan the "Change of
Control Value" of the shares subject to such option, over the
exercise price(s) under such options for such shares,
(3) make such adjustments to such options as the Compensation
Committee deems appropriate to reflect such Corporate Change
or (4) provide that thereafter upon any exercise of an option
theretofore granted the optionee shall be entitled to purchase
under such option, in lieu of the number of shares of Common
Stock as to which such option shall then be exercisable, the
number and class of shares of stock or other securities or
property to which the optionee would have been entitled
pursuant to the terms of the agreement of merger,
consolidation or sale of assets and dissolution if,
immediately prior to such merger, consolidation or sale of
assets and dissolution the optionee had been the holder of
record of the number of shares of Common Stock as to which
such option is then exercisable.
For purposes of the 1994 stock option plan, the
"Change of Control Value" is an amount determined as follows,
whichever is applicable: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation,
sale of assets or dissolution transaction, (ii) the price per
share offered to shareholders of the Company in any tender
offer or exchange offer whereby a Corporate Change takes
place, or (iii) if such Corporate Change occurs other than
pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such options being
surrendered are exercisable, as determined by the Compensation
Committee as of the date determined by the Compensation
Committee to be the date of cancellation and surrender of such
options. If the consideration offered to shareholders of the
Company consists of anything other than cash, the Compensation
Committee shall determine the fair cash equivalent of the
portion of the consideration offered which is other than cash.
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<PAGE> 17
Compensation Committee Interlocks and Insider Participation
Thomas C. Brown, the Chairman of the Board of
Directors and Chief Executive Officer of the Company, is a
Director of Tom Brown, Inc. and Donald L. Evans, the Chairman
of the Board of Directors and Chief Executive Officer of Tom
Brown, Inc., is a Director of the Company and serves on the
Compensation Committee of the Company's Board of Directors.
Certain Transactions
Until September, 1984, the Company was a wholly owned
subsidiary of Tom Brown, Inc. ("TBI"). In September, 1984,
TBI distributed the Common Stock of the Company to the
stockholders of TBI. Mr. Brown, the Chairman of the Board of
Directors and Chief Executive Officer of the Company, is also
a Director of TBI and Mr. Evans, a Director of the Company,
is the Chairman of the Board of Directors and Chief Executive
Officer of TBI. Following the spin-off of the Company, TBI
and the Company have each made available to the other certain
personnel, office services and records with each party being
reimbursed for any costs and expenses incurred in connection
therewith. During the fiscal year ended March 31, 1998, TBI
charged the Company approximately $87,043 for such services
provided by TBI, of which approximately $13,482 was
outstanding and unpaid at March 31, 1998.
From time to time, the Company acquires interests in
leases from TBI and participates with TBI and other interest
owners in the drilling and development of such leases where
TBI acts as operator. The Company participates in such
drilling ventures under standard form operating agreements on
the same or similar terms afforded by TBI to unaffiliated
third parties. TBI invoices all working interest owners,
including the Company, on a monthly basis for their respective
share of operating and drilling expenses. During the year
ended March 31, 1998, TBI billed the Company approximately
$40,219 for the Company's proportionate share of drilling
costs and related expenses incurred on properties operated by
TBI, none of which was outstanding at March 31, 1998. The
largest amount owed by the Company to TBI at any one time
during the fiscal year ended March 31, 1998 for its share of
drilling costs and related expenses and for services provided
by TBI was approximately $25,136.
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the Company's
independent auditors since March, 1990 and will continue as
the Company's independent auditors for the current year.
Representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting and will have the opportunity to
make a statement to the shareholders if they desire to do so,
and to respond to appropriate questions.
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<PAGE> 18
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the
1999 Annual Meeting of Shareholders must be received by the
Company for possible inclusion in its Proxy Statement and form
of Proxy relating to such meeting no later than May 1, 1999.
OTHER MATTERS
The Board of Directors of the Company knows of no
matters, other than those described above, which are to be
presented for shareholder action at the meeting. There will
be an address by the Chairman of the Board and a general
discussion period during which shareholders will have an
opportunity to ask questions about the Company's business. If
any matter not described herein properly comes before the
meeting, or any adjournment thereof, the persons named in the
enclosed Proxy will, in the absence of instructions to the
contrary, vote the Proxy in accordance with their best
judgment.
The 1998 Annual Report to Shareholders for the fiscal
year ended March 31, 1998, which includes audited financial
statements, is enclosed herewith. The Annual Report does not
form any part of the material for the solicitation of proxies.
A copy of the Company's Annual Report on Form 10-K
will be furnished at no charge to each "beneficial owner" of
securities of the Company upon receipt of a written request
of such person addressed to: Secretary, TMBR/Sharp Drilling,
Inc., 4607 West Industrial Blvd., Midland, Texas 79703,
containing a good faith representation that, as of July 22,
1998, such person was a beneficial owner of securities of the
Company entitled to vote at the Annual Meeting of
Shareholders to be held August 28, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
James M. Alsup
Secretary
Midland, Texas
July 23, 1998
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<PAGE> 19
[Front of Card]
TMBR/SHARP DRILLING, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas C. Brown, Donald L.
Evans and Joe G. Roper and each of them, attorneys, agents and
proxies, with full power of substitution, to represent and to vote
all shares of common stock of TMBR/SHARP DRILLING, INC. held of
record by the undersigned on July 22, 1998, at the Annual Meeting
of Shareholders of TMBR/SHARP DRILLING, INC. to be held on August
28, 1998, and at any adjournments or postponements thereof, in
accordance with the instructions on the reverse side.
(Continued and to be signed on reverse side)
SEE REVERSE
SIDE
<PAGE> 20
[Back of Card]
Please date, sign and mail your proxy card back as soon as possible!
Annual Meeting of Shareholders
TMBR/Sharp Drilling, Inc.
August 28, 1998
Please detach and mail in the envelope provided
- - -------------------------------------------------------------------------------
/ X / Please mark your
votes as in this
example.
WITHHOLD Nominees: Thomas C. Brown
FOR all nominees AUTHORITY Donald L. Evans
listed at right to vote for all David N. Fitzgerald
nominees listed Joe G. Roper
at right
1. Election of
Directors / / / /
* To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below:
______________________________________________
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SHAREHOLDER'S SPECIFICATION HEREON. IN
THE ABSENCE OF SUCH SPECIFICATION, THE
PROXY WILL BE VOTED FOR THE NOMINEES FOR
DIRECTORS NAMED ON THIS PROXY CARD AND IN
THE DISCRETION OF THE PERSONS NAMED AS
PROXIES ON THE REVERSE HEREOF, WITH
RESPECT TO OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING OR ANY
ADJOURNMENT(S) HEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE_____________ DATE__________ SIGNATURE_______________ DATE_________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
