Filed Pursuant to Rule 424(b)(5)
Registration No. 333-104896
PROSPECTUS SUPPLEMENT TO PROSPECTUSES DATED AUGUST 20, 2003
9,500,000 SHARES
(TOM BROWN, INC. LOGO)
TOM BROWN, INC.
COMMON STOCK
We are offering 6,000,000 of the shares to be sold in this offering. The selling
stockholder identified in this prospectus supplement is offering an additional
3,500,000 shares. We will not receive any proceeds from the sale of the shares
being sold by the selling stockholder.
Our common stock is listed on the New York Stock Exchange under the symbol
"TBI." On September 10, 2003, the last reported sales price of our common stock
on the NYSE was $25.79 per share.
--------------------------------------------------------------------------------------
PER SHARE TOTAL
--------------------------------------------------------------------------------------
Public offering price $25.75 $244,625,000
Underwriting discounts and commissions $ 1.03 $ 9,785,000
Proceeds to Tom Brown, before expenses $24.72 $148,320,000
Proceeds to the selling stockholder, before expenses $24.72 $ 86,520,000
--------------------------------------------------------------------------------------
The underwriters may also purchase from the selling stockholder up to an
additional 1,425,000 shares at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus supplement to cover
over-allotments, if any.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE S-13 OF
THIS PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR EITHER ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters expect to deliver the shares of common stock on or about
September 16, 2003.
JPMORGAN
WACHOVIA SECURITIES MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
FIRST ALBANY CORPORATION
GOLDMAN, SACHS & CO.
HOWARD WEIL,
A DIVISION OF LEGG MASON WOOD WALKER, INC.
PETRIE PARKMAN & CO.
RAYMOND JAMES
RBC CAPITAL MARKETS
September 10, 2003
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
About this prospectus supplement...... S-3
Certain definitions and other
information......................... S-3
Prospectus supplement summary......... S-4
Risk factors.......................... S-13
Special note regarding forward-
looking statements.................. S-13
Selling stockholder................... S-14
Use of proceeds....................... S-15
Capitalization........................ S-16
Price range of common stock and
dividend policy..................... S-17
Unaudited pro forma financial data.... S-18
Selected historical consolidated
financial and operating data........ S-27
Business.............................. S-29
Management............................ S-34
United States federal income tax
considerations to non-United States
holders............................. S-36
Underwriting.......................... S-39
Legal matters......................... S-43
Experts............................... S-43
Glossary of common natural gas and oil
terms............................... S-44
ISSUER PROSPECTUS
About This Prospectus................. i
About Tom Brown....................... 1
About Tom Brown Resources............. 1
Use of Proceeds....................... 1
PAGE
Ratios of Earnings to Fixed Charges
and Earnings to Fixed Charges and
Preferred Stock Dividends........... 2
Description of Debt Securities........ 2
Description of Common Stock and
Preferred Stock of Tom Brown........ 13
Description of Depositary Shares of
Tom Brown........................... 17
Description of Securities Warrants of
Tom Brown........................... 19
Description of Stock Purchase
Contracts and Stock Purchase Units
of Tom Brown........................ 20
Plan of Distribution.................. 21
Legal Matters......................... 22
Experts............................... 22
Where You Can Find More Information... 22
SELLING STOCKHOLDER PROSPECTUS
About This Prospectus................. i
About Tom Brown....................... 1
Use of Proceeds....................... 1
Description of Common Stock and
Preferred Stock..................... 1
Selling Stockholder................... 5
Plan of Distribution.................. 6
Legal Matters......................... 8
Experts............................... 8
Where You Can Find More Information... 8
S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
The first part of this document is the prospectus supplement, which describes
our business and the specific terms of this offering. The remainder of this
document consists of two base prospectuses: an issuer base prospectus and a
selling stockholder base prospectus. Both base prospectuses, which we call the
accompanying prospectuses, give more general information than the prospectus
supplement, some of which may not apply to this offering.
If the information in this prospectus supplement is inconsistent with the
information in either of the accompanying prospectuses, you should rely on the
information in this prospectus supplement.
You should read this prospectus supplement and the accompanying prospectuses
carefully before you invest. These documents contain information you should
consider when making your investment decision. In addition, we incorporate
important business and financial information in this prospectus supplement and
the accompanying prospectuses by reference to other documents. You should read
and consider the information in the documents to which we have referred you in
"Where You Can Find More Information" in the accompanying prospectuses.
CERTAIN DEFINITIONS AND OTHER INFORMATION
Unless the context requires otherwise or unless otherwise noted, all references
in this prospectus supplement to "Tom Brown," "we," "us" or "our" are to Tom
Brown, Inc. and its subsidiaries, and the term "common stock" refers to Tom
Brown's common stock, $0.10 par value per share, and the associated rights to
purchase shares of preferred stock that trade with the common stock. Unless
otherwise stated, all information contained in this prospectus supplement
assumes that the underwriters' over-allotment option has not been exercised.
On June 27, 2003, we acquired Matador Petroleum Corporation. Unless otherwise
indicated, the operating results and reserve information presented in this
prospectus supplement are those of Tom Brown and have not been adjusted to
reflect the pro forma effect of the Matador acquisition. References in this
prospectus supplement to pro forma results and pro forma reserve information
assume that we had acquired Matador as of January 1, 2002.
We have provided definitions for some of the natural gas and oil industry terms
used in this prospectus supplement under "Glossary of common natural gas and oil
terms" beginning on page S-44.
S-3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary highlights information contained elsewhere in this
prospectus supplement. This summary does not contain all of the information that
you should consider before investing in our common stock. You should carefully
read this entire document, including the information in this prospectus
supplement under the headings "Risk factors" and "Special note regarding
forward-looking statements," and the other documents to which we refer you
before making an investment decision.
TOM BROWN, INC.
We are engaged primarily in the exploration for, and the acquisition,
development, production, marketing and sale of, natural gas, natural gas liquids
and crude oil in North America. Our activities are conducted principally in the
Rocky Mountain region of the United States and Canada and the East Texas and
Permian basins. We also, to a lesser extent, conduct exploration and development
activities in other areas of the continental United States and Canada.
At December 31, 2002, our estimated proved reserves totaled 750 Bcfe, of which
76% were proved developed, and were comprised of approximately 674 Bcf of
natural gas, 6 Mmbbls of crude oil and 7 Mmbbls of natural gas liquids. Our
estimated proved reserves, on an equivalent basis, were 90% natural gas, and 85%
of our total estimated proved reserves were located in the Rocky Mountain region
of the United States and Canada. In 2002, we achieved average net production of
234 Mmcfe per day, which implies a reserve life of approximately nine years. Our
production increased 12% from 2001 to 2002, with 10% lower operating costs on a
per unit basis. For the past three years, we achieved compound annual growth in
production and estimated proved reserves of 20% and 13%, respectively. Over the
same period, we added estimated proved reserves from all sources that were equal
to 215% of our production. Our weighted average finding and development costs
for the past three years were $1.29 per Mcfe.
We focus our operations in areas where we have developed significant geological
and operational expertise and established critical mass through the strategic
accumulation of large, contiguous acreage positions. Our 2002 year-end acreage
of 2,132,000 net acres, 87% of which were undeveloped, positions us for
continued growth through the drillbit and provides us with a portfolio
containing high potential exploration prospects complemented by lower risk
development opportunities. We seek to operate the majority of our properties in
order to control the timing of capital expenditures and production.
As of December 31, 2002, pro forma for our acquisition of Matador Petroleum
Corporation described below, our estimated proved reserves totaled 1.02 Tcfe, of
which approximately 89% were natural gas and 73% were proved developed.
Fifty-five percent of these pro forma reserves were located in the U.S. Rocky
Mountain region, 8% in the Canadian Rocky Mountain region, 19% in the East Texas
Basin and 18% in the Permian Basin and other areas. Pro forma 2002 net
production averaged 286 Mmcfe per day.
MATADOR ACQUISITION
On June 27, 2003, we acquired Matador Petroleum Corporation for $388 million,
which included $267 million of cash and $121 million of assumed debt at closing.
We funded the
S-4
acquisition of Matador with borrowings under our credit facilities. We estimated
Matador's proved reserves, as of December 31, 2002, to be 269 Bcfe, of which 85%
were natural gas and 64% were proved developed. The acquisition increased our
estimated equivalent proved reserves by approximately 36% and added 165,500 net
acres to our leasehold position.
For 2002, Matador's net production averaged 52 Mmcfe per day. We hedged the
majority of Matador's expected natural gas production from proved developed
producing reserves through 2004 by entering into a series of costless collar
contracts. These contracts have a weighted average floor price of $4.53 per
Mmbtu and a weighted average ceiling price of $8.63 per Mmbtu.
The average net production for 2002 and the estimated proved reserves and
acreage position of Matador are summarized in the table below.
SUMMARY MATADOR INFORMATION
--------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2002
---------------------------------------------------
AVERAGE ESTIMATED
2002 NET DAILY PROVED % NET NET
PRODUCTION RESERVES NATURAL DEVELOPED UNDEVELOPED
AREA (MMCFE) (BCFE)* GAS ACRES ACRES
--------------------------------------------------------------------------------------------
East Texas Basin..... 28 162 95 27,800 33,500
Permian Basin........ 21 82 66 25,500 69,700
Gulf Coast/other..... 3 25 89 4,300 4,700
--------------------------------------------------------------------
Total...... 52 269 85 57,600 107,900
--------------------------------------------------------------------------------------------
* The reserve estimates for Matador were prepared by our petroleum engineering
staff, which calculated 269 Bcfe of estimated proved reserves; this calculation
was slightly lower than the 282 Bcfe of estimated proved reserves calculated by
Matador's independent petroleum consultants.
--------------------------------------------------------------------------------
The Matador acquisition is consistent with our strategy to pursue acquisitions
that complement our core areas of activity. We expect that our operational and
technical expertise, combined with our financial capability, will allow us to
fully exploit Matador's significant prospect inventory. The acquisition of
Matador provides many strategic benefits to us, including:
- ATTRACTIVE RESERVE CHARACTERISTICS CONSISTENT WITH OUR CURRENT PROFILE.
The acquisition of Matador increased our estimated proved reserves by
approximately 36%, to a pro forma total of approximately 1.02 Tcfe at December
31, 2002, while allowing us to maintain a natural gas weighting of approximately
89% of total reserves and increase our reserve life to approximately 10 years.
In addition, Matador's historical operating performance is characterized by low
operating costs.
- COMPLEMENTARY GEOGRAPHIC FIT WITH OUR CORE OPERATIONS.
By acquiring Matador, we have increased our concentration of assets within two
of our core areas -- the East Texas Basin and the Permian Basin. These two
regions represented 60% and 30%, respectively, of Matador's estimated equivalent
proved reserves at December 31, 2002.
S-5
The acquisition increased our estimated proved reserve base in these areas from
104 Bcfe to 348 Bcfe.
As of December 31, 2002, prior to the acquisition of Matador, of our 750 Bcfe of
estimated proved reserves, 74% were located in the U.S. Rockies, 11% were
located in the Canadian Rockies and 15% were located principally in Texas.
Through the Matador acquisition, we have increased our reserve base in the East
Texas Basin to 19% of our total estimated equivalent proved reserves and
increased our reserve base in the Permian Basin and other regions to 18%, while
maintaining our position in the Rocky Mountain region.
- INCREASED EXPOSURE TO STRONGER NATURAL GAS PRICE REALIZATIONS.
Natural gas produced in Texas generally sells for a higher realized price than
natural gas produced in the Rockies due to relatively higher Rocky Mountain
differentials. With an increased concentration of reserves in Texas as a result
of the Matador acquisition, we expect to improve our overall natural gas price
realization and reduce our price volatility compared to the New York Mercantile
Exchange (NYMEX). In 2002, Matador's realized natural gas price was $2.90 per
Mcf, as compared to our 2002 realized natural gas price of $2.19 per Mcf.
- SIGNIFICANT UPSIDE OPPORTUNITIES.
We expect to leverage our operational and technical expertise to fully exploit
Matador's undeveloped reserve and acreage position. We have identified 200
development and 550 exploratory drilling locations on Matador's 165,500 net
acres. Our current 2003 capital budget for exploration and development spending
is estimated to be between $245 million and $255 million, of which approximately
25% has been allocated to the Matador properties.
BUSINESS STRATEGY
Our business strategy is to increase stockholder value through the discovery,
acquisition and development of long-lived natural gas and oil reserves in areas
where we have industry knowledge and operational expertise. Our principal
investments have been in the natural gas prone basins of North America, which we
believe will continue to add long-lived natural gas and oil reserves at
attractive prices. The accumulation of a substantial inventory of exploration
and development opportunities, enhanced further by the Matador acquisition,
positions us to pursue the following strategic objectives:
- FOCUS ON NORTH AMERICAN BASINS WITH CONCENTRATIONS IN THE ROCKY MOUNTAINS AND
TEXAS.
With approximately 55% of pro forma estimated equivalent proved reserves in the
U.S. Rockies, 8% in the Canadian Rockies, 19% in the East Texas Basin and 18% in
the Permian Basin and other regions, we are focusing our operations in select
natural gas basins characterized by multiple pay sands and significant reserve
potential in place. This strategy has enabled us to develop specialized geologic
expertise and achieve economies of scale, resulting in competitive finding,
development and production costs.
S-6
- CAPITALIZE ON EXTENSIVE LAND POSITION.
Our pro forma lease acreage position, of which 85% is undeveloped, provides us
with substantial opportunities for future exploration and development
activities. Approximately 77% of our pro forma net acreage position is located
in the Rocky Mountain region of the United States and Canada, making us one of
the largest holders of lease acreage in this region. In the Rockies, we hold, or
have options on, 1,777,000 net acres located primarily in the Wind River and
Green River basins of Wyoming, the Piceance Basin of Colorado, the Paradox Basin
of Utah and Colorado and the Western Canadian Sedimentary Basin. We have 184,500
net acres in the East Texas Basin and 336,000 net acres in the Permian Basin and
other regions, both on a pro forma basis.
- GROW THROUGH EXPLORATION AND DEVELOPMENT DRILLING.
Our growth strategy is founded primarily on creating value through exploration
and development drilling, while selectively pursuing acquisitions. Before giving
effect to the Matador acquisition, approximately 75% of our estimated equivalent
proved reserve additions for the last three years have been a result of
exploration and development drilling, with approximately 25% from acquisitions.
Our operational and technical personnel have extensive experience in their
respective regions, which has contributed to efficient and productive drilling
activity. Over the past three years, we have added estimated proved reserves
from all sources that were equal to 215% of our production, at a weighted
average finding and development cost of $1.29 per Mcfe. We maintain a portfolio
containing high potential exploration prospects complemented by lower risk
development projects.
- PURSUE OPPORTUNISTIC ACQUISITIONS.
We will continue to selectively pursue acquisitions of natural gas and oil
properties and leasehold acreage that complement operations in our core areas of
activity. Past acquisitions have played an important part of our growth in
reserves and inventory of drilling opportunities.
S-7
THE OFFERING
COMMON STOCK OFFERED BY US................... 6,000,000 shares
COMMON STOCK OFFERED BY THE
SELLING STOCKHOLDER........................ 3,500,000 shares
OVER-ALLOTMENT OPTION........................ Up to 1,425,000 shares, to be purchased from the
selling stockholder
COMMON STOCK OUTSTANDING AFTER
THE OFFERING............................... 45,579,047 shares
USE OF PROCEEDS.............................. We estimate that our net proceeds from this offering
will be approximately $147.9 million after deducting
underwriting discounts and commissions and estimated
offering expenses payable by us. We intend to use all
of these net proceeds, together with cash on hand, to
repay in full the outstanding indebtedness under our
senior subordinated credit facility, which
indebtedness was incurred in connection with the
Matador acquisition. See "Use of proceeds."
PROCEEDS TO THE SELLING STOCKHOLDER.......... The net proceeds from the sale by the selling
stockholder of common stock in the offering are
estimated to be approximately $86.5 million. We will
not receive any of these proceeds.
RISK FACTORS................................. Please see the section entitled "Risk factors" on
page S-13 of this prospectus supplement for a
discussion of some of the factors you should
carefully consider before deciding to invest in
shares of our common stock.
NYSE SYMBOL.................................. TBI
The number of shares outstanding after the offering excludes 6,678,785 shares
reserved for issuance under our stock option plans, as of September 2, 2003, of
which options to purchase 5,018,038 shares at a weighted average option price of
$22.13 have been issued.
SENIOR SUBORDINATED NOTES OFFERING
We and one of our wholly owned subsidiaries, Tom Brown Resources Funding Corp.,
intend to issue $225 million in aggregate principal amount of senior
subordinated notes after this offering of common stock. The sale of the common
stock offered hereby is not contingent upon the sale of the senior subordinated
notes. We expect to use the net proceeds from the notes offering to repay
outstanding indebtedness under our senior global credit facility, including
indebtedness incurred in connection with the Matador acquisition. We can give
you no assurance that the notes closing will occur or that $225 million
aggregate principal amount of notes will be issued.
S-8
SUMMARY UNAUDITED FINANCIAL AND OPERATING DATA
You should read the following information together with "Selected historical
consolidated financial and operating data" and the historical and pro forma
financial statements and related notes included or incorporated by reference in
this prospectus supplement and the accompanying prospectuses.
The summary unaudited pro forma statements of operations and operating data for
the year ended December 31, 2002 and for the six months ended June 30, 2003 show
the pro forma effect of the Matador acquisition, assuming the acquisition
occurred on January 1, 2002.
The unaudited adjusted balance sheet data at June 30, 2003 reflects the receipt
and application of our estimated net proceeds from the sale of common stock in
this offering as described under "Use of proceeds."
The unaudited pro forma summary financial data has been prepared to provide an
analysis of the financial effects of the Matador acquisition and, in the case of
the unaudited adjusted balance sheet data, the effects of this offering. The pro
forma information does not purport to represent what the financial position and
results of operations of the combined company would have actually been had the
acquisition in fact occurred on January 1, 2002, nor is it necessarily
indicative of future results of operations.
---------------------------------------------------------------------------------------
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
2002 2003
---------------------------------------------------------------------------------------
(in thousands, except per share amounts)
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues:
Gas, oil and natural gas liquids sales.................. $254,212 $217,735
Gathering and processing................................ 20,467 10,868
Marketing and trading, net.............................. 5,276 1,058
Drilling................................................ 14,347 6,955
Interest income and other............................... 1,547 2,598
-------------------------
Total revenues....................................... 295,849 239,214
-------------------------
Costs and expenses:
Gas and oil production.................................. 40,737 22,588
Taxes on gas and oil production......................... 21,561 17,675
Gathering and processing costs.......................... 6,918 4,071
Drilling operations..................................... 13,763 6,031
Exploration costs....................................... 26,317 11,523
Impairments of leasehold costs.......................... 6,152 3,257
General and administrative.............................. 27,338 19,639
Depreciation, depletion and amortization................ 119,915 59,453
Bad debts............................................... 5,222 252
Interest expense and other.............................. 29,916 18,544
-------------------------
Total costs and expenses............................. 297,839 163,033
-------------------------
Income (loss) before income taxes and cumulative effect of
change in accounting principles......................... (1,990) 76,181
Income tax (provision) benefit............................ 1,912 (26,240)
-------------------------
Income (loss) before cumulative effect of change in
accounting principles................................... $ (78) $ 49,941
-------------------------
Weighted average diluted number of common shares
outstanding............................................. 40,327 40,442
-------------------------
Earnings (loss) per common share--diluted:
Income (loss) before cumulative effect of change in
accounting principles................................. $ * $ 1.23
-------------------------
---------------
* Less than $0.01 per share.
S-9
---------------------------------------------------------------------------------------
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
2002 2003
---------------------------------------------------------------------------------------
PRO FORMA OPERATING DATA:
Production:
Natural gas (Mmcf).................................... 87,297 43,180
Crude oil (Mbbls)..................................... 1,491 691
Natural gas liquids (Mbbls)........................... 1,382 747
Total production (Mmcfe).............................. 104,535 51,809
Average sales prices:
Natural gas (per Mcf):
Price received..................................... $2.31 $4.68
Effect of hedges................................... -- (0.44)
-------------------------
Net sales price.................................... 2.31 4.24
Crude oil (per Bbl)................................... 23.99 30.25
Natural gas liquids (per Bbl)......................... 12.05 18.31
Total (per Mcfe)...................................... 2.43 4.20
Expenses per Mcfe:
Lease operating....................................... 0.39 0.44
Taxes on gas and oil production....................... 0.21 0.34
General and administrative............................ 0.26 0.38
Depreciation, depletion and amortization.............. 1.15 1.15
------------------------------------------------------------------------------
AT JUNE 30, 2003
------------------------------------------------------------------------------
(in thousands)
ADJUSTED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 17,028
Net property and equipment............................... 1,238,152
Total assets............................................. 1,465,770
Long-term debt, net of current maturities................ 388,652
Total stockholders' equity............................... 752,187
S-10
SUMMARY RESERVE AND PRODUCTION DATA
The following tables set forth summary data with respect to estimated proved
reserves and pro forma estimated proved reserves as of December 31, 2002.
Estimates of our natural gas, oil and natural gas liquids reserves were prepared
by our petroleum engineering staff and reviewed by Ryder Scott Company, L.P.,
independent petroleum consultants. Guidelines established by the Securities and
Exchange Commission regarding the present value of future net revenues were
utilized to prepare these reserve estimates. Reserve engineering is a subjective
process of estimating underground accumulations of natural gas and oil that
cannot be measured in an exact way. The accuracy of any reserve estimate depends
on the quality of available data and the interpretation of that data by
geological engineers. In addition, the results of drilling, testing and
production activities may require revisions of estimates that were made
previously. Accordingly, estimates of reserves and their value are inherently
imprecise and are subject to constant revision and change, and they should not
be construed as representing the actual quantities of future production or cash
flows to be realized from natural gas and oil properties or the fair market
value of such properties.
DECEMBER 31, 2002
------------------------------------------------------------------------------------------
ESTIMATED PROVED RESERVES BY COMMODITY
----------------------------------------------
NATURAL NATURAL GAS
GAS OIL LIQUIDS TOTAL
(BCF) (MMBBLS) (MMBBLS) (BCFE)
------------------------------------------------------------------------------------------
Tom Brown............................... 674 6 7 750
Matador*................................ 230 7 -- 269
----------------------------------------------
Pro forma combined................. 904 13 7 1,019
----------------------------------------------
------------------------------------------------------------------------------------------------
ESTIMATED PROVED RESERVES BY REGION (BCFE)
------------------------------------------
PRO FORMA
REGION TOM BROWN MATADOR* COMBINED
------------------------------------------------------------------------------------------------
U.S. ROCKIES:
Wind River Basin................................ 187 -- 187
Green River Basin............................... 112 -- 112
Paradox Basin................................... 115 -- 115
Piceance Basin.................................. 141 -- 141
------------------------------------------
Total U.S. Rockies........................... 555 -- 555
------------------------------------------
CANADIAN ROCKIES:
Western Canadian Sedimentary Basin.............. 82 -- 82
SOUTHERN REGION:
East Texas Basin................................ 36 162 198
Permian Basin................................... 68 82 150
Gulf Coast/other................................ 9 25 34
------------------------------------------
Total Southern Region........................ 113 269 382
------------------------------------------
Total...................................... 750 269 1,019
------------------------------------------------------------------------------------------------
* The reserve estimates for Matador were prepared by our petroleum engineering
staff, which calculated 269 Bcfe of estimated proved reserves; this calculation
was slightly lower than the 282 Bcfe of estimated proved reserves calculated by
Matador's independent petroleum consultants.
S-11
The following table sets forth summary data with respect to average daily net
production of natural gas, oil and natural gas liquids by region for the year
ended December 31, 2002 and pro forma reserve life at December 31, 2002.
-----------------------------------------------------------------------------------------------------
PRODUCTION BY REGION (MMCFE PER DAY) PRO FORMA
------------------------------------ RESERVE
PRO FORMA LIFE
REGION TOM BROWN MATADOR COMBINED (YEARS)
-----------------------------------------------------------------------------------------------------
U.S. ROCKIES:
Wind River Basin........................... 60 -- 60 8.5
Green River Basin.......................... 21 -- 21 14.6
Paradox Basin.............................. 45 -- 45 7.0
Piceance Basin............................. 33 -- 33 11.7
Other...................................... 2 -- 2 --
-------------------------------------------
Total U.S. Rockies...................... 161 -- 161 9.4
-------------------------------------------
CANADIAN ROCKIES:
Western Canadian Sedimentary Basin......... 24 -- 24 9.4
-------------------------------------------
SOUTHERN REGION:
East Texas Basin........................... 20 28 48 11.3
Permian Basin.............................. 20 21 41 10.0
Gulf Coast/other........................... 9 3 12 7.8
-------------------------------------------
Total Southern Region................... 49 52 101 10.4
-------------------------------------------
Total................................. 234 52 286 9.8
-----------------------------------------------------------------------------------------------------
S-12
RISK FACTORS
Investing in our common stock will provide you with an equity ownership in Tom
Brown. Your shares will be subject to risks inherent in our business. The
trading price of your shares will be affected by the performance of our business
relative to, among other things, competition, market conditions and general
economic and industry conditions. The value of your investment may decrease,
resulting in a loss to you. You should consider carefully the information
contained in this prospectus supplement, the accompanying prospectuses and the
documents we have incorporated by reference. In particular, you should consider
carefully the factors discussed under the heading "Business--Risk Factors" set
forth in our Annual Report on Form 10-K/A for the year ended December 31, 2002
before deciding to invest in our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information in this prospectus supplement and the accompanying prospectuses
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements, other than statements of historical or
present facts, that address activities, events, outcomes and other matters that
we plan, expect, intend, assume, believe, budget, predict, forecast, project,
estimate or anticipate (and other similar expressions) will, should or may occur
in the future are forward-looking statements. These forward-looking statements
are based on management's current belief, using currently available information,
as to the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements set forth in this prospectus supplement, the accompanying
prospectuses and the documents incorporated by reference herein, including those
set forth under the caption "Business--Risk Factors" in our Annual Report on
Form 10-K/A for the year ended December 31, 2002.
Should one or more of the risks or uncertainties described in this prospectus
supplement, the accompanying prospectuses or our Annual Report on Form 10-K/A
occur, or should any of the underlying assumptions prove incorrect, our actual
results and plans could differ materially from those expressed in any
forward-looking statements. We specifically disclaim all responsibility to
publicly update any information contained in a forward-looking statement or any
forward-looking statement in its entirety, except as required by law, and
therefore disclaim any resulting liability for potentially related damages.
All forward-looking statements attributable to us are expressly qualified in
their entirety by this cautionary statement.
S-13
SELLING STOCKHOLDER
The following table sets forth certain information, as of September 2, 2003,
with respect to the beneficial ownership of our common stock by Chicago Carbon
Company, the selling stockholder in this offering and an indirect, wholly owned
subsidiary of Union Oil Company of California. Beneficial ownership is
calculated based on 39,579,047 shares of our common stock outstanding as of
September 2, 2003.
--------------------------------------------------------------------------------------------------
SHARES OWNED BEFORE SHARES OWNED AFTER
OFFERING OFFERING
SHARES OFFERED -------------------- --------------------
NAME OF SELLING STOCKHOLDER HEREBY NUMBER PERCENT NUMBER PERCENT
--------------------------------------------------------------------------------------------------
Chicago Carbon.................. 3,500,000 5,800,000 14.65% 2,300,000 5.05%
This table assumes that the underwriters' over-allotment option has not been
exercised. If the underwriters' over-allotment option is exercised in full, the
selling stockholder will sell an additional 1,425,000 shares to the underwriters
and will then own 875,000 shares, which would be equal to 1.92% of our common
stock after giving effect to this offering.
S-14
USE OF PROCEEDS
Our net proceeds from the sale of the 6,000,000 shares of common stock we are
offering hereunder will be approximately $147.9 million. Our calculation of net
proceeds is based on the public offering price of $25.75 per share and includes
the deduction of underwriting discounts and commissions and estimated offering
expenses of $400,000 to be paid by us. We will receive no proceeds from the sale
of our common stock by the selling stockholder.
We intend to use all of our net proceeds from this offering, together with cash
on hand, to repay in full the outstanding indebtedness under our senior
subordinated credit facility, which indebtedness was incurred in connection with
the Matador acquisition. At September 10, 2003, we had $155 million principal
amount of borrowings outstanding under our senior subordinated credit facility,
bearing interest at 8.5%. The senior subordinated credit facility has a final
maturity date of June 27, 2010.
Assuming that we also complete the senior subordinated notes offering and $225
million aggregate principal amount of notes are issued, we will apply the
estimated net proceeds of $220 million from that offering to reduce borrowings
under our senior global credit facility. After completion of the senior
subordinated notes offering, our global borrowing base will be reduced to $358
million. In addition, total availability under the senior global credit facility
will be reduced to $315 million, with $169 million anticipated to be outstanding
thereunder after application of the net proceeds of that offering. The sale of
the common stock offered hereby is not contingent upon the sale of the senior
subordinated notes.
S-15
CAPITALIZATION
The following table shows:
-- our actual capitalization as of June 30, 2003, which includes the effects
of our Matador acquisition; and
-- our capitalization as of June 30, 2003 as adjusted to give effect to the
completion of this offering of common stock at the public offering price of
$25.75 per share, and the use of our net proceeds, together with cash on hand,
to repay indebtedness under our senior subordinated credit facility as described
under "Use of proceeds."
-----------------------------------------------------------------------------------------
JUNE 30, 2003
-------------------------
ACTUAL AS ADJUSTED
-----------------------------------------------------------------------------------------
(in thousands, except share amounts)
Cash and cash equivalents................................... $ 24,108 $ 17,028
-------------------------
Long-term debt:
Senior global credit facility............................ $ 388,652 $ 388,652
Senior subordinated credit facility...................... 155,000 --
-------------------------
Total debt............................................ 543,652 388,652
-------------------------
Stockholders' equity:
Common stock, $0.10 par value; 55,000,000 shares
authorized; 39,537,759 shares issued and outstanding,
actual as of June 30, 2003; 45,537,759 shares issued
and outstanding, as adjusted.......................... 3,954 4,554
Additional paid-in capital............................... 542,944 690,264
Retained earnings........................................ 59,574 57,369(a)
-------------------------
Total stockholders' equity............................ 606,472 752,187
-------------------------
Total capitalization.................................. $1,150,124 $1,140,839
-------------------------
-----------------------------------------------------------------------------------------
(a) Includes the impact of expensing the deferred loan fees on the debt repaid, net of
the tax effect.
-----------------------------------------------------------------------------------------
This table does not reflect the 6,678,785 shares of common stock reserved for
issuance under our stock option plans as of September 2, 2003.
S-16
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been listed on the New York Stock Exchange under the symbol
"TBI" since May 16, 2002. Previously, it was included for quotation in the
Nasdaq National Market under the symbol "TMBR." The following table sets forth
the high and low sales prices per share of common stock for the periods
indicated.
--------------------------------------------------------------------------------
HIGH LOW
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2001
First quarter............................................. $35.75 $28.75
Second quarter............................................ 33.29 22.38
Third quarter............................................. 27.50 19.79
Fourth quarter............................................ 27.85 19.65
YEAR ENDED DECEMBER 31, 2002
First quarter............................................. $27.89 $23.30
Second quarter............................................ 29.80 26.00
Third quarter............................................. 28.50 20.70
Fourth quarter............................................ 26.81 21.80
YEAR ENDED DECEMBER 31, 2003
First quarter............................................. $26.40 $22.65
Second quarter............................................ 29.28 23.40
Third quarter (through September 10, 2003)................ 28.20 24.40
On September 10, 2003, the last reported sale price for our common stock, as
reported by the NYSE, was $25.79 per share. As of September 2, 2003, there were
approximately 1,727 holders of record of our common stock.
We have never declared or paid and do not anticipate declaring or paying any
dividends on our common stock in the near future. Rather, we anticipate that we
will retain all of our future earnings, if any, for use in the expansion and
operation of our business. Any future determination as to the declaration and
payment of dividends will be at the discretion of our board of directors and
will depend on then existing conditions, including our financial condition,
results of operations, contractual restrictions, capital requirements, business
prospects and such other factors as our board deems relevant.
S-17
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed combined financial data shows the
pro forma effect of the Matador acquisition. The unaudited pro forma condensed
combined financial data includes pro forma statements of operations for the year
ended December 31, 2002 and for the six months ended June 30, 2003, which assume
the acquisition occurred on January 1, 2002.
The unaudited pro forma condensed combined financial data has been prepared to
provide an analysis of the financial effects of the Matador acquisition. The pro
forma information does not purport to represent what the results of operations
of the combined company would have actually been had the acquisition in fact
occurred on January 1, 2002, nor is it necessarily indicative of future results
of operations.
S-18
TOM BROWN, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
-----------------------------------------------------------------------------------------------------
TOM PRO FORMA PRO FORMA
BROWN MATADOR ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (NOTE 3) COMPANY
-----------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
REVENUES:
$59,936 $254,212
Gas and oil sales............................ $194,276 $ --
-- 20,467
Gathering and processing..................... 20,467 --
-- 5,276
Marketing and trading, net................... 5,276 --
-- 14,347
Drilling..................................... 14,347 --
-- 4,114
Gain on sale of property..................... 4,114 --
-- (2,061)
Cash paid on derivatives..................... (2,061) --
-- (345)
Change in derivative fair value.............. (345) --
-- (600)
Loss on marketable security.................. (600) --
268 439
Interest income and other.................... 171 --
----------------------------------------------------
60,204 295,849
Total revenues............................ 235,645 --
COSTS AND EXPENSES:
8,586 40,737
Gas and oil production....................... 32,151 --
4,940 21,561
Taxes on gas and oil production.............. 16,621 --
-- 6,918
Gathering and processing costs............... 6,918 --
-- 13,763
Cost of drilling operations.................. 13,763 --
-- 26,317
Exploration costs............................ 22,824 3,493(c)
-- 6,152
Impairments of leasehold costs............... 5,564 588(e)
6,550 27,338
General and administrative................... 18,413 2,375(c)
20,766 116,739
Depreciation, depletion and amortization..... 91,307 4,666(d)
-- 5,222
Bad debt..................................... 5,222 --
-- 3,176
Amortization of non-compete agreements....... -- 3,176(f)
3,202 29,916
Interest expense and other................... 9,726 16,988(b)
----------------------------------------------------
44,044 297,839
Total costs and expenses.................. 222,509 31,286
Income (loss) before income taxes and
cumulative effect of change in accounting 16,160 (1,990)
principle.................................... 13,136 (31,286)
(5,828) 1,912
Income tax (provision) benefit................. (3,210) 10,950(a)
----------------------------------------------------
Income (loss) before cumulative effect of $10,332 $ (78)
change in accounting principle............... $ 9,926 $ (20,336)
----------------------------------------------------
Weighted average number of common shares -- 40,327
outstanding.................................. 40,327 --
----------------------------------------------------
Income (loss) before cumulative effect of
change in accounting principle--per common $ *
share........................................ $ 0.25
----------------------------------------------------
---------------
* Less than $0.01 per share.
See notes to unaudited pro forma condensed combined financial information.
S-19
TOM BROWN, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
------------------------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
TOM BROWN MATADOR ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (NOTE 3) COMPANY
------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
REVENUES:
Gas and oil sales........................ $ 158,960 $58,775 $ -- $217,735
Gathering and processing................. 10,868 -- -- 10,868
Marketing and trading, net............... 1,058 -- -- 1,058
Drilling................................. 6,955 6,955
Other.................................... 2,540 58 -- 2,598
---------------------------------------------------------
Total revenues........................ 180,381 58,833 -- 239,214
---------------------------------------------------------
COSTS AND EXPENSES:
Gas and oil production................... 16,690 5,898 -- 22,588
Taxes on gas and oil production.......... 13,623 4,052 -- 17,675
Gathering and processing costs........... 4,071 -- -- 4,071
Cost of drilling operations.............. 6,031 -- -- 6,031
Exploration costs........................ 10,679 -- 844(c) 11,523
Impairments of leasehold costs........... 2,963 -- 294(e) 3,257
General and administrative............... 10,650 7,703 1,286(c) 19,639
Depreciation, depletion and
amortization.......................... 44,570 12,444 2,439(d) 59,453
Accretion................................ 588 196 -- 784
Bad debt................................. 252 -- -- 252
Amortization of non-compete agreements... -- -- 1,076(f) 1,076
Interest expense and other............... 5,818 2,373 8,493(b) 16,684
---------------------------------------------------------
Total costs and expenses.............. 115,935 32,666 14,432 163,033
---------------------------------------------------------
Income before income taxes and cumulative
effect of change in accounting
principle................................ 64,446 26,167 (14,432) 76,181
Income tax provision....................... (22,293) (8,998) 5,051(a) (26,240)
---------------------------------------------------------
Income (loss) before cumulative effect of
change in accounting principle........... $42,153 $17,169 $(9,381) $49,941
---------------------------------------------------------
Weighted average number of common shares
outstanding.............................. 40,487 40,487
--------------- --------
Net income before cumulative effect of
change in accounting principle--per
common share............................. $ 1.04 $ 1.23
--------------- --------
See notes to unaudited pro forma condensed combined financial information.
S-20
TOM BROWN, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(1) BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined statements of operations
present the pro forma effect of the Matador acquisition as though the
acquisition occurred on January 1, 2002.
(2) METHOD OF ACCOUNTING FOR THE ACQUISITION
We accounted for the acquisition using the purchase method of accounting for
business combinations. Under this method of accounting, we were deemed to be the
acquirer for accounting purposes. Matador's assets and liabilities were revalued
under the purchase method of accounting and recorded at their estimated fair
values in conjunction with the merger.
(3) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION
The unaudited pro forma condensed combined statements of operations include the
following adjustments:
(a) The income tax provision was adjusted for the tax effect of the pro forma
adjustments.
(b) Interest expense increased as a result of our borrowing approximately $280
million in conjunction with the acquisition. Of this amount, $155 million was
advanced from a new senior subordinated credit facility and the balance of the
funding was provided under a new senior global credit facility. Bank fees of
$7.1 million were incurred to obtain these new loan facilities. Pro forma
interest expense has been adjusted to include amortization of the loan fees
attributable to the amounts borrowed to complete the acquisition.
(c) Adjustments were required to expense certain items under the successful
efforts method of accounting we utilize that were previously capitalized by
Matador under the full cost method of accounting. These costs were principally
associated with exploratory dry holes, delay rentals and seismic costs. Matador
also previously capitalized as development cost a portion of its internal costs
associated with geological and geophysical staff that are expensed under the
successful efforts accounting.
(d) The increase in the cost basis assigned to Matador's natural gas and oil
properties resulted in an increase in depreciation, depletion and amortization
expense.
(e) A provision was recognized for leasehold abandonments and expirations based
upon the undeveloped leasehold position of Matador. These amounts had previously
been capitalized under the full cost method of accounting.
(f) Three officers of Matador entered into non-compete agreements with us in
conjunction with the transaction. One agreement covers a 21-month period in
exchange for $3.8 million, a portion of which was paid at closing and a portion
of which is payable over the term of the agreement. The other two agreements are
for terms of three months in exchange for $0.5 million each, the entire amounts
of which were paid at closing. A pro forma adjustment has been recorded to
reflect the expense associated with these agreements over their terms, assuming
the agreements were entered into on January 1, 2002.
S-21
(4) APPLICATION OF RECENTLY ISSUED ACCOUNTING STANDARDS ON INTANGIBLE ASSETS
We have been made aware of an issue that has arisen in the industry regarding
the application of certain provisions of SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets," to companies in the
extractive industries, including oil and gas exploration and production
companies. The issue is whether the provisions of SFAS No. 141 and SFAS No. 142
require companies to classify costs associated with mineral rights, including
both proved and unproved lease acquisition costs, as intangible assets on the
balance sheet, apart from other capitalized oil and gas property costs.
Historically, we and Matador have included oil and gas lease acquisition costs
as a component of oil and gas properties. Also under consideration is whether
SFAS No. 142 requires companies to provide additional disclosures prescribed by
SFAS No. 142 for intangible assets for costs associated with mineral rights. In
the event it is determined that costs associated with mineral rights are
required to be classified as intangible assets, a substantial portion of our
capitalized oil and gas property costs and a substantial portion of the
acquisition costs attributable to the Matador properties acquired would be
separately classified on our balance sheet as intangible assets.
The reclassification of these amounts would not affect the method in which such
costs are amortized or the manner in which we assess impairment of capitalized
costs. As a result, net income would not be affected by the reclassification if
it were to occur.
(5) SUPPLEMENTAL PRO FORMA INFORMATION REGARDING OIL AND GAS OPERATIONS
The following pro forma supplemental information regarding oil and gas
operations is presented pursuant to the disclosure requirements of SFAS No. 69,
"Disclosures About Oil and Gas Producing Activities."
PRO FORMA COSTS INCURRED
The following tables reflect the costs incurred in oil and gas producing
property acquisition, exploration and development activities of us, Matador and
the combined company on a pro forma basis for the year ended December 31, 2002
(in thousands).
---------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES CANADA
------------------------------- ------------------------------- ---------
PRO FORMA PRO FORMA
TOM BROWN MATADOR COMBINED TOM BROWN MATADOR COMBINED TOM BROWN
---------------------------------------------------------------------------------------------------------------
Costs incurred:
Proved property acquisition
costs...................... $15,878 $ 3,389 $ 19,267 $15,878 $ 3,389 $ 19,267 $ --
Unproved property acquisition
costs...................... 9,015 -- 9,015 7,601 -- 7,601 1,414
Exploration costs............ 35,035 7,558 42,593 32,482 7,558 40,040 2,553
Development costs............ 94,567 65,137 159,704 85,319 65,137 150,456 9,248
-----------------------------------------------------------------------------
Total..................... $154,495 $76,084 $230,579 $141,280 $76,084 $217,364 $13,215
---------------------------------------------------------------------------------------------------------------
S-22
The following tables set forth the changes in the net quantities of natural gas,
oil and natural gas liquids reserves of us, Matador and the combined company on
a pro forma basis for the year ended December 31, 2002.
---------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES CANADA
------------------------------- ------------------------------- ---------
PRO FORMA PRO FORMA
NATURAL GAS (MMCF) TOM BROWN MATADOR COMBINED TOM BROWN MATADOR COMBINED TOM BROWN
---------------------------------------------------------------------------------------------------------------
Proved reserves:
Estimated reserves at
December 31, 2001......... 641,579 168,027 809,606 582,052 168,027 750,079 59,527
Revisions of previous
estimates.............. 10,913 (13,593) (2,680) 8,304 (13,593) (5,289) 2,609
Purchases of minerals in
place.................. 15,661 3,414 19,075 15,661 3,414 19,075 --
Extensions and
discoveries............ 84,373 95,444 179,817 79,582 95,444 175,026 4,791
Sales of minerals in
place.................. (6,332) -- (6,332) (6,322) -- (6,322) --
Production................ (72,167) (15,130) (87,297) (65,781) (15,130) (80,911) (6,386)
-----------------------------------------------------------------------------
Estimated reserves at
December 31, 2002......... 674,027 238,162 912,189 613,496 238,162 851,658 60,541
-----------------------------------------------------------------------------
Proved developed reserves at
December 31, 2002......... 507,422 133,614 641,036 451,183 133,614 614,797 56,239
-----------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES CANADA
------------------------------- ------------------------------- ---------
PRO FORMA PRO FORMA
OIL (MBBLS) TOM BROWN MATADOR COMBINED TOM BROWN MATADOR COMBINED TOM BROWN
---------------------------------------------------------------------------------------------------------------
Proved reserves:
Estimated reserves at
December 31, 2001......... 6,647 5,929 12,576 5,469 5,929 11,398 1,178
Revisions of previous
estimates.............. 898 (535) 363 580 (535) 45 318
Purchases of minerals in
place.................. 34 40 74 34 40 74 --
Extensions and
discoveries............ 451 2,451 2,902 193 2,451 2,644 258
Sales of minerals in
place.................. (1,162) -- (1,162) (1,162) -- (1,162) --
Production................ (843) (648) (1,491) (623) (648) (1,271) (220)
-----------------------------------------------------------------------------
Estimated reserves at
December 31, 2002......... 6,025 7,237 13,262 4,491 7,237 11,728 1,534
-----------------------------------------------------------------------------
Proved developed reserves at
December 31, 2002......... 4,551 5,352 9,903 3,299 5,352 8,651 1,252
-----------------------------------------------------------------------------
S-23
---------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES CANADA
------------------------------- ------------------------------- ---------
PRO FORMA PRO FORMA
NATURAL GAS LIQUIDS (MBBLS) TOM BROWN MATADOR COMBINED TOM BROWN MATADOR COMBINED TOM BROWN
---------------------------------------------------------------------------------------------------------------
Proved reserves:
Estimated reserves at
December 31, 2001......... 8,360 -- 8,360 6,634 -- 6,634 1,726
Revisions of previous
estimates.............. (628) -- (628) (956) -- (956) 328
Purchases of minerals in
place.................. -- -- -- -- -- -- --
Extensions and
discoveries............ 305 -- 305 186 -- 186 119
Sales of minerals in
place.................. -- -- -- -- -- -- --
Production................ (1,382) -- (1,382) (1,189) -- (1,189) (193)
-----------------------------------------------------------------------------
Estimated reserves at
December 31, 2002......... 6,655 -- 6,655 4,675 -- 4,675 1,980
-----------------------------------------------------------------------------
Proved developed reserves at
December 31, 2002......... 5,825 -- 5,825 4,002 -- 4,002 1,823
-----------------------------------------------------------------------------
S-24
The following table sets forth the standardized measure of discounted future net
cash flows relating to proved natural gas, oil and natural gas liquids reserves
for us, Matador and the combined company on a pro forma basis as of December 31,
2002 (in thousands).
-----------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES CANADA
------------------------------------ ------------------------------------- ---------
TOM PRO FORMA TOM PRO FORMA
BROWN MATADOR COMBINED BROWN MATADOR COMBINED TOM BROWN
-----------------------------------------------------------------------------------------------------------------
Future cash flows...... $2,570,168 $1,279,885 $3,850,053 $2,243,751 $1,279,885 $3,523,636 $326,417
Future production
costs................ (799,637) (279,350) (1,078,987) (732,739) (279,350) (1,012,089) (66,898)
Future development
costs................ (186,363) (107,251) (293,614) (175,085) (107,251) (282,336) (11,278)
----------------------------------------------------------------------------------------
Future net cash flows
before tax........... 1,584,168 893,284 2,477,452 1,335,927 893,284 2,229,211 248,241
Future income taxes.... (451,706) (233,146) (684,852) (367,271) (233,146) (600,417) (84,435)
----------------------------------------------------------------------------------------
Future net cash flows
after tax............ 1,132,462 660,138 1,792,600 968,656 660,138 1,628,794 163,806
Annual discount at
10%.................. (468,454) (345,690) (814,144) (405,487) (345,690) (751,177) (62,967)
----------------------------------------------------------------------------------------
Standardized measure of
discounted future net
cash flows........... $664,008 $314,448 $978,456 $563,169 $314,448 $877,617 $100,839
----------------------------------------------------------------------------------------
Discounted future net
cash flows before
income taxes......... $883,353 $426,114 $1,309,467 $744,608 $426,114 $1,170,722 $138,745
----------------------------------------------------------------------------------------
S-25
The following table includes the components of the changes in the standardized
measure of discounted future net cash flows of us, Matador and the combined
company on a pro forma basis for the year ended December 31, 2002 (in
thousands).
---------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES CANADA
-------------------------------- -------------------------------- ---------
PRO FORMA PRO FORMA
TOM BROWN MATADOR COMBINED TOM BROWN MATADOR COMBINED TOM BROWN
---------------------------------------------------------------------------------------------------------
Gas and oil sales, net
production costs(1)... $(145,504) $(46,410) $(191,914) $(122,574) $(46,410) $(168,984) $(22,930)
Net changes in
anticipated prices and
production costs...... 325,690 147,841 473,531 265,587 147,841 413,428 60,103
Extension and
discoveries, less
related costs......... 112,018 152,612 264,630 95,798 152,612 248,410 16,220
Changes in estimated
future development
costs................. (1,813) -- (1,813) 2,752 -- 2,752 (4,565)
Previously estimated
development costs
incurred.............. 39,406 20,853 60,259 37,124 20,853 57,977 2,282
Net change in income
taxes................. (170,753) (79,847) (250,600) (140,036) (79,847) (219,883) (30,717)
Purchases of minerals in
place................. 16,970 6,173 23,143 16,970 6,173 23,143 --
Sales of minerals
in place.............. (11,383) -- (11,383) (11,383) -- (11,383) --
Accretion of discount... 50,128 15,856 65,984 42,990 15,856 58,846 7,138
Revision of quantity
estimates............. 19,147 (25,474) (6,327) 7,586 (25,474) (17,888) 11,561
Changes in production
rates and other....... (22,594) (3,059) (25,653) (20,148) (3,059) (23,207) (2,446)
-------------------------------------------------------------------------------
Change in Standardized
Measure............... $211,312 $188,545 $399,857 $174,666 $188,545 $363,211 $36,646
-------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
(1) Net of hedging revenue for Tom Brown of $0.2 million on production in the
United States and a $0.2 million hedging loss on Canadian production.
S-26
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OPERATING DATA
The selected consolidated financial data presented below is derived from our
consolidated financial statements. The selected consolidated financial data
presented below for the six month periods ended June 30, 2002 and 2003 is
derived from our unaudited consolidated financial statements and includes, in
the opinion of management, all normal and recurring adjustments necessary to
present fairly the data for such periods. The results of operations for the six
months ended June 30, 2003 should not be regarded as indicative of results for
the full year.
----------------------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ ---------------------
2002 2001 2000 2003 2002
----------------------------------------------------------------------------------------------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Revenues:
Gas, oil and natural gas liquids
sales........................ $194,276 $274,031 $216,968 $ 158,960 $ 94,930
Gathering and processing........ 20,467 23,245 18,283 10,868 9,989
Marketing and trading........... 58,899 124,667 114,211 22,648 36,032
Drilling........................ 14,347 14,828 11,472 6,955 4,581
Interest income and other....... 1,279 12,329 1,346 2,540 2,077
------------------------------------------------------
Total revenues............... 289,268 449,100 362,280 201,971 147,609
------------------------------------------------------
Costs and expenses:
Gas and oil production.......... 32,151 32,060 25,488 16,690 16,319
Taxes on gas and oil
production................... 16,621 21,020 22,105 13,623 8,800
Trading......................... 53,623 122,776 108,370 21,590 35,340
Gathering and processing
costs........................ 6,918 10,855 7,212 4,071 3,224
Drilling operations............. 13,763 11,851 9,715 6,031 4,939
Exploration costs............... 22,824 34,195 11,001 10,679 11,184
Impairments of leasehold
costs........................ 5,564 5,236 3,900 2,963 2,781
General and administrative...... 18,413 22,742 11,614 10,650 9,365
Depreciation, depletion and
amortization................. 91,307 74,371 50,417 44,570 46,023
Bad debts....................... 5,222 1,043 133 252 216
Interest expense and other...... 9,726 7,347 5,967 6,406 3,905
------------------------------------------------------
Total costs and expenses..... 276,132 343,496 255,922 137,525 142,096
------------------------------------------------------
Income (loss) before income taxes
and cumulative effect of change
in accounting principles......... 13,136 105,604 106,358 64,446 5,513
Income tax (provision) benefit...... (3,210) (38,127) (39,780) (22,293) (1,129)
Income (loss) before cumulative
effect of change in accounting
principles....................... 9,926 67,477 66,578 42,153 4,384
Cumulative effect of change in
accounting principles............ (18,103) 2,026 -- (929) (18,103)
------------------------------------------------------
Net (loss) income................... (8,177) 69,503 66,578 41,224 (13,719)
Preferred stock dividend............ -- -- (875) -- --
------------------------------------------------------
Net income (loss) attributable to
common stock..................... $ (8,177) $ 69,503 $ 65,703 $ 41,224 $(13,719)
------------------------------------------------------
Weighted average basic number of
common shares outstanding........ 39,217 38,943 36,664 39,478 39,168
------------------------------------------------------
S-27
----------------------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ ---------------------
2002 2001 2000 2003 2002
----------------------------------------------------------------------------------------------
(in thousands, except per share
amounts and operating data)
Weighted average diluted number of
common shares outstanding........... 40,327 40,227 37,897 40,487 40,425
------------------------------------------------------
Earnings (loss) per common share --
Basic:
Income (loss) before cumulative
effect of change in accounting
principles....................... $ 0.25 $1.73 $1.79 $ 1.07 $ 0.11
Cumulative effect of change in
accounting principles............ (0.46) 0.05 -- (0.03) (0.46)
------------------------------------------------------
Net income (loss) attributable to
common stock..................... $(0.21) $1.78 $1.79 $ 1.04 $(0.35)
------------------------------------------------------
Earnings (loss) per common share --
Diluted:
Income (loss) before cumulative
effect of change in accounting
principles....................... $ 0.25 $1.68 $1.76 $ 1.04 $ 0.11
Cumulative effect of change in
accounting principles............ (0.45) 0.05 -- (0.02) (0.45)
------------------------------------------------------
Net income (loss) attributable to
common stock..................... $(0.20) $1.73 $1.76 $ 1.02 $(0.34)
------------------------------------------------------
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents........... $ 13,555 $ 15,196 $ 17,534 $ 24,108 $ 18,911
Working capital (deficit)........... (8,887) 11,278 38,139 6,197 19,471
Net property and equipment.......... 776,485 738,526 509,762 1,238,152 772,015
Total assets........................ 850,952 844,975 629,535 1,475,055 863,121
Long-term debt, net of current
maturities....................... 133,172 120,570 54,000 543,652 151,815
Total stockholders' equity.......... 563,618 575,228 488,893 606,472 564,535
OPERATING DATA:
Production:
Natural gas (Mmcf)............... 72,167 63,824 51,199 33,764 36,639
Crude oil (Mbbls)................ 843 881 773 389 455
Natural gas liquids (Mbbls)...... 1,382 1,217 1,074 747 725
Total production (Mmcfe)......... 85,517 76,412 62,281 40,580 43,719
Average sales prices:
Natural gas (per Mcf):
Price received................. $ 2.19 $ 3.43 $ 3.46 $ 4.53 $ 2.13
Effect of hedges............... -- 0.27 -- (0.56) --
-------- -------- -------- ---------- --------
Net sales price................ 2.19 3.71 3.46 3.97 2.13
Crude oil (per Bbl).............. 23.41 23.09 28.05 28.80 21.45
Natural gas liquids (per Bbl).... 12.05 14.07 16.77 18.31 9.76
Total (per Mcfe)................. 2.27 3.59 3.48 3.92 2.17
Expenses per Mcfe:
Lease operating.................. 0.38 0.42 0.41 0.41 0.37
Taxes on gas and oil
production..................... 0.19 0.28 0.35 0.34 0.20
General and administrative....... 0.22 0.30 0.19 0.26 0.21
Depreciation, depletion and
amortization................... 1.07 0.97 0.81 1.10 1.06
S-28
BUSINESS
GENERAL
We are engaged primarily in the exploration for, and the acquisition,
development, production, marketing and sale of, natural gas, natural gas liquids
and crude oil in North America. Our activities are conducted principally in the
Wind River and Green River basins of Wyoming, the Piceance Basin of Colorado,
the Paradox Basin of Utah and Colorado, the Val Verde Basin and Permian Basin of
West Texas and southeastern New Mexico, the East Texas Basin and the Western
Canadian Sedimentary Basin. We also, to a lesser extent, conduct exploration and
development activities in other areas of the continental United States and
Canada.
At December 31, 2002, our estimated proved reserves totaled 750 Bcfe, of which
76% were proved developed, and were comprised of 674 Bcf of natural gas, 6
Mmbbls of crude oil and 7 Mmbbls of natural gas liquids. Our estimated proved
reserves, on an equivalent basis, were 90% natural gas, and 85% of our total
estimated proved reserves were located in the Rocky Mountain region of the
United States and Canada. In 2002, we achieved average net production of 234
Mmcfe per day, which implies a reserve life of approximately nine years. Our
production increased 12% from 2001 to 2002, with 10% lower operating costs on a
per unit basis. For the past three years, we achieved compound annual growth in
production and estimated proved reserves of 20% and 13%, respectively. Over the
same period, we added estimated proved reserves from all sources that were equal
to 215% of our production. Our weighted average finding and development costs
for the past three years were $1.29 per Mcfe.
We focus our operations in areas where we have developed significant geological
and operational expertise and established critical mass through the strategic
accumulation of large, contiguous acreage positions. Our 2002 year-end acreage
of 2,132,000 net acres, 87% of which were undeveloped, positions us for
continued growth through the drillbit and provides us with a portfolio
containing high potential exploration prospects complemented by lower risk
development opportunities. We seek to operate the majority of our properties in
order to control the timing of capital expenditures and production.
As of December 31, 2002, pro forma for our acquisition of Matador Petroleum
Corporation described below, our estimated proved reserves totaled 1.02 Tcfe, of
which approximately 89% were natural gas and 73% were proved developed.
Fifty-five percent of these pro forma reserves were located in the U.S. Rocky
Mountain region, 8% in the Canadian Rocky Mountain region, 19% in the East Texas
Basin and 18% in the Permian Basin and other areas. Pro forma 2002 net
production averaged 286 Mmcfe per day.
On June 27, 2003, we acquired Matador Petroleum Corporation for $388 million,
which included $267 million of cash and $121 million of assumed debt at closing.
Prior to our acquisition of Matador, Union Oil Company of California, the
indirect parent of the selling stockholder, owned approximately 31% of Matador's
outstanding common stock. We funded the acquisition of Matador with borrowings
under our credit facilities. We estimated Matador's proved reserves, as of
December 31, 2002, to be 269 Bcfe, of which 85% were natural gas and 64% were
proved developed. The acquisition increased our estimated equivalent proved
reserves by approximately 36% (to approximately 1.02 Tcfe) and added 165,500 net
acres to our leasehold position. The Matador acquisition is consistent with our
strategy to pursue acquisitions that complement our core areas of activity and
we expect to combine our
S-29
operational and technical expertise together with our financial capability to
fully exploit Matador's significant prospect inventory.
For 2002, Matador's production averaged 52 Mmcfe per day. We hedged the majority
of Matador's expected natural gas production from proved developed producing
reserves through 2004 by entering into a series of costless collar contracts.
These contracts have a weighted average floor price of $4.53 per Mmbtu and a
weighted average ceiling price of $8.63 per Mmbtu.
SUMMARY OF AREAS OF OPERATION
We have long believed in the potential of the Rocky Mountain region. Our
operations in the Rockies date back to the 1975 Muddy Ridge discovery in the
Wind River Basin of Wyoming. Over time we have diversified within the Rockies,
adding positions in the Green River Basin of Wyoming, the Piceance Basin of
Colorado, the Paradox Basin of Utah and Colorado and the Western Canadian
Sedimentary Basin of Alberta, Canada. We have also built a substantial position
in the East Texas Basin and the Permian and Val Verde basins of West Texas and
New Mexico.
------------------------------------------------------------------------------------------------
ESTIMATED PROVED RESERVES BY REGION (BCFE)
AS OF DECEMBER 31, 2002
------------------------------------------
PRO FORMA
REGION TOM BROWN MATADOR* COMBINED
------------------------------------------------------------------------------------------------
U.S. ROCKIES:
Wind River Basin................................ 187 -- 187
Green River Basin............................... 112 -- 112
Paradox Basin................................... 115 -- 115
Piceance Basin.................................. 141 -- 141
------------------------------------------
Total U.S. Rockies........................... 555 -- 555
------------------------------------------
CANADIAN ROCKIES:
Western Canadian Sedimentary Basin.............. 82 -- 82
SOUTHERN REGION:
East Texas Basin................................ 36 162 198
Permian Basin................................... 68 82 150
Gulf Coast/other................................ 9 25 34
------------------------------------------
Total Southern Region........................ 113 269 382
------------------------------------------
Total................................... 750 269 1,019
------------------------------------------------------------------------------------------------
* The reserve estimates for Matador were prepared by our petroleum engineering
staff, which calculated 269 Bcfe of estimated proved reserves; this calculation
was slightly lower than the 282 Bcfe of estimated proved reserves calculated by
Matador's independent petroleum consultants.
S-30
----------------------------------------------------------------------------------------------
PRODUCTION BY REGION (MMCFE PER DAY)
AS OF DECEMBER 31, 2002
-------------------------------------- PRO FORMA
PRO FORMA RESERVE LIFE
REGION TOM BROWN MATADOR COMBINED (YEARS)
----------------------------------------------------------------------------------------------
U.S. ROCKIES:
Wind River Basin.................. 60 -- 60 8.5
Green River Basin................. 21 -- 21 14.6
Paradox Basin..................... 45 -- 45 7.0
Piceance Basin.................... 33 -- 33 11.7
Other............................. 2 -- 2 --
------------------------------------------------------
Total U.S. Rockies............. 161 -- 161 9.4
------------------------------------------------------
CANADIAN ROCKIES:
Western Canadian Sedimentary
Basin.......................... 24 -- 24 9.4
------------------------------------------------------
SOUTHERN REGION:
East Texas Basin.................. 20 28 48 11.3
Permian Basin..................... 20 21 41 10
Gulf Coast/other.................. 9 3 12 7.8
------------------------------------------------------
Total Southern Region.......... 49 52 101 10.4
------------------------------------------------------
Total........................ 234 52 286 9.8
----------------------------------------------------------------------------------------------
The following discussion focuses on areas we consider to be our core areas of
operations and those that offer us the greatest opportunities for further
exploration and development activities.
WIND RIVER, GREEN RIVER, PARADOX AND PICEANCE BASINS
The Wind River and Green River basins of Wyoming, the Paradox Basin of Utah and
Colorado and the Piceance Basin of Colorado account for the major portion of our
current and anticipated domestic exploration and development activities, with
approximately 54% of our pro forma estimated proved reserves, on an equivalent
basis, at December 31, 2002. Prior to the Matador acquisition, at December 31,
2002, we owned interests in 1,278 producing wells in these basins that averaged
net daily production of 159 Mmcfe in 2002. We also had approximately 1,565,000
gross (1,224,000 net) developed and undeveloped acres in these basins at
December 31, 2002, including option acreage of approximately 281,000 gross
undeveloped (253,000 net) acres in the Wind River Basin.
In 2002, we drilled and completed 16 wells in the Wind River Basin, the majority
of which were located in the Pavillion Field, where we hold a 92% working
interest. In the Piceance Basin, we drilled 26 wells in 2002 (completing 25).
The Piceance wells were principally drilled at our 100%-owned White River Dome
coal bed methane project in western Colorado.
The Rocky Mountain region has experienced limited natural gas transportation
capacity. Recognizing these restrictions, various companies have constructed or
expanded existing pipelines and are continuing to add additional pipeline
capacity into this area.
S-31
CANADA
The Western Canadian Sedimentary Basin accounted for approximately 8% of our pro
forma estimated proved reserves, on an equivalent basis, at December 31, 2002.
Our share of production from these basins averaged 24 Mmcfe per day in 2002.
Prior to the Matador acquisition, at December 31, 2002, we owned interests in
252 wells and had approximately 540,000 gross (359,000 net) developed and
undeveloped acres in this area. In Canada, we drilled 13 wells in 2002
(completing 12). These wells were primarily located in the Carrot Creek and
Edson fields, which we operate.
EAST TEXAS BASIN
Our East Texas Basin estimated proved reserves account for approximately 19% of
pro forma reserves, on an equivalent basis, as of December 31, 2002. In recent
years, we have acquired approximately 80,000 net acres in the James Lime
(horizontal) trend of the East Texas Basin. In 2001, we drilled seven wells in
the James Lime (horizontal) trend, of which five were initially completed. This
large regional play is in its early stages of development and we are working to
determine its potential based upon the initial production rates and variable
decline rates of the wells drilled to date.
We continue to participate in a development drilling program in the Mimms Creek
Field (Bossier Sands play) in Freestone County, Texas. During 2002, 11 wells
were drilled and completed under this program, where our working interests range
from 50% to 63%. Since acquiring a majority interest in Mimms Creek in 1996, we
have achieved significant exploitation success, increasing the estimated
ultimate recovery of reserves in the field by 155% to 120 Bcfe at December 31,
2002. We anticipate applying the technology used on our Mimms Creek Field to
Matador's East Texas Basin properties.
The East Texas Basin properties acquired from Matador are located in Freestone
County and 10 other counties and generally consist of long-lived, stable
reserves with significant development upside. Much success has come from the
Freestone-Robertson trend, where we have leasehold positions in over 80,000
gross (40,000 net) acres. Production from these properties averaged 28 Mmcfe per
day in 2002.
PERMIAN AND VAL VERDE BASINS
The reserves in the Permian and Val Verde basins and other regions accounted for
approximately 18% of our pro forma estimated proved reserves, on an equivalent
basis, at December 31, 2002. Our share of production from these basins averaged
28 Mmcfe per day in 2002. We hold between 30% to 50% working interests in
approximately 46,800 gross (20,300 net) acres in the Val Verde Basin. The
Permian Basin contains significant oil reserves, located primarily in the
Sprayberry Field.
In the Deep Valley exploration project area of the Permian Basin, in 2002, we
successfully completed a Devonian well with a 50% working interest that
commenced production in June 2002 at initial rates approximating 10 Mmcfe per
day, declining to 1.6 Mmcfe per day by the end of June 2003. In 2003, we have
continued to drill wells and evaluate the Deep Valley project area.
The Permian Basin properties acquired from Matador are focused in the
Monument-Skaggs Northwest Area (eastern Lea County), Morrow formation
(southeastern New Mexico) and Amacker Tippett area (Upton County, Texas). These
properties represent areas where we have
S-32
substantial knowledge and operational expertise. Production from these
properties averaged 21 Mmcfe per day in 2002.
OTHER BUSINESSES
We market a majority of our operated natural gas production and some third party
natural gas in the Rocky Mountain region through Retex Inc., our wholly owned
marketing subsidiary. Sauer Drilling Company is a wholly owned subsidiary that
owns and operates nine drilling rigs in the Rocky Mountain region. Retex and
Sauer provide cost savings and operational efficiencies to us by providing
services that would otherwise need to be contracted through third parties.
PRODUCTION VOLUMES, UNIT PRICES AND COSTS
The following table sets forth certain information regarding our volumes of
production sold and average prices received associated with our production and
sales of natural gas, natural gas liquids and crude oil for each of the three
years ended December 31, 2002.
-------------------------------------------------------------------------------------------------
VOLUME PRODUCTION AND AVERAGE PRICES
-------------------------------------
2002 2001 2000
-------------------------------------------------------------------------------------------------
PRODUCTION:
Natural gas (Mmcf).................................... 72,167 63,824 51,199
Crude oil (Mbbls)..................................... 843 881 773
Natural gas liquids (Mbbls)........................... 1,382 1,217 1,074
Total production (Mmcfe).............................. 85,517 76,412 62,282
AVERAGE SALES PRICES:
Natural gas (per Mcf):
Price received..................................... $ 2.19 $ 3.43 $ 3.46
Effect of hedges................................... -- 0.27 --
------- ------- -------
Net sales price.................................... 2.19 3.71 3.46
Crude oil (per Bbl)................................... 23.41 23.09 28.05
Natural gas liquids (per Bbl)......................... 12.05 14.07 16.77
Total (per Mcfe)...................................... 2.27 3.59 3.48
S-33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following persons are our executive officers and directors as of September
3, 2003:
---------------------------------------------------------------------------------------------
NAME AGE POSITION
---------------------------------------------------------------------------------------------
James D. Lightner........................ 51 Chairman, Chief Executive Officer and
President
Daniel G. Blanchard...................... 43 Executive Vice President, Chief Financial
Officer and Treasurer
Thomas W. Dyk............................ 50 Executive Vice President and Chief
Operating Officer
Peter R. Scherer......................... 46 Executive Vice President
Bruce R. DeBoer.......................... 50 Vice President, General Counsel and
Secretary
Douglas R. Harris........................ 49 Vice President - Operations
Rodney G. Mellott........................ 46 Vice President - Land and Business
Development
Kenneth B. Butler........................ 50 Director
David M. Carmichael...................... 64 Director
Henry Groppe............................. 77 Director
Edward W. LeBaron, Jr. .................. 73 Director
John C. Linehan.......................... 64 Director
Wayne W. Murdy........................... 59 Director
James B. Wallace......................... 74 Director
Robert H. Whilden, Jr. .................. 68 Director
---------------------------------------------------------------------------------------------
James D. Lightner joined Tom Brown in May 1999 as President. In January 2001, he
was named Chief Executive Officer. He was appointed Chairman of the Board in May
2002. Mr. Lightner has been a member of the Board of Directors since 1999. He
also serves as a member of the Executive Committee. Prior to joining Tom Brown,
Mr. Lightner served as Vice President and General Manager of the Denver Division
of EOG Resources from April 1989 through April 1999.
Daniel G. Blanchard joined Tom Brown in July 1999 as Vice President and Chief
Financial Officer and was subsequently named Executive Vice President and
Treasurer. From January 1999 through May 1999, Mr. Blanchard served as Assistant
Treasurer with Gulf Canada Resources. He served as Treasurer and Director of
Corporate Development for Forest Oil Company from September 1994 through
December 1998.
Thomas W. Dyk joined Tom Brown in April 1998 as Executive Vice President and was
subsequently named the company's Chief Operating Officer in 1999. Prior to
joining Tom Brown, Mr. Dyk served as Regional Vice President for the Rocky
Mountain Division of Burlington Resources.
Peter R. Scherer joined Tom Brown in 1982. He has held various positions, most
recently Executive Vice President - General Manager, Midland division. Prior to
joining Tom Brown, Mr. Scherer was employed by Amoco Oil and Gas Company.
S-34
Bruce R. DeBoer joined Tom Brown in 1997 as Vice President, General Counsel and
Secretary. Prior to joining Tom Brown, he served in a similar capacity for eight
years with Presidio Oil Company.
Douglas R. Harris joined Tom Brown in February 2001 as Vice President -
Operations. From February 1986 through January 2001, he was employed by
Burlington Resources, most recently as Vice President - Production for
Burlington Resources Canada in Calgary.
Rodney G. Mellott joined Tom Brown in December 1999 as Vice President - Land and
Business Development. Prior to joining Tom Brown, Mr. Mellott was employed for
15 years in various capacities by EOG Resources, Inc.
Kenneth B. Butler has been a director of Tom Brown since 2000. He is Vice
President of Unocal Gulf Region USA.
David M. Carmichael has been a director of Tom Brown since 1996. He is also a
director of Ensco International Inc. and a director of Natural Resource Partners
L.P. Mr. Carmichael is the former Chairman of the Board, Chief Executive Officer
and President of American Oil and Gas Corporation.
Henry Groppe has been a director of Tom Brown since 1989. He is a partner in the
oil and gas consulting firm of Groppe, Long & Littell.
Edward W. LeBaron, Jr. has been a director of Tom Brown since 1968. He is a
partner in LeBaron Ranches L.P., and was formerly a partner in the Pillsbury &
Winthrop law firm.
John C. Linehan has been a director of Tom Brown since 2003. He is the retired
Executive Vice President and Chief Financial Officer of Kerr-McGee Corporation.
Wayne W. Murdy has been a director of Tom Brown since 2001. He is the Chairman
of the Board and Chief Executive Officer of Newmont Mining Corporation.
James B. Wallace has been a director of Tom Brown since 1992. He is a partner in
Brownlie, Wallace, Armstrong and Bander Exploration. Mr. Wallace also serves as
a director of Delta Petroleum Corporation.
Robert H. Whilden, Jr. has been a director of Tom Brown since 1989. He has
served as Senior Vice President, General Counsel and Secretary of BMC Software,
Inc. since 2000. He also serves as a director of W-H Energy Services, Inc. Prior
to joining BMC Software, Mr. Whilden was a partner in the law firm of Vinson &
Elkins L.L.P.
S-35
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
TO NON-UNITED STATES HOLDERS
The following is a summary of certain United States federal income and estate
tax considerations relating to the purchase, ownership and disposition of our
common stock by persons that are non-United States holders (as defined below),
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based upon the Internal Revenue
Code of 1986 as amended (the "Code") and regulations, rulings and decisions
thereunder now in effect (or, in the case of certain United States Treasury
Regulations, now in proposed form), all of which are subject to change, possibly
on a retroactive basis. This summary deals only with non-United States holders
that will hold our common stock as "capital assets" (generally, property held
for investment) and does not address tax considerations applicable to investors
that may be subject to special tax rules, including financial institutions,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings, persons that will hold the common
stock as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes, regulated investment companies, real estate
investment trusts, or persons that have a "functional currency" other than the
U.S. dollar. If a partnership holds the common stock, the tax treatment of a
partner will generally depend upon the status of the partner and the activities
of the partnership. If you are a partner of a partnership holding our common
stock, you should consult your tax advisor. Moreover, this summary does not
discuss alternative minimum tax consequences, if any, or any state, local or
foreign tax consequences to holders of the common stock. INVESTORS CONSIDERING
THE PURCHASE OF COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO
THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE
TAX TREATY.
As used in this discussion, a "non-United States holder" is a beneficial owner
of common stock (other than a partnership) that for United States federal income
tax purposes is not:
-- a citizen or resident of the United States;
-- a corporation, or other entity taxable as a corporation for United
States federal income tax purposes, that was created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
-- an estate whose income is subject to United States federal income
taxation regardless of its source; or
-- a trust (i) if it is subject to the supervision of a court within the
United States and one or more United States persons have the authority
to control all substantial decisions of the trust or (ii) that has a
valid election in effect under applicable United States Treasury
Regulations to be treated as a United States person.
The following discussion addresses certain United States federal income and
estate tax consequences of the ownership and disposition of common stock by a
non-United States holder.
S-36
DIVIDENDS
We have never declared or paid and do not anticipate declaring or paying any
dividends on our common stock in the near future. However, if we do pay a
dividend, any dividend paid to a non-United States holder of common stock
ordinarily will be subject to withholding of United States federal income tax at
a rate of 30%, or such lower rate as may be specified under an applicable income
tax treaty. In order to receive a reduced treaty rate, a non-United States
holder must provide us with an Internal Revenue Service ("IRS") Form W-8BEN or
other appropriate version of Form W-8 certifying eligibility for the reduced
rate.
Dividends paid to a non-United States holder that are effectively connected with
a trade or business conducted by the non-United States holder in the United
States (or in the case of an applicable tax treaty, are attributable to a
permanent establishment maintained by the non-United States holder in the United
States) generally will be exempt from the withholding tax described above and
instead will be subject to United States federal income tax on a net income
basis. In order to obtain this exemption from withholding tax, a non-United
States holder must provide us with an IRS Form W-8ECI properly certifying such
exemption. Dividends received by a corporate non-United States holder that are
effectively connected with a trade or business conducted by such corporate
non-United States holder in the United States (or, in the case of an applicable
tax treaty, are attributable to a permanent establishment maintained by such
non-United States holder in the United States) may also be subject to an
additional branch profits tax at a rate of 30% or such lower rate as may be
specified by an applicable tax treaty.
GAIN ON DISPOSITION OF COMMON STOCK
We believe that Tom Brown, Inc. will be treated as a "United States real
property holding corporation" for United States federal income tax purposes.
Nonetheless, under current law and regulations, a non-United States holder
generally will not be subject to United States federal income tax on any gain
realized on a disposition of our common stock, provided that (a) the gain is not
effectively connected with a trade or business conducted by the non-United
States holder in the United States (or, in the case of an applicable tax treaty,
is not attributable to a permanent establishment maintained by the non-United
States holder in the United States), (b) in the case of a non-United States
holder who is an individual and who holds the common stock as a capital asset,
such holder is present in the United States for less than 183 days in the
taxable year of the sale or other disposition and certain other conditions are
met and (c) our common stock continues to be considered regularly traded on an
established securities market, and the non-United States holder does not
beneficially own, at any time during the five-year period ending on the date of
the sale or other disposition, more than 5% of our common stock. Non-United
States holders that may be treated as beneficially owning more than 5% of our
common stock should consult their own tax advisors with respect to the United
States tax consequences of the ownership and disposition of common stock.
FEDERAL ESTATE TAXES
Common stock owned or treated as being owned by a non-United States holder at
the time of death will be included in such holder's gross estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
S-37
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report to the IRS the amount of dividends paid, the name and
address of the recipient, and the amount, if any, of tax withheld. A similar
report is sent to the non-United States holder. Copies of the information
returns reporting those dividends and amounts withheld may also be made
available to the tax authorities in the country in which a non-United States
holder resides pursuant to the provisions of an applicable tax treaty or
exchange of information treaty.
Information reporting and backup withholding generally will not apply to a
payment of the proceeds of a sale of common stock effected outside the United
States by a foreign office of a foreign broker. However, information reporting
requirements (but not backup withholding, unless we have actual knowledge that
you are a United States person) will apply to a payment of the proceeds of a
sale of common stock effected outside the United States by a foreign office of a
broker if the broker (i) is a United States person, (ii) derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, (iii) is a "controlled foreign corporation" as to the United
States, or (iv) is a foreign partnership that, at any time during its taxable
year, is more than 50% (by income or capital interest) owned by United States
persons or is engaged in the conduct of a trade or business in the United
States, unless in any such case the broker has documentary evidence in its
records that the beneficial owner is a non-United States holder and certain
other conditions are met, or the holder otherwise establishes an exemption.
Payment of the proceeds of a sale of common stock by a United States office of a
broker will be subject to both information reporting and backup withholding
unless the holder certifies its non-United States holder status under penalties
of perjury and the broker does not have actual knowledge or reason to know that
the payee is a United States person, or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amount withheld under the
backup withholding rules will be allowed as a credit against the non-United
States holder's United States federal income tax liability and any excess may be
refundable if the proper information is provided to the IRS.
S-38
UNDERWRITING
J.P. Morgan Securities Inc. is the book-running manager of this offering. We,
the selling stockholder and the underwriters named below have entered into an
underwriting agreement covering the common stock to be offered in this offering.
J.P. Morgan Securities Inc. is acting as representative of the underwriters.
Subject to the terms and conditions stated in the underwriting agreement, each
underwriter named below has severally agreed to purchase, and we and the selling
stockholder have severally agreed to sell to that underwriter, the number of
shares of our common stock set forth opposite the underwriter's name.
-------------------------------------------------------------------------
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------
J.P. Morgan Securities Inc.................................. 4,274,950
Wachovia Capital Markets, LLC............................... 950,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 760,000
A.G. Edwards & Sons, Inc.................................... 502,150
First Albany Corporation.................................... 502,150
Goldman, Sachs & Co......................................... 502,150
Howard Weil, A division of Legg Mason Wood Walker, Inc...... 502,150
Petrie Parkman & Co., Inc................................... 502,150
Raymond James and Associates, Inc........................... 502,150
RBC Dain Rauscher Inc....................................... 502,150
---------
Total................................................ 9,500,000
-------------------------------------------------------------------------
The underwriting agreement provides that if the underwriters purchase any of the
shares presented in the table above, then they must purchase all of these
shares. No underwriter is obligated to purchase any shares allocated to a
defaulting underwriter, except under limited circumstances set forth in the
underwriting agreement.
The underwriters are offering the shares of common stock subject to the prior
sale of the shares and when, as and if such shares are delivered to and accepted
by them, subject to approval of legal matters by their counsel, including the
validity of the shares, and other conditions contained in the underwriting
agreement. The underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
The underwriters will initially offer to sell shares to the public at the public
offering price shown on the cover page of this prospectus supplement. The
underwriters may sell shares to securities dealers at a discount of up to $0.618
per share from the public offering price. Any such securities dealers may resell
shares to certain other brokers or dealers at a discount of up to $0.10 per
share from the public offering price. After commencement of the public offering,
the underwriters may vary the public offering price and other selling terms.
If the underwriters sell more shares than the total number shown in the table
above, the underwriters have the option to purchase from the selling stockholder
up to an additional 1,425,000 shares of common stock to cover such sales. They
may exercise this option during the 30-day period from the date of this
prospectus supplement. If any shares are purchased with this option, the
underwriters will purchase shares in approximately the same proportions as shown
in the table above.
S-39
The following table shows the underwriting discounts and commissions that we and
the selling stockholder are to pay to the underwriters in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase 1,425,000 additional shares of our common
stock.
UNDERWRITING DISCOUNTS AND COMMISSIONS
-------------------------------------------------------------------------------------------------
WITHOUT WITH FULL
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE EXERCISE EXERCISE
-------------------------------------------------------------------------------------------------
Public offering price........................... $25.75 $244,625,000 $281,318,750
Underwriting discounts and commissions.......... $ 1.03 $ 9,785,000 $ 11,252,750
Proceeds to Tom Brown, before expenses.......... $24.72 $148,320,000 $148,320,000
Proceeds to the selling stockholder, before
expenses...................................... $24.72 $ 86,520,000 $121,746,000
-------------------------------------------------------------------------------------------------
Each underwriter has agreed that (i) it has not offered or sold, and prior to
the six months after the date of issue of the common stock will not offer or
sell, any shares of our common stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for purposes of their
business or otherwise in circumstances that have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (ii) it has complied, and will
comply, with all applicable provisions of the Financial Services and Markets Act
2000 of Great Britain (FSMA) with respect to anything done by it in relation to
our common stock in, from or otherwise involving the United Kingdom; and (iii)
it has only communicated or caused to be communicated and will only communicate
or cause to be communicated any invitation or inducement to engage in investment
activity (within the meaning of section 21 of the FSMA) received by it in
connection with the issue or sale of any shares of our common stock in
circumstances in which section 21(1) of the FSMA does not apply to the issuer.
The representative has advised us, on behalf of the underwriters, that the
underwriters may make short sales of our common stock in connection with this
offering, resulting in the sale by the underwriters of a greater number of
shares than they are required to purchase pursuant to the underwriting
agreement. The short position resulting from those short sales will be deemed a
"covered" short position to the extent that it does not exceed the 1,425,000
shares subject to the underwriters' over-allotment option and will be deemed a
"naked" short position to the extent that it exceeds that number. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the trading price of the common stock in the
open market that could adversely affect investors who purchase shares in this
offering. The underwriters may reduce or close out their covered short position
either by exercising the over-allotment option or by purchasing shares in the
open market. In determining which of these alternatives to pursue, the
underwriters will consider the price at which shares are available for purchase
in the open market as compared to the price at which they may purchase shares
through the over-allotment option. Any "naked" short position will be closed out
by purchasing shares in the open market. Similar to the other stabilizing
transactions described below, open market purchases made by the underwriters to
cover all or a portion of their short position may have the effect of preventing
or retarding a decline in the market price of our common stock following this
offering. As a
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result, our common stock may trade at a price that is higher than the price that
otherwise might prevail in the open market.
The representative has advised us, on behalf of the underwriters, that, pursuant
to Regulation M under the Securities Exchange Act of 1934, as amended, they may
engage in transactions, including stabilizing bids or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price of
the shares of common stock at a level above that which might otherwise prevail
in the open market. A "stabilizing bid" is a bid for or the purchase of shares
of common stock on behalf of the underwriters for the purpose of fixing or
maintaining the price of the common stock. A "penalty bid" is an arrangement
permitting the representative to claim the selling concession otherwise accruing
to an underwriter or syndicate member in connection with the offering if the
common stock originally sold by that underwriter or syndicate member is
purchased by the representative in the open market pursuant to a stabilizing bid
or to cover all or part of a syndicate short position. The representative has
advised us that stabilizing bids and open market purchases may be effected on
the New York Stock Exchange, in the over-the-counter market or otherwise and, if
commenced, may be discontinued at any time.
One or more of the underwriters may facilitate the marketing of this offering
online directly or through one of its affiliates. In those cases, prospective
investors may view offering terms and this prospectus supplement and the
accompanying prospectuses online and, depending upon the particular underwriter,
place orders online or through their financial advisors.
We estimate that our total expenses of this offering, excluding underwriting
discounts, will be approximately $400,000.
We, our executive officers and directors and the selling stockholder have each
agreed that, with limited exceptions, for a period of 90 days after the date of
this prospectus supplement, none of us will (i) offer, pledge, announce the
intention to sell, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock or (ii) enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the common stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of common stock or such other securities, in cash or otherwise, without the
prior written consent of the representative, other than the shares of common
stock to be sold in this offering and any shares of common stock or any security
convertible into or exercisable or exchangeable for, shares of common stock
issued under existing employee stock option plans or our stockholder rights
plan. In addition, our executive officers and directors and the selling
stockholder have each agreed that during this 90-day period none of them will
make any demand for or exercise any right with respect to the registration of
any shares of common stock or any security convertible into or exercisable or
exchangeable for common stock without the prior written consent of the
representative, in each case other than the shares of common stock to be sold by
the selling stockholder in this offering. In addition, the selling stockholder
is permitted to enter into certain limited block trades to gas and oil
exploration, development and production companies and their affiliates.
Our common stock is listed on the NYSE under the symbol "TBI."
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We and the selling stockholder have severally agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
underwriters may be required to make because of any of those liabilities.
The underwriters and certain of their affiliates have performed investment
banking, advisory, general financing and commercial banking services for us and
our subsidiaries from time to time for which they have received customary fees
and expenses. Some of the underwriters will be underwriters in our offering of
senior subordinated notes. Currently, affiliates of J.P. Morgan Securities Inc.
and Wachovia Capital Markets, LLC are lenders under our credit facilities. The
underwriters may, from time to time in the future, engage in transactions with
and perform services for us and our subsidiaries in the ordinary course of their
business.
Because we expect to use more than 10% of the net proceeds from the sale of the
common stock to repay indebtedness owed by us to affiliates of the underwriters,
this offering is being made in compliance with the requirements of Rule
2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules.
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LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be passed
upon for us by Vinson & Elkins L.L.P., New York, New York. Certain matters will
be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York,
New York.
EXPERTS
The consolidated financial statements of Tom Brown, Inc. as of December 31, 2002
and for the year ended December 31, 2002 have been incorporated by reference in
the accompanying prospectuses in reliance upon the report of KPMG LLP,
independent accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The audit report
covering the December 31, 2002 consolidated financial statements refers to a
change in the method of accounting for goodwill and other intangible assets in
2002, and the method of accounting for derivative instruments and hedging
activities in 2001.
The consent of Arthur Andersen LLP to the inclusion of its report regarding our
consolidated financial statements with respect to periods prior to 2002,
incorporated in the accompanying prospectuses by reference, is omitted pursuant
to Securities Act Rule 437a. On June 15, 2002, Arthur Andersen was convicted of
obstruction of justice by a federal jury in Houston, Texas in connection with
Arthur Andersen's work for Enron Corp. On September 15, 2002, a federal judge
upheld this conviction. Arthur Andersen ceased its audit practice before the
Securities and Exchange Commission on August 31, 2002, and Arthur Andersen is
thus unable to deliver a consent with respect to our financial statements.
Because Arthur Andersen has not consented to the incorporation by reference of
its report in the accompanying prospectuses, and because of the circumstances
currently affecting Arthur Andersen, as a practical matter, that firm may not be
able to satisfy any claims arising from the provision of auditing services to
us, including claims you may have that are available to investors under federal
and state securities laws.
The consolidated financial statements of Matador Petroleum Corporation as of
December 31, 2002 and 2001 and for the three years ended December 31, 2002
included in Tom Brown, Inc.'s Form 8-K/A dated July 30, 2003 have been
incorporated by reference in the accompanying prospectuses in reliance upon the
report of KPMG LLP, independent accountants, incorporated by reference in the
accompanying prospectuses, and upon the authority of said firm as experts in
auditing and accounting.
The estimated reserve evaluations and related calculations of Ryder Scott
Company, L.P., independent petroleum engineering consultants, included or
incorporated by reference in this prospectus supplement and the accompanying
prospectuses have been included or incorporated by reference in reliance on the
authority of said firm as experts in petroleum engineering.
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GLOSSARY OF COMMON NATURAL GAS AND OIL TERMS
The following are definitions of terms commonly used in the natural gas and oil
industry and this document.
Unless otherwise indicated in this document, natural gas volumes are stated at
the legal pressure base of the state or area in which the reserves are located
at 60 degrees Fahrenheit.
Bcf. One billion cubic feet of natural gas.
Bcfe. One billion cubic feet of natural gas equivalent. Determined using the
ratio of one barrel of crude oil to six Mcf of natural gas.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
Btu. British Thermal Unit, or the quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
Capital expenditures. Costs associated with exploratory and development
drilling (including exploratory dry holes); leasehold acquisitions; producing
property acquisitions; compression equipment; the costs of gathering systems,
natural gas plants and pipelines; and other miscellaneous capital expenditures.
Developed acreage. The number of acres that are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of a natural gas or oil
reservoir to the depth of a stratigraphic horizon known to be productive.
Exploratory well. A well drilled to find and produce natural gas or oil in an
unproved area, to find a new reservoir in a field previously found to be
productive of natural gas or oil in another reservoir, or to extend a known
reservoir.
Finding and development costs. Capital costs incurred in the acquisition,
exploration and development of proved natural gas and oil reserves, divided by
proved reserve additions, including revisions.
Gross acres or gross wells. The total acres or wells, as the case may be, in
which we have a working interest.
Mbbls. One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet of natural gas.
Mcfe. One thousand cubic feet of natural gas equivalent. Determined using the
ratio of one barrel of crude oil to six Mcf of natural gas.
Mmbbls. One million barrels of crude oil or other liquid hydrocarbons.
Mmbtu. One million Btus.
Mmcfe. One million cubic feet of natural gas equivalent. Determined using the
ratio of one barrel of crude oil to six Mcf of natural gas.
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Net acres or net wells. A net acre or well is deemed to exist when the sum of
our fractional ownership working interests in gross acres or wells, as the case
may be, equals one. The number of net acres or wells is the sum of the
fractional working interests owned in gross acres or wells, as the case may be,
expressed as whole numbers and fractions thereof.
Operator. The individual or company responsible to the working interest owners
for the exploration, development and production of a natural gas or oil well or
lease.
Present value of future net revenues. The present value of estimated future net
revenues to be generated from the production of proved reserves, net of
estimated production and ad valorem taxes, future capital costs and operating
expenses, using prices and costs in effect as of the date indicated, without
giving effect to federal income taxes. The future net revenues have been
discounted at an annual rate of 10% to determine their "present value." The
present value is shown to indicate the effect of time on the value of the
revenue stream and should not be construed as being the fair market value of the
properties.
Recompletion. The completion of an existing well for production from a
formation that exists behind the casing of the well.
Reserves. Natural gas and crude oil, condensate and natural gas liquids on a
net revenue interest basis, found to be commercially recoverable. "Proved
developed reserves" includes proved developed producing reserves and proved
developed behind-pipe reserves. "Proved developed producing reserves" includes
only those reserves expected to be recovered from existing completion intervals
in existing wells. "Proved undeveloped reserves" includes those reserves
expected to be recovered from new wells on proved undrilled acreage or from
existing wells where a relatively major expenditure is required for
recompletion.
Tcfe. One trillion cubic feet of natural gas equivalent. Determined using the
ratio of one barrel of crude oil to six Mcf of natural gas.
Undeveloped acreage. Lease acres on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of natural gas and oil, regardless of whether or not such acreage contains
proved reserves.
Working interest. An interest in a natural gas and oil lease that gives the
owner of the interest the right to drill and produce natural gas and oil on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties.
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PROSPECTUS
(TOM BROWN INC. LOGO)
$500,000,000
TOM BROWN, INC.
DEBT SECURITIES
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
SECURITIES WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
TOM BROWN RESOURCES FUNDING CORP.
DEBT SECURITIES FULLY AND UNCONDITIONALLY
GUARANTEED BY TOM BROWN, INC.
---------------------
Tom Brown, Inc. may offer, from time to time, in one or more series:
- unsecured senior debt securities;
- unsecured subordinated debt securities;
- shares of common stock;
- shares of preferred stock;
- depositary shares;
- securities warrants;
- stock purchase contracts; and
- stock purchase units.
From time to time, Tom Brown Resources Funding Corp. may offer and sell
senior and subordinated debt securities in one or more series, consisting of
notes, debentures or other evidences of indebtedness. The debt securities will
be fully and unconditionally guaranteed by Tom Brown, Inc.
The aggregate initial public offering price of all securities offered under
this prospectus will not exceed $500,000,000. The securities:
- will be offered at prices and on terms to be set forth in an accompanying
prospectus supplement;
- may be denominated in U.S. dollars or in other currencies or currency
units;
- may be offered separately or together, or in separate series; and
- may be listed on a national securities exchange, if specified in an
accompanying prospectus supplement.
This prospectus provides you with a general description of the securities
that may be offered. Each time securities are sold, we will provide one or more
supplements to this prospectus that contain more specific information about the
offering and the terms of the securities being offered. The supplements may also
add, update or change information contained in this prospectus. This prospectus
may not be used to offer or sell securities without a prospectus supplement
describing the method and terms of the offering.
You should carefully read this prospectus and any accompanying prospectus
supplement before you invest in any of our securities.
Tom Brown, Inc.'s common stock is listed on the New York Stock Exchange
under the symbol "TBI."
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This prospectus is dated August 20, 2003
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... i
About Tom Brown............................................. 1
About Tom Brown Resources................................... 1
Use of Proceeds............................................. 1
Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges
and Preferred Stock Dividends............................. 2
Description of Debt Securities.............................. 2
Description of Common Stock and Preferred Stock of Tom
Brown..................................................... 13
Description of Depositary Shares of Tom Brown............... 17
Description of Securities Warrants of Tom Brown............. 19
Description of Stock Purchase Contracts and Stock Purchase
Units of Tom Brown........................................ 20
Plan of Distribution........................................ 21
Legal Matters............................................... 22
Experts..................................................... 22
Where You Can Find More Information......................... 22
---------------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, which we refer to as the "SEC," using a
"shelf" registration process. Under this shelf registration process, we may,
over time, offer and sell any combination of the securities described in this
prospectus in one or more offerings up to a total dollar amount of $500,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we offer securities, we will provide one or more prospectus
supplements that will contain specific information about the terms of that
offering. A prospectus supplement may also add, update or change information
contained in this prospectus. Any statement that we make in this prospectus will
be modified or superseded by any inconsistent statement made by us in a
prospectus supplement. You should read both this prospectus and any prospectus
supplement together with the additional information described under the heading
"Where You Can Find More Information."
Unless the context requires otherwise or unless otherwise noted, all
references in this prospectus or any prospectus supplement to "Tom Brown" are to
Tom Brown, Inc. and its subsidiaries, references to "Tom Brown Resources" are to
Tom Brown Resources Funding Corp. and references to "we," "us" or "our" are to
both Tom Brown and Tom Brown Resources.
i
ABOUT TOM BROWN
Tom Brown is engaged primarily in the exploration for, and the acquisition,
development, production, marketing, and sale of, natural gas, natural gas
liquids and crude oil in North America. Tom Brown's activities are conducted
principally in the Wind River and Green River Basins of Wyoming, the Piceance
Basin of Colorado, the Paradox Basin of Utah and Colorado, the Val Verde Basin
and Permian Basin of west Texas and southeastern New Mexico, the east Texas
Basin and the western Canadian Sedimentary Basin. Tom Brown also, to a lesser
extent, conducts exploration and development activities in other areas of the
continental United States and Canada.
Tom Brown's executive offices are located at 555 Seventeenth Street, Suite
1850, Denver, Colorado 80202, and the telephone number there is (303) 260-5000.
Tom Brown maintains a website on the Internet at http://www.tombrown.com. Unless
specifically incorporated by reference in this prospectus, information that you
may find on the website is not part of this prospectus.
ABOUT TOM BROWN RESOURCES
Tom Brown Resources is an unlimited liability company incorporated in
February 2001 under the laws of Nova Scotia, Canada. Tom Brown Resources is a
direct wholly owned subsidiary of Tom Brown. Any debt securities issued under
this prospectus by Tom Brown Resources will be guaranteed by Tom Brown.
The principal place of business of Tom Brown Resources is c/o Tom Brown
Resources Ltd., 736 8th Avenue, SW, 7th Floor, Calgary, Alberta, Canada T2P 1H4,
and the telephone number there is (403) 515-6000.
USE OF PROCEEDS
Except as may otherwise be described in a prospectus supplement, the net
proceeds from the sale of the securities offered pursuant to this prospectus and
any prospectus supplement will be used for general corporate purposes. These
purposes may include, but are not limited to:
- reduction or refinancing of debt or other corporate obligations;
- acquisitions;
- capital expenditures; and
- working capital.
Any specific allocation of the net proceeds of an offering of securities to
a specific purpose will be determined at the time of the offering and will be
described in a prospectus supplement.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Tom Brown's consolidated ratios of earnings to fixed charges and earnings
to fixed charges and preferred stock dividends for each of the periods indicated
are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1999 2000 2001 2002
----- ---- ----- ----- ----
(DOLLARS IN MILLIONS)
Ratio of earnings to fixed charges............... -- 2.86 17.49 14.42 2.64
Deficiency in the coverage of fixed charges by
earnings before fixed charges.................. $71.4 -- -- -- --
Ratio of earnings to fixed charges and preferred
stock dividends................................ -- 1.95 14.39 14.42 2.64
Deficiency in the coverage of fixed charges and
preferred stock dividends by earnings before
fixed charges.................................. $74.1 -- -- -- --
---------------
- "Earnings" consist of income (loss) before provision for income taxes and
cumulative effects of changes in accounting principles, plus fixed
charges (excluding capitalized interest).
- "Fixed charges" consist of interest expense (including amortization of
debt discount or premium), and the estimated interest factor attributable
to rentals.
- In 1998, the coverage deficiency was principally related to a $51.3
million impairment provision recognized on Tom Brown's investment in oil
and gas properties.
As of the date of this prospectus, there are no outstanding shares of
preferred stock.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be either senior debt securities of Tom Brown or
Tom Brown Resources ("Senior Debt Securities") or subordinated debt securities
of Tom Brown or Tom Brown Resources ("Subordinated Debt Securities"). The Senior
Debt Securities and the Subordinated Debt Securities will be issued under one or
more Indentures between Tom Brown and/or Tom Brown Resources and a U.S. banking
institution selected by Tom Brown and/or Tom Brown Resources, as "Trustee."
Senior Debt Securities will be issued under a "Senior Indenture" and
Subordinated Debt Securities will be issued under a "Subordinated Indenture."
Collectively, the Senior Indentures and the Subordinated Indentures are called
"Indentures." The Debt Securities may be issued from time to time in one or more
series.
We have summarized all material provisions of the Indentures below. We have
filed the forms of each Indenture with the SEC as exhibits to the registration
statement of which this prospectus is a part, and you should read such documents
for provisions that may be important to you. In the summary below, we have
included references to section numbers of the applicable Indentures so that you
can easily locate these provisions. Whenever we refer in this prospectus or in
the prospectus supplement to particular sections or defined terms of an
Indenture, such sections or defined terms are incorporated by reference herein
or therein, as applicable. Capitalized terms used in this summary have the
meanings specified in the Indentures.
For purposes of this section, the "Issuer" means Tom Brown, in the case of
Debt Securities issued by Tom Brown, and Tom Brown Resources, in the case of
Debt Securities issued by Tom Brown Resources, while the "Guarantor" means Tom
Brown, in the case of Debt Securities issued by Tom Brown Resources, and has no
meaning in the case of Debt Securities issued by Tom Brown.
GENERAL
The Indentures provide that Debt Securities in separate series may be
issued thereunder from time to time without limitation as to aggregate principal
amount. The Issuer may specify a maximum aggregate
2
principal amount for the Debt Securities of any series. (Section 301) The Issuer
will determine the terms and conditions of the Debt Securities, including the
maturity, principal and interest, but those terms must be consistent with the
applicable Indenture. The Debt Securities will be the Issuer's unsecured
obligations.
The Subordinated Debt Securities will be subordinated in right of payment
to the prior payment in full of all of the Issuer's Senior Debt (as defined) as
described under "-- Subordination of Subordinated Debt Securities" and in the
prospectus supplement applicable to any Subordinated Debt Securities. If the
prospectus supplement so indicates, the Subordinated Debt Securities of Tom
Brown will be convertible into Tom Brown's common stock as described in the
prospectus supplement.
The Debt Securities issued by Tom Brown Resources will be guaranteed by Tom
Brown as described under "-- Guarantees" and in the prospectus supplement
applicable to any such Debt Securities.
The applicable prospectus supplement will set forth the price or prices at
which the Debt Securities to be offered will be issued and will describe the
following terms of such Debt Securities:
(1) the title of the Debt Securities;
(2) whether the Debt Securities are Senior Debt Securities or Subordinated
Debt Securities and, if Subordinated Debt Securities, the related
subordination terms;
(3) any limit on the aggregate principal amount of the Debt Securities;
(4) the Person to whom any interest on a Debt Security will be payable;
(5) the dates on which the principal of the Debt Securities will be
payable;
(6) the rate at which the Debt Securities will bear interest, the dates
from which interest shall accrue and the interest payment dates for the
Debt Securities;
(7) the places where payments on the Debt Securities will be payable;
(8) any terms upon which the Debt Securities may be redeemed, in whole or
in part, at the Issuer's option, including any redemption provisions
relating to the obligation of Tom Brown Resources or the Guarantor to
pay any Additional Amounts (as defined in "-- Additional Amounts") with
respect to the Debt Securities issued by Tom Brown Resources as a
result of a change in the laws or regulations of Canada (or any
political subdivision or taxing authority thereof or therein), or any
change in any official position regarding the application or
interpretation of such laws or regulations, which change is announced
or becomes effective on or after the issuance date of any Debt
Securities issued by Tom Brown Resources;
(9) any sinking fund or other provisions that would obligate the Issuer to
repurchase or otherwise redeem the Debt Securities;
(10) the portion of the principal amount, if less than all, of the Debt
Securities that will be payable upon declaration of acceleration of
the Maturity of the Debt Securities;
(11) whether the Debt Securities are defeasible;
(12) any addition to or change in the Events of Default;
(13) any addition to or change in the covenants in the Indenture applicable
to any of the Debt Securities;
(14) whether the Debt Securities are convertible into, or exchangeable for,
securities or other property of the Issuer and, if so, the terms and
conditions upon which conversion will be effected, including the
initial conversion price and any adjustments thereto, the conversion
period and other conversion provisions;
(15) whether the Debt Securities are issued together with other securities
of the Issuer or an affiliated issuer as a unit; and
3
(16) any other terms of the Debt Securities not inconsistent with the
provisions of the Indenture. (Section 301)
Debt Securities may be sold at a substantial discount below their principal
amount. Special United States federal income tax considerations applicable to
Debt Securities sold at an original issue discount may be described in the
applicable prospectus supplement. In addition, special United States federal
income tax or other considerations applicable to any Debt Securities that are
denominated in a currency or currency unit other than United States dollars may
be described in the applicable prospectus supplement.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
The indebtedness evidenced by the Subordinated Debt Securities will, to the
extent set forth in the Subordinated Indenture with respect to each series of
Subordinated Debt Securities, be subordinate in right of payment to the prior
payment in full of all of the Issuer's Senior Debt, including the Senior Debt
Securities, and it may also be senior in right of payment to all of the Issuer's
Subordinated Debt. The Subordinated Debt Securities issued by Tom Brown
Resources will be guaranteed on a subordinated unsecured basis by Tom Brown,
which guarantee (the "Guarantee") will be subordinated in right of payment to
the prior payment in full of all of Tom Brown's Senior Debt and which Guarantee
may also be senior in right of payment to all of Tom Brown's Subordinated Debt.
The prospectus supplement relating to any Subordinated Debt Securities will
summarize the subordination provisions of the Subordinated Indenture applicable
to that series including:
- the applicability and effect of such provisions upon any payment or
distribution of the Issuer's assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors or marshaling of assets or any bankruptcy, insolvency or
similar proceedings;
- the applicability and effect of such provisions in the event of specified
defaults with respect to any Senior Debt, including the circumstances
under which and the periods in which the Issuer will be prohibited from
making payments on the Subordinated Debt Securities; and
- the definition of Senior Debt applicable to the Subordinated Debt
Securities of that series and, if the series is issued on a senior
subordinated basis, the definition of Subordinated Debt applicable to
that series.
The prospectus supplement will also describe as of a recent date the
approximate amount of Senior Debt to which the Subordinated Debt Securities of
that series will be subordinated.
The failure to make any payment on any of the Subordinated Debt Securities
by reason of the subordination provisions of the Subordinated Indenture
described in the prospectus supplement will not be construed as preventing the
occurrence of an Event of Default with respect to the Subordinated Debt
Securities arising from any such failure to make payment.
The subordination provisions described above will not be applicable to
payments in respect of the Subordinated Debt Securities from a defeasance trust
established in connection with any defeasance or covenant defeasance of the
Subordinated Debt Securities as described under "-- Defeasance and Covenant
Defeasance."
GUARANTEE
Tom Brown will fully and unconditionally guarantee to each holder of a Debt
Security issued by Tom Brown Resources and authenticated and delivered by the
Trustee the due and punctual payment of the principal of, and any premium and
interest on, the Debt Security, when and as it becomes due and payable, whether
at maturity, upon acceleration, by call for redemption, repayment or otherwise
at maturity, by acceleration, by redemption or otherwise in accordance with the
terms of the Debt Securities and of the applicable Indenture.
4
Tom Brown will:
- agree that, if an Event of Default occurs under the Debt Securities, its
obligations under the Guarantee will be absolute and unconditional and
will be enforceable irrespective of any invalidity, irregularity or
unenforceability of any series of the Debt Securities or the applicable
Indenture or any supplement thereto;
- waive its right to require the Trustee or the holders to pursue to
exhaustion their legal or equitable remedies against Tom Brown Resources
before exercising their rights under the Guarantee; and
- agree to be subject to the restrictions set forth below under
"-- Consolidation, Merger and Sale of Assets" as if Tom Brown was the
"Issuer."
ADDITIONAL AMOUNTS
All payments made by the Issuer under or with respect to the Debt
Securities issued by Tom Brown Resources and by the Guarantor under or with
respect to the Guarantee (the Issuer and the Guarantor being referred to for
purposes of this paragraph, individually, as an "Obligor" and, collectively, as
the "Obligors") will be made free and clear of, and without withholding or
deduction for or on account of, any present or future tax, duty, levy, impost,
assessment or other governmental charge imposed or levied by or on behalf of the
Government of Canada or of any province or territory thereof or by any authority
or agency therein or thereof having power to tax (or the jurisdiction of
incorporation of any successor of any Obligor) (hereunder, "Taxes"), unless the
applicable Obligor or any successor, as the case may be, is required to withhold
or deduct Taxes by law or by the interpretation or administration thereof by the
relevant governmental authority or agency. If any Obligor or any successor, as
the case may be, is so required to withhold or deduct any amount for or on
account of Taxes from any payment made under or with respect to the Debt
Securities issued by Tom Brown Resources or the Guarantee, such Obligor will pay
such additional amounts ("Additional Amounts") as may be necessary so that the
net amount received by each Holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the Holder would have
received if such Taxes had not been withheld or deducted; provided that no
Additional Amounts will be payable with respect to a payment made to a Holder
(an "Excluded Holder") in respect of a beneficial owner (i) with which the
Issuer does not deal at arm's length (within the meaning of the Income Tax Act
(Canada)) at the time of making such payment or (ii) that is subject to such
Taxes by reason of its being connected with Canada or any province or territory
thereof otherwise than by the mere acquisition, holding or disposition of the
Debt Securities issued by Tom Brown Resources or the receipt of payments
thereunder. The Obligors will also (i) make such withholding or deduction and
(ii) remit the full amount deducted or withheld to the relevant government
authority in accordance with applicable law. The Obligors will furnish to the
Holders, within 30 days after the date the payment of any Taxes is due pursuant
to applicable law, certified copies of tax receipts evidencing such payment. The
Obligors will, jointly and severally, indemnify and hold harmless each Holder
(other than an Excluded Holder) and upon written request reimburse each such
Holder for the amount of (i) any Taxes so levied or imposed and paid by such
Holder as a result of payments made under or with respect to the Debt Securities
or the Guarantee, (ii) any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, and (iii) any Taxes imposed
with respect to any reimbursement under (i) or (ii) so that the net amount
received by such Holder after such reimbursement will not be less than the net
amount the Holder would have received if Taxes on such reimbursement had not
been imposed.
At least 30 days prior to each date on which any payment under or with
respect to the Debt Securities issued by Tom Brown Resources is due and payable,
if the Issuer will be obligated to pay Additional Amounts with respect to such
payment, the Issuer will deliver to the applicable Trustee an Officers'
Certificate stating the fact that such Additional Amounts will be payable and
the amounts so payable, and will set forth such other information necessary to
enable such Trustee to pay such Additional Amounts to Holders on the payment
date. Whenever the applicable Indenture mentions, in any context, the payment of
principal (and premium, if any), redemption price, interest or any other amount
payable
5
under or with respect to any Debt Security issued by Tom Brown Resources, such
mention shall be deemed to include mention of the payment of Additional Amounts
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof.
The Issuer will pay any present or future stamp, court or documentary taxes
or any other excise or property taxes, charges or similar levies that arise in
any jurisdiction from the execution, delivery, enforcement or registration of
the Debt Securities or any other document or instrument in relation thereto, or
the receipt of any payments with respect to the Debt Securities, excluding such
taxes, charges or similar levies imposed by any jurisdiction outside of Canada,
the jurisdiction of incorporation of any successor of the Issuer or any
jurisdiction in which a paying agent is located, and has agreed to indemnify the
Holders for any such taxes paid by such Holders.
The foregoing obligations shall survive any termination, defeasance or
discharge of the applicable Indenture, and the payment of amounts owing under or
with respect to the Debt Securities issued by Tom Brown Resources and the
Guarantees.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in registered
form, without coupons, and, unless otherwise specified in the applicable
Indenture, only in denominations of $1,000 and integral multiples thereof.
(Section 302)
At the option of the Holder, subject to the terms of the applicable
Indenture and the limitations applicable to Global Securities, Debt Securities
of each series will be exchangeable for other Debt Securities of the same series
of any authorized denomination and of a like tenor and aggregate principal
amount. (Section 305)
Subject to the terms of the applicable Indenture and the limitations
applicable to Global Securities, Debt Securities may be presented for exchange
as provided above or for registration of transfer (duly endorsed or accompanied
by a duly executed written instrument of transfer in form satisfactory to the
Issuer) at the office of the Security Registrar or at the office of any transfer
agent designated by the Issuer for such purpose. No service charge will be made
for any registration of transfer or exchange of Debt Securities, but the Issuer
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Such transfer or exchange will be
effected upon the Security Registrar or such transfer agent, as the case may be,
being satisfied with the documents of title and identity of the person making
the request. The Security Registrar and any other transfer agent initially
designated by the Issuer for any Debt Securities will be named in the applicable
prospectus supplement. (Section 305) The Issuer may at any time designate
additional transfer agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent acts, except
that the Issuer will be required to maintain a transfer agent in each Place of
Payment for the Debt Securities of each series. (Section 1002).
If the Debt Securities of any series (or of any series and specified terms)
are to be redeemed in part, the Issuer will not be required to (i) issue,
register the transfer of or exchange any Debt Security of that series (or of
that series and specified terms, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any such Debt Security being
redeemed in part. (Section 305).
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more Global Securities that will have an aggregate
principal amount equal to that of the Debt Securities represented thereby. Each
Global Security will be registered in the name of a Depositary or its nominee
identified in the applicable prospectus supplement, will be deposited with such
Depositary or nominee or
6
its custodian and will bear a legend regarding the restrictions on exchanges and
registration of transfer thereof referred to below and any such other matters as
may be provided for pursuant to the applicable Indenture.
Notwithstanding any provision of the Indentures or any Debt Security
described in this prospectus, no Global Security may be exchanged in whole or in
part for Debt Securities registered, and no transfer of a Global Security in
whole or in part may be registered, in the name of any person other than the
Depositary for such Global Security or any nominee of such Depositary unless:
(1) the Depositary has notified the Issuer that it is unwilling or unable
to continue as Depositary for such Global Security or has ceased to be
qualified to act as such as required by the applicable Indenture;
(2) an Event of Default with respect to the Debt Securities represented by
such Global Security has occurred and is continuing and the Security
Registrar has received a written request from the Depositary to issue
certificated Debt Securities; or
(3) other circumstances exist, in addition to or in lieu of those described
above, as may be described in the applicable prospectus supplement.
All Debt Securities issued in exchange for a Global Security or any portion
thereof will be registered in such names as the Depositary may direct. (Sections
205 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities that it represents for all purposes under the Debt Securities and the
applicable Indenture. Except in the limited circumstances referred to above,
owners of beneficial interests in a Global Security will not be entitled to have
such Global Security or any Debt Securities that it represents registered in
their names, will not receive or be entitled to receive physical delivery of
certificated Debt Securities in exchange therefor and will not be considered to
be the owners or Holders of such Global Security or any Debt Securities that it
represents for any purpose under the Debt Securities or the applicable
Indenture. All payments on a Global Security will be made to the Depositary or
its nominee, as the case may be, as the Holder of the security. The laws of some
jurisdictions require that some purchasers of Debt Securities take physical
delivery of such Debt Securities in definitive form. These laws may impair the
ability to transfer beneficial interests in a Global Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participants on their behalf). Payments,
transfers, exchanges and other matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by the
Depositary from time to time. None of the Issuer, the Trustees or the agents of
the Issuer or the Trustees will have any responsibility or liability for any
aspect of the Depositary's or any participant's records relating to, or for
payments made on account of, beneficial interests in a Global Security, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable prospectus supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
7
Unless otherwise indicated in the applicable prospectus supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Issuer may designate for such purpose from time to time, except that at the
Issuer's option payment of any interest may be made by check mailed to the
address of the Person entitled thereto as such address appears in the Security
Register. Unless otherwise indicated in the applicable prospectus supplement,
the corporate trust office of the Trustee under the Senior Indentures in The
City of New York will be designated as sole Paying Agent for payments with
respect to Senior Debt Securities of each series, and the corporate trust office
of the Trustee under the Subordinated Indentures in The City of New York will be
designated as the sole Paying Agent for payment with respect to Subordinated
Debt Securities of each series. Any other Paying Agents initially designated by
the Issuer for the Debt Securities of a particular series will be named in the
applicable prospectus supplement. The Issuer may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that
the Issuer will be required to maintain a Paying Agent in each Place of Payment
for the Debt Securities of a particular series. (Section 1002)
All moneys paid by the Issuer or the Guarantor, if any, to a Paying Agent
for the payment of the principal of or any premium or interest on any Debt
Security that remain unclaimed at the end of two years after such principal,
premium or interest has become due and payable will be repaid to the Issuer or
the Guarantor, and the Holder of such Debt Security thereafter may look only to
the Issuer or Guarantor for payment thereof. (Section 1003)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Issuer, or the Guarantor, if any, may not consolidate with or merge
into, or transfer, sell, lease or otherwise dispose of all or substantially all
of its assets to, any Person (a "successor Person"), and may not permit any
Person to consolidate with or merge into it, unless:
(1) in a transaction in which the Issuer or the Guarantor is not the
successor Person, the successor Person (if any) is a corporation,
partnership, trust or other entity organized and validly existing under
the laws of any domestic jurisdiction or, in the case of Debt
Securities issued by Tom Brown Resources, under the laws of Canada or
any province or territory thereof, and expressly assumes the Issuer's
or the Guarantor's, as the case may be, obligations on the Debt
Securities or the Guarantee, as applicable, and under the Indentures;
(2) immediately after giving effect to the transaction, no Event of
Default, and no event that, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be
continuing;
(3) several other conditions, including any additional conditions with
respect to any particular Debt Securities specified in the applicable
prospectus supplement, are met;
(4) the successor Person shall be the Issuer, Guarantor or a Wholly Owned
Subsidiary of the Guarantor; and
(5) in a transaction in which the Guarantor is not the successor Person,
the Guarantor confirms its obligations under the Guarantee and the
applicable Indenture. (Section 801)
EVENTS OF DEFAULT
Unless otherwise specified in the prospectus supplement, each of the
following will constitute an Event of Default under the applicable Indenture
with respect to Debt Securities of any series:
(1) the Issuer and the Guarantor, if any, fail to pay principal of or any
premium on any Debt Security of that series when due, whether or not,
in the case of Subordinated Debt Securities, such payment is prohibited
by the subordination provisions of the Subordinated Indenture;
8
(2) the Issuer and the Guarantor, if any, fail to pay any interest on any
Debt Securities of that series when due, continued for 30 days, whether
or not, in the case of Subordinated Debt Securities, such payment is
prohibited by the subordination provisions of the Subordinated
Indenture;
(3) the Issuer and the Guarantor, if any, fail to deposit any sinking fund
payment, when due, in respect of any Debt Security of that series,
whether or not, in the case of Subordinated Debt Securities, such
deposit is prohibited by the subordination provisions of the
Subordinated Indenture;
(4) the Issuer or the Guarantor, if any, fail to perform or comply with the
provisions described under "-- Consolidation, Merger and Sale of
Assets";
(5) the Issuer or the Guarantor, if any, fail to perform any of its other
covenants in such Indenture (other than a covenant included in such
Indenture solely for the benefit of a series other than that series),
continued for 60 days after written notice has been given by the
applicable Trustee, or the Holders of at least 25% in principal amount
of the Outstanding Debt Securities of that series, as provided in such
Indenture; and
(6) certain events of bankruptcy, insolvency or reorganization affecting
the Issuer, any Significant Subsidiary or any group of Subsidiaries
that together would constitute a Significant Subsidiary. (Section 501)
If an Event of Default (other than an Event of Default described in clause
(6) above) with respect to the Debt Securities of any series at the time
Outstanding shall occur and be continuing, either the applicable Trustee or the
Holders of at least 25% in principal amount of the Outstanding Debt Securities
of that series by notice as provided in the Indenture may declare the principal
amount of the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Debt Security or the principal
amount of which is not then determinable, such portion of the principal amount
of such Debt Security, or such other amount in lieu of such principal amount, as
may be specified in the terms of such Debt Security) to be due and payable
immediately. If an Event of Default described in clause (6) above with respect
to the Debt Securities of any series at the time Outstanding shall occur, the
principal amount of all the Debt Securities of that series (or, in the case of
any such Original Issue Discount Security or other Debt Security, such specified
amount) will automatically, and without any action by the applicable Trustee or
any Holder, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration if (1) the Issuer or
the Guarantor, if any, has paid or deposited with the Trustee an amount
sufficient to pay the principal of and premium on any Debt Securities of that
series that have become due other than by declaration of acceleration, all
overdue interest on such Debt Securities, interest on any overdue interest (if
lawful), any amounts paid by the Trustee under the applicable Indenture and the
reasonable compensation and expenses of the Trustee and (2) all Events of
Default, other than the non-payment of accelerated principal (or other specified
amount), have been cured or waived as provided in the applicable Indenture.
(Section 502) For information as to waiver of defaults, see "-- Modification and
Waiver" below.
Subject to the provisions of the Indentures relating to the duties of the
Trustees in case an Event of Default shall occur and be continuing, each Trustee
will be under no obligation to exercise any of its rights or powers under the
applicable Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to such Trustee reasonable indemnity. (Section
603) Subject to such provisions for the indemnification of the Trustees, the
Holders of a majority in principal amount of the Outstanding Debt Securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Debt Securities
of that series. (Section 512)
9
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the applicable Indenture, or for the appointment
of a receiver or a trustee, or for any other remedy thereunder, unless:
(1) such Holder has previously given to the Trustee under the applicable
Indenture written notice of a continuing Event of Default with respect
to the Debt Securities of that series;
(2) the Holders of at least 25% in principal amount of the Outstanding Debt
Securities of that series have made written request, and such Holder or
Holders have offered reasonable indemnity, to the Trustee to institute
such proceeding as trustee; and
(3) the Trustee has failed to institute such proceeding, and has not
received from the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series a direction inconsistent
with such request, within 60 days after such notice, request and offer.
(Section 507)
However, such limitations do not apply to a suit instituted by a Holder of
a Debt Security for the enforcement of payment of the principal of or any
premium or interest on such Debt Security on or after the applicable due date
specified in such Debt Security or, if applicable, to convert such Debt
Security. (Section 508)
The Issuer and the Guarantor, if any, each will be required to furnish to
each Trustee annually a statement by certain of such entity's officers as to
whether or not the Issuer or the Guarantor, as the case may be, to their
knowledge, is in default in the performance or observance of any of the terms,
provisions and conditions of the applicable Indenture and, if so, specifying all
such known defaults. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of an Indenture may be made by the Issuer or
the Guarantor, if any, and the applicable Trustee with the consent of the
Holders of a majority in principal amount of the Outstanding Debt Securities of
each series affected by such modification or amendment; provided, however, that
no such modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any Debt Security;
(2) reduce the principal amount of, or any premium or interest on, any Debt
Security;
(3) reduce the amount of principal of an Original Issue Discount Security
or any other Debt Security payable upon acceleration of the Maturity
thereof;
(4) change the place or currency of payment of principal of, or any premium
or interest on, any Debt Security;
(5) impair the right to institute suit for the enforcement of any payment
on or any conversion right with respect to any Debt Security;
(6) in the case of Subordinated Debt Securities, modify the subordination
or conversion provisions in a manner adverse to the Holders of the
Subordinated Debt Securities;
(7) reduce the percentage in principal amount of Outstanding Debt
Securities of any series, the consent of whose Holders is required for
modification or amendment of the Indenture;
(8) reduce the percentage in principal amount of Outstanding Debt
Securities of any series necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults;
or
(9) modify such provisions with respect to modification and waiver.
(Section 902)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series may waive compliance by the Issuer or the Guarantor, as
the case may be, with certain restrictive provisions of
10
the applicable Indenture. (Section 1009) The Holders of a majority in principal
amount of the Outstanding Debt Securities of any series may waive any past
default under the applicable Indenture, except a default in the payment of
principal, premium or interest and certain covenants and provisions of the
applicable Indenture that cannot be amended without the consent of the Holder of
each Outstanding Debt Security of such series affected. (Section 513)
The Indentures provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given or
taken any direction, notice, consent, waiver or other action under such
Indenture as of any date:
(1) the principal amount of an Original Issue Discount Security that will
be deemed to be Outstanding will be the amount of the principal thereof
that would be due and payable as of such date upon acceleration of the
Maturity thereof to such date;
(2) if, as of such date, the principal amount payable at the Stated
Maturity of a Debt Security is not determinable (for example, because
it is based on an index), the principal amount of such Debt Security
deemed to be Outstanding as of such date will be an amount determined
in the manner prescribed for such Debt Security; and
(3) the principal amount of a Debt Security denominated in one or more
foreign currencies or currency units that will be deemed to be
Outstanding will be the U.S. dollar equivalent, determined as of such
date in the manner prescribed for such Debt Security, of the principal
amount of such Debt Security (or, in the case of a Debt Security
described in clause (1) or (2) above, of the amount described in such
clause).
Certain Debt Securities, including those for whose payment or redemption
money has been deposited or set aside in trust for the Holders and those that
have been fully defeased pursuant to Section 1502, will not be deemed to be
Outstanding. (Section 101)
Except in certain limited circumstances, the Issuer or the Guarantor, as
the case may be, will be entitled to set any day as a record date for the
purpose of determining the Holders of Outstanding Debt Securities of any series
entitled to give or take any direction, notice, consent, waiver or other action
under the applicable Indenture, in the manner and subject to the limitations
provided in the Indenture. In certain limited circumstances, the Trustee will be
entitled to set a record date for action by Holders. If a record date is set for
any action to be taken by Holders of a particular series, such action may be
taken only by persons who are Holders of Outstanding Debt Securities of that
series on the record date. To be effective, such action must be taken by Holders
of the requisite principal amount of such Debt Securities within a specified
period following the record date. For any particular record date, this period
will be 180 days or such other period as may be specified by the Issuer or the
Guarantor, as the case may be (or the Trustee, if it set the record date), and
may be shortened or lengthened (but not beyond 180 days) from time to time.
(Section 104)
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable prospectus supplement, the
Issuer may elect, at its option at any time, to have the provisions of Section
1502, relating to defeasance and discharge of indebtedness, or Section 1503,
relating to defeasance of certain restrictive covenants applied to the Debt
Securities of any series, or to any specified part of a series. (Section 1501)
Defeasance and Discharge. The Indentures provide that, upon the Issuer's
exercise of its option (if any) to have Section 1502 applied to any Debt
Securities, the Issuer and the Guarantor will be discharged from all their
respective obligations, and, if such Debt Securities are Subordinated Debt
Securities, the provisions of the Subordinated Indenture relating to
subordination (but not to conversion, if applicable) and the provisions of any
Indentures of Tom Brown Resources relating to guarantees, will cease to be
effective, with respect to such Debt Securities (except for certain obligations
to exchange or register the transfer of Debt Securities, to replace stolen, lost
or mutilated Debt Securities, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit in trust for the benefit of the Holders of
such
11
Debt Securities of money or U.S. Government Obligations, or both, which, through
the payment of principal and interest in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal of
and any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the applicable Indenture and such
Debt Securities. Such defeasance or discharge may occur only if, among other
things:
(1) the Issuer has delivered to the applicable Trustee an Opinion of
Counsel to the effect that it has received from, or there has been
published by, the United States Internal Revenue Service a ruling, or
there has been a change in tax law, in either case to the effect that
Holders of such Debt Securities will not recognize gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount,
in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge were not to occur;
(2) no Event of Default or event that with the passing of time or the
giving of notice, or both, shall constitute an Event of Default shall
have occurred and be continuing;
(3) such deposit, defeasance and discharge will not result in a breach or
violation of, or constitute a default under, any agreement or
instrument to which the Issuer or the Guarantor is a party or by which
such party is bound;
(4) in the case of Subordinated Debt Securities, at the time of such
deposit, no default in the payment of all or a portion of principal of
(or premium, if any) or interest on any of the Issuer's Senior Debt
shall have occurred and be continuing, no event of default shall have
resulted in the acceleration of any of the Issuer's Senior Debt and no
other event of default with respect to any of the Issuer's Senior Debt
shall have occurred and be continuing permitting after notice or the
lapse of time, or both, the acceleration thereof; and
(5) the Issuer has delivered to the Trustee an Opinion of Counsel to the
effect that such deposit shall not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940. (Sections
1502 and 1504)
Defeasance of Certain Covenants. The Indentures provide that, upon the
Issuer's exercise of its option (if any) to have the provisions of the
applicable Indenture relating to covenant defeasance applied to any Debt
Securities, the Issuer may omit to comply with certain restrictive covenants,
including those that may be described in the applicable prospectus supplement,
the occurrence of certain Events of Default, which are described above in clause
(5) (with respect to such restrictive covenants) and clause (6) under "Events of
Default" and any that may be described in the applicable prospectus supplement,
will not be deemed to either be or result in an Event of Default and, if such
Debt Securities are Subordinated Debt Securities, the provisions of the
Subordinated Indenture relating to subordination (but not to conversion, if
applicable) will cease to be effective, in each case with respect to such Debt
Securities. In order to exercise such option, the Issuer or the Guarantor must
deposit, in trust for the benefit of the Holders of such Debt Securities, money
or U.S. Government Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on such Debt Securities on the respective Stated Maturities in
accordance with the terms of the applicable Indenture and such Debt Securities.
Such covenant defeasance may occur only if the Issuer has delivered to the
applicable Trustee an Opinion of Counsel that in effect says that Holders of
such Debt Securities will not recognize gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain obligations and
will be subject to federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit and defeasance
were not to occur, and the requirements set forth in clauses (2), (3), (4) and
(5) above are satisfied. If the Issuer exercises this option with respect to any
Debt Securities and such Debt Securities were declared due and payable because
of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay amounts
due on such Debt Securities at the time of their respective Stated Maturities
but may not be sufficient to pay amounts due on such Debt
12
Securities upon any acceleration resulting from such Event of Default. In such
case, the Issuer or the Guarantor, as the case may be, would remain liable for
such payments. (Sections 1503 and 1504)
NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. (Sections
101 and 106)
TITLE
The Issuer, the Guarantor, if any, the Trustees and any agent of the
Issuer, the Guarantor, if any, or a Trustee may treat the Person in whose name a
Debt Security is registered as the owner of the Debt Security (whether or not
such Debt Security may be overdue) for the purpose of making payment and for all
other purposes. (Section 308)
TRUSTEES
The Issuer may maintain banking and other commercial relationships with any
Trustee and its affiliates in the ordinary course of business and any Trustee
may own debt securities and serve as Trustee under the Issuer's other
indentures.
GOVERNING LAW
The Indentures, the Guarantees and the Debt Securities will be governed by
and construed in accordance with the laws of the State of New York. (Section
112)
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK OF TOM BROWN
Tom Brown's authorized capital stock currently consists of 55,000,000
shares of common stock, $.10 par value per share, and 2,500,000 shares of
preferred stock, $.10 par value per share. We have summarized all material
information relating to Tom Brown's capital stock. For a detailed description,
reference is made to Tom Brown's certificate of incorporation.
COMMON STOCK
Tom Brown's common stock is traded on the New York Stock Exchange under the
symbol "TBI." As of August 20, 2003, 39,564,497 shares of common stock were
issued and held of record by approximately 1,727 holders.
Holders of shares of Tom Brown's common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders.
There are no cumulative voting rights with respect to the election of directors.
Holders of common stock have no preemptive rights and are entitled to such
dividends as may be declared by Tom Brown's board of directors out of legally
available funds. The common stock is not entitled to any sinking fund,
redemption or conversion provisions. If Tom Brown liquidates, dissolves, or
winds up its business, the holders of common stock will be entitled to share
ratably in Tom Brown's net assets remaining after the payment of all creditors
and the liquidation preferences of any preferred stock. The outstanding shares
of common stock are, and additional shares of common stock that Tom Brown issues
will be, fully paid and non-assessable. Tom Brown has never paid any cash
dividends and does not intend to pay any cash dividends on the common stock in
the foreseeable future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock, as well as the
rights agent under Tom Brown's rights plan, is EquiServe Trust Company, N.A.
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PREFERRED STOCK
The prospectus supplement will specify any terms of any series of Tom
Brown's preferred stock offered by it including:
- the series, the number of shares offered and the liquidation value of the
preferred stock,
- the price at which the preferred stock will be issued,
- the dividend rate, the dates on which the dividends will be payable and
other terms relating to the payment of dividends on the preferred stock,
- the liquidation preference of the preferred stock,
- whether the preferred stock is redeemable or subject to a sinking fund,
and the terms of any such redemption or sinking fund,
- whether the preferred stock is convertible into or exchangeable for any
other securities, and the terms of any such conversion or exchange, and
- any additional rights, preferences, qualifications, limitations or
restrictions of the preferred stock.
The description of the terms of the preferred stock to be set forth in an
applicable prospectus supplement will not be complete and will be subject to and
qualified in its entirety by reference to the statement of resolution relating
to the applicable series of preferred stock. The registration statement of which
this prospectus forms a part will include the statement of resolution as an
exhibit or will incorporate it by reference.
Tom Brown's certificate of incorporation authorizes Tom Brown's board to
issue up to 2,500,000 shares of preferred stock without stockholder approval and
to set the rights, preferences and other designations, including voting rights,
of those shares as Tom Brown's board of directors may determine. These
provisions, alone or in combination with each other and with the stockholder
rights plan described below, may discourage transactions involving actual or
potential changes of control of Tom Brown, including transactions that otherwise
could involve payment of a premium over prevailing market prices to holders of
common stock.
SPECIAL PROVISIONS OF TOM BROWN'S CERTIFICATE OF INCORPORATION AND DELAWARE LAW
Tom Brown's certificate of incorporation and bylaws contain provisions that
may have the effect of delaying, deferring or preventing a change in control of
Tom Brown. These provisions, among other things, provide for noncumulative
voting in the election of directors, impose certain procedural requirements on
stockholders who wish to make nomination for the election of directors or
propose other actions at stockholders' meetings and two-thirds voting
requirements for the amendment of certain provisions of Tom Brown's bylaws.
Tom Brown's certificate of incorporation limits the liability of Tom
Brown's directors (in their capacity as directors but not in their capacity as
officers) to Tom Brown or its stockholders. Specifically, Tom Brown's directors
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability for (a) any breach of the
director's duty of loyalty to Tom Brown or its stockholders, (b) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (d) any transaction from which the director derived an
improper personal benefit. In addition to the circumstances in which a director
is not personally liable as set forth in the preceding sentence, a director will
not be liable to the fullest extent permitted by any amendment to the Delaware
General Corporation Law hereafter enacted that further limits the liability of a
director.
Tom Brown's bylaws and certificate of incorporation provide that Tom Brown
shall indemnify its officers, directors, employees and agents to the full extent
permitted by law only if such indemnification
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with respect to any particular proceeding is authorized by Tom Brown's board of
directors. In addition, Tom Brown may pay expenses incurred in defending any
proceeding in advance of its final disposition if the indemnified person
undertakes to repay all amounts advanced if it should ultimately be determined
that such person was not entitled to indemnification.
Section 145 of the Delaware General Corporation Law, inter alia, authorizes
a corporation to indemnify any person who was or is a party or is threatened to
be made a party to any suit or proceeding (other than an action by or in the
right of the corporation) because such person is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation. Similarly, indemnity is authorized for such persons against
expenses (including attorneys' fees) actually and reasonably incurred in defense
or settlement of any pending, completed or threatened action or suit by or in
the right of a corporation, if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him.
Tom Brown is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (a) before that person
became an interested stockholder, the corporation's board of directors approved
the transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (b) upon completion of the
transaction that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (c) following the transaction in which that person became an interested
stockholder, the business combination is approved by the corporation's board of
directors and authorized at a meeting of stockholders by the affirmative vote of
the holders of at least two-thirds of the outstanding voting stock not owned by
the interested stockholder. Under Section 203, these restrictions also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who was not an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
that extraordinary transaction is approved or not opposed by a majority of the
directors who were directors before any person became an interested stockholder
in the previous three years or who were recommended for election or elected to
succeed such directors by a majority of such directors then in office. "Business
combination" includes mergers, assets sales and other transactions resulting in
a financial benefit to the stockholder. "Interested stockholder" is a person
who, together with affiliates and associates, owns (or, within three years, did
own) 15% or more of the corporation's voting stock.
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STOCKHOLDER RIGHTS PLAN
Tom Brown has a stockholder rights plan.
Under the rights plan, each right entitles the registered holder to
purchase from Tom Brown one-hundredth of a share of Tom Brown's Series B
Preferred Stock, $.10 par value (the "preferred shares"), at a price of $120 per
one one-hundredth of a preferred share, subject to adjustment.
Until the distribution date, the rights will be evidenced by the
certificates representing Tom Brown's common stock.
The rights will separate from the common stock, or a distribution date will
occur, upon the earlier of:
- 10 business days following a public announcement that a person or group
of affiliated or associated persons acquired beneficial ownership of 15%
or more of Tom Brown's outstanding common stock (an "acquiring person"),
subject to certain exceptions set forth in the rights plan, or
- 10 business days following the commencement or announcement of an
intention to make, a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of
15% or more of Tom Brown's common stock.
Until the distribution date, the rights will be transferred with and only
with Tom Brown's common stock. As soon as practicable following the distribution
date, separate certificates evidencing the rights will be mailed to holders of
record of Tom Brown's common stock as of the close of business on the
distribution date and such separate rights certificates alone will thereafter
evidence the rights.
The rights are not exercisable until the distribution date. The rights will
expire on March 1, 2011, unless the expiration date is extended or unless the
rights are earlier redeemed as described below.
The preferred shares purchasable upon exercise of the rights will be
nonredeemable. Each preferred share will have a minimum preferential quarterly
dividend rate of $1.00 per share, but will be entitled to an aggregate dividend
of 100 times the dividend, if any, declared on Tom Brown's common stock. In the
event of liquidation, the holders of the preferred shares will receive a
preferential liquidation payment of $100 per share, but will be entitled to
receive an aggregate liquidation payment equal to 100 times the payment made per
share of common stock. Each preferred share will have one hundred votes, voting
together with the common stock. Finally, in the event of any merger,
consolidation or other transaction in which common stock is exchanged, each
preferred share will be entitled to receive 100 times the amount received per
share of common stock.
Because of the nature of the preferred shares' dividend, liquidation and
voting rights, the value of one one-hundredth interest in a preferred share
purchasable upon exercise of each right should approximate the value of one
share of common stock.
The purchase price and the number of preferred shares or other securities
issuable upon exercise of the rights are subject to adjustment from time to time
to prevent dilution.
If, after any person becomes an acquiring person, Tom Brown was acquired in
a merger or other business combination transaction or more than 50% of Tom
Brown's consolidated assets, earning power or cash flow generation capacity were
sold, proper provision will be made so that each holder of a right will
thereafter have the right to receive upon the exercise thereof at the then
current purchase price of the right, that number of shares of common stock of
the acquiring company that at the time of such transaction would have a market
value of two times the purchase price of the right.
In the event any person becomes an acquiring person, each right then
outstanding would "flip-in" and become a right to buy that number of shares of
common stock that at the time of such acquisition would have a market value of
two times the exercise price of the right. The acquiring person who triggered
the rights would be excluded from the "flip-in" because his rights would have
become void upon his triggering acquisition.
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At anytime after a person has become an acquiring person and the acquiring
person owns less than 50% of Tom Brown's voting shares then outstanding, Tom
Brown's board of directors would have the option to issue shares of common stock
in exchange for the rights (other than rights owned by the acquiring person,
which would be void) at the rate of one share for each right.
At any time prior to a person becoming an acquiring person, Tom Brown's
board of directors may redeem the rights in whole, but not in part, at a price
of $.01 per right subject to adjustment. Immediately upon the action of Tom
Brown's board of directors ordering redemption of the rights, the right to
exercise the rights will terminate and the only right of the holders of rights
will be to receive the redemption price.
The terms of the rights may be amended by Tom Brown's board of directors
without the consent of the holders of the rights. However, from and after the
date that any person becomes an acquiring person, the rights may be amended by
Tom Brown's board of directors solely in order (1) to cure any ambiguity, (2) to
correct or supplement any defective or otherwise inconsistent provision in the
rights plan, (3) subject to certain restrictions, to shorten or lengthen any
time period or (4) to otherwise change or supplement the rights plan in a manner
that does not adversely affect the interests of the holders of the rights (other
than an acquiring person or an affiliate or associate of an acquiring person).
The amendment provision of the rights plan provides that the 15% threshold can
be lowered to not less than 10%; provided, however, that no person who then
beneficially owns a number of shares of common stock equal to or greater than
the reduced threshold shall be an acquiring person unless such person acquires
additional shares.
DESCRIPTION OF DEPOSITARY SHARES OF TOM BROWN
GENERAL
Tom Brown may offer fractional shares of preferred stock, rather than full
shares of preferred stock. If Tom Brown decides to offer fractional shares of
preferred stock, Tom Brown will issue receipts for depositary shares. Each
depositary share will represent a fraction of a share of a particular series of
preferred stock. A prospectus supplement will indicate that fraction. The shares
of preferred stock represented by depositary shares will be deposited under a
deposit agreement between Tom Brown and a depositary that is a bank or trust
company that meets certain requirements and is selected by Tom Brown. Each owner
of a depositary share will be entitled to all of the rights and preferences of
the preferred stock represented by the depositary share. The depositary shares
will be evidenced by depositary receipts issued pursuant to the deposit
agreement. Depositary receipts will be distributed to those persons purchasing
the fractional shares of preferred stock in accordance with the terms of the
offering.
We have summarized all material provisions of the deposit agreement and the
depositary receipts. The forms of the deposit agreement and the depositary
receipts relating to any particular issue of depositary shares will be filed
with the SEC on a Current Report on Form 8-K prior to Tom Brown's offering of
the depositary shares, and you should read such documents for provisions that
may be important to you.
DIVIDENDS AND OTHER DISTRIBUTIONS
If Tom Brown pays a cash distribution or dividend on a series of preferred
stock represented by depositary shares, the depositary will distribute such
dividends to the record holders of such depositary shares. If the distributions
are in property other than cash, the depositary will distribute the property to
the record holders of the depositary shares. If, however, the depositary
determines that it is not feasible to make the distribution of property, the
depositary may, with Tom Brown's approval, sell such property and distribute the
net proceeds from such sale to the holders of the preferred stock.
REDEMPTION OF DEPOSITARY SHARES
If Tom Brown redeems a series of preferred stock represented by depositary
shares, the depositary will redeem the depositary shares from the proceeds
received by the depositary in connection with the
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redemption. The redemption price per depositary share will equal the applicable
fraction of the redemption price per share of the preferred stock. If fewer than
all the depositary shares are redeemed, the depositary shares to be redeemed
will be selected by lot or pro rata as the depositary may determine.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the preferred
stock represented by depositary shares are entitled to vote, the depositary will
mail the notice to the record holders of the depositary shares relating to such
preferred stock. Each record holder of these depositary shares on the record
date, which will be the same date as the record date for the preferred stock,
may instruct the depositary as to how to vote the preferred stock represented by
such holder's depositary shares. The depositary will endeavor, insofar as
practicable, to vote the amount of the preferred stock represented by such
depositary shares in accordance with such instructions, and Tom Brown will take
all action that the depositary deems necessary in order to enable the depositary
to do so. The depositary will abstain from voting shares of the preferred stock
to the extent it does not receive specific instructions from the holders of
depositary shares representing such preferred stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may be amended by agreement between the
depositary and Tom Brown. Any amendment that materially and adversely alters the
rights of the holders of depositary shares will not, however, be effective
unless such amendment has been approved by the holders of at least a majority of
the depositary shares then outstanding. The deposit agreement may be terminated
by the depositary or Tom Brown only if (a) all outstanding depositary shares
have been redeemed or (b) there has been a final distribution in respect of the
preferred stock in connection with any liquidation, dissolution or winding up of
Tom Brown and such distribution has been distributed to the holders of
depositary receipts.
CHARGES OF DEPOSITARY
Tom Brown will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. Tom Brown will
pay charges of the depositary in connection with the initial deposit of the
preferred stock and any redemption of the preferred stock. Holders of depositary
receipts will pay other transfer and other taxes and governmental charges and
any other charges, including a fee for the withdrawal of shares of preferred
stock upon surrender of depositary receipts, as are expressly provided in the
deposit agreement to be for their accounts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of depositary receipts at the principal office of the
depositary, subject to the terms of the deposit agreement, the owner of the
depositary shares may demand delivery of the number of whole shares of preferred
stock and all money and other property, if any, represented by those depositary
shares. Partial shares of preferred stock will not be issued. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of whole
shares of preferred stock to be withdrawn, the depositary will deliver to such
holder at the same time a new depositary receipt evidencing the excess number of
depositary shares. Holders of preferred stock thus withdrawn may not thereafter
deposit those shares under the deposit agreement or receive depositary receipts
evidencing depositary shares therefor.
MISCELLANEOUS
The depositary will forward to holders of depositary receipts all reports
and communications from Tom Brown that are delivered to the depositary and that
Tom Brown is required to furnish to the holders of the preferred stock.
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Neither Tom Brown nor the depositary will be liable if Tom Brown is
prevented or delayed by law or any circumstance beyond its control in performing
its obligations under the deposit agreement. The obligations of the depositary
and Tom Brown under the deposit agreement will be limited to performance in good
faith of their duties thereunder, and Tom Brown will not be obligated to
prosecute or defend any legal proceeding in respect of any depositary shares or
preferred stock unless satisfactory indemnity is furnished. Tom Brown may rely
upon written advice of counsel or accountants, or upon information provided by
persons presenting preferred stock for deposit, holders of depositary receipts
or other persons believed to be competent and on documents believed to be
genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering notice to Tom Brown of
its election to do so, and Tom Brown may at any time remove the depositary. Any
such resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. Such successor depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least
$100,000,000.
DESCRIPTION OF SECURITIES WARRANTS OF TOM BROWN
Tom Brown may issue securities warrants for the purchase of debt
securities, preferred stock, depositary shares, common stock or other
securities. Securities warrants may be issued independently or together with
debt securities, preferred stock, depositary shares, common stock or other
securities offered by any prospectus supplement and may be attached to or
separate from any such offered securities. Each series of securities warrants
will be issued under a separate warrant agreement to be entered into between Tom
Brown and a bank or trust company, as warrant agent, all as set forth in a
prospectus supplement relating to the particular issue of securities warrants.
The securities warrant agent will act solely as Tom Brown's agent in connection
with the securities warrants and will not assume any obligation or relationship
of agency or trust for or with any holders of securities warrants or beneficial
owners of securities warrants.
We have summarized all material provisions of the securities warrant
agreements. A form of the applicable securities warrant agreement will be filed
with the SEC on Form 8-K prior to any offering of the applicable warrants, and
you should read such document for provisions that may be important to you. A
prospectus supplement relating to a particular issue of securities warrants will
contain the terms of and information relating to that issue of securities
warrants, including, where applicable:
- the designation, aggregate principal amount, currencies, denominations
and terms of the series of debt securities purchasable upon exercise of
securities warrants to purchase debt securities and the price at which
such debt securities may be purchased upon such exercise;
- the number of shares of common stock purchasable upon the exercise of
securities warrants to purchase common stock and the price at which such
number of shares of common stock may be purchased upon such exercise;
- the number of shares and series of preferred stock or depositary shares
purchasable upon the exercise of securities warrants to purchase
preferred stock or depositary shares and the price at which such number
of shares of such series of preferred stock or depositary shares may be
purchased upon such exercise;
- the designation and number of units of other securities purchasable upon
the exercise of securities warrants to purchase other securities and the
price at which such number of units of such other securities may be
purchased upon such exercise;
- the date on which the right to exercise such securities warrants shall
commence and the date on which such right shall expire;
- United States federal income tax consequences applicable to such
securities warrants;
19
- the amount of securities warrants outstanding as of the most recent
practicable date; and
- any other terms of such securities warrants.
Securities warrants will be issued in registered form only. The exercise
price for securities warrants will be subject to adjustment in accordance with a
prospectus supplement relating to the particular issue of securities warranties.
Each securities warrant will entitle the holder thereof to purchase such
principal amount of debt securities or such number of shares of common stock,
preferred stock, depositary shares or other securities at such exercise price as
shall in each case be set forth in, or calculable from, a prospectus supplement
relating to the securities warrants, which exercise price may be subject to
adjustment upon the occurrence of certain events as set forth in such prospectus
supplement. After the close of business on the expiration date, or such later
date to which such expiration date may be extended by Tom Brown, unexercised
securities warrants will become void. The place or places where, and the manner
in which, securities warrants may be exercised shall be specified in a
prospectus supplement relating to such securities warrants.
Prior to the exercise of any securities warrants to purchase debt
securities, common stock, preferred stock, depositary shares or other
securities, holders of such securities warrants will not have any of the rights
of holders of debt securities, common stock, preferred stock, depositary shares
or other securities, as the case may be, purchasable upon such exercise,
including the right to receive payments of principal of, premium, if any, or
interest, if any, on the debt securities purchasable upon such exercise or to
enforce covenants in any applicable indenture, or to receive payments of
dividends, if any, on the common stock, preferred stock or depositary shares
purchasable upon such exercise, or to exercise any applicable right to vote.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS OF TOM BROWN
Tom Brown may issue stock purchase contracts, including contracts
obligating holders to purchase from Tom Brown, and obligating Tom Brown to sell
to holders, a specified number of shares of common stock or other securities at
a future date or dates, which we refer to in this prospectus as "stock purchase
contracts." The price per share of the securities and the number of shares of
the securities may be fixed at the time the stock purchase contracts are issued
or may be determined by reference to a specific formula set forth in the stock
purchase contracts. The stock purchase contracts may be issued separately or as
part of units consisting of a stock purchase contract and debt securities,
preferred securities, warrants or debt obligations of third parties, including
U.S. treasury securities, securing the holders' obligations to purchase the
securities under the stock purchase contracts, which we refer to herein as
"stock purchase units." The stock purchase contracts may require holders to
secure their obligations under the stock purchase contracts in a specified
manner. The stock purchase contracts also may require Tom Brown to make periodic
payments to the holders of the stock purchase units or vice versa, and those
payments may be unsecured or refunded on some basis.
The applicable prospectus supplement will describe the terms of the stock
purchase contracts or stock purchase units and, if applicable, collateral or
depositary arrangements relating to the stock purchase contracts or stock
purchase units. In addition, the applicable prospectus supplement will set
forth:
- the names of the selling stockholders;
- the number of shares of common stock held by each of the selling
stockholders;
- the percentage of the outstanding common stock held by each of the
selling stockholders; and
- the number of shares of common stock offered by each of the selling
stockholders.
Material United States federal income tax considerations applicable to the stock
purchase units and the stock purchase contracts will also be discussed in the
applicable prospectus supplement.
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PLAN OF DISTRIBUTION
Any of the securities that may be offered by us pursuant to this prospectus
may be sold in or outside the United States through underwriters or dealers,
agents or directly to one or more purchasers, including Tom Brown's existing
stockholders in a rights offering. The prospectus supplement relating to any
offering of securities will include, to the extent required, the following
information:
- the terms of the offering;
- the names of any underwriters, dealers or agents;
- the name or names of any managing underwriter or underwriters;
- the purchase price of the securities from us;
- the net proceeds to us from the sale of the securities;
- any delayed delivery arrangements;
- any underwriting discounts, commissions and other items constituting
underwriters' compensation;
- any initial public offering price;
- any discounts or concessions allowed or reallowed or paid to dealers; and
- any commissions paid to agents.
If we use underwriters in the sale, the underwriters will acquire the
securities for their own account. The underwriters may resell the securities
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Underwriters may offer securities to the public either
through underwriting syndicates represented by one or more managing underwriters
or directly by one or more firms acting as underwriters. Unless we inform you
otherwise in the prospectus supplement, the obligations of the underwriters to
purchase the securities will be subject to certain conditions, and the
underwriters will be obligated to purchase all the offered securities if they
purchase any of them. The underwriters may change, from time to time, any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers.
If we use dealers in the sale of securities, the securities will be sold
directly to them as principals. They may then resell those securities to the
public at varying prices determined by the dealers at the time of resale.
We may sell the securities directly. In this case, no underwriters or
agents would be involved. Tom Brown may sell securities upon the exercise of
rights that Tom Brown may issue to its securityholders. We may sell the
securities directly to institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act with respect to any sale
of those securities.
We may sell the securities through agents we designate from time to time.
Unless we inform you otherwise in the prospectus supplement, any agent will
agree to use its reasonable best efforts to solicit purchases for the period of
its appointment.
If we so indicate in the prospectus supplement, we may authorize agents,
underwriters or dealers to solicit offers from certain types of institutions to
purchase securities from us, at the public offering price under delayed delivery
contracts. These contracts would provide for payment and delivery on a specified
date in the future. The contracts would be subject only to those conditions
described in the prospectus supplement. The prospectus supplement will describe
the commission payable for solicitation of those contracts.
We may have agreements with the agents, dealers and underwriters to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act, or to contribute with respect to payments that the agents,
dealers or underwriters may be required to make. Agents, dealers and
underwriters may be customers of, engage in transactions with or perform
services for us in the ordinary course of their business.
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LEGAL MATTERS
Vinson & Elkins L.L.P., Houston, Texas, has acted as our counsel in
connection with this offering and has issued a preliminary opinion regarding the
validity of the issuance of the securities offered by this prospectus. Stewart
McKelvey Stirling Scales, Halifax, Nova Scotia, Canada, has issued a preliminary
opinion regarding the debt securities offered by Tom Brown Resources with this
prospectus. Both opinions are exhibits to the registration statement of which
this prospectus forms a part. Legal counsel to any underwriters may pass upon
legal matters for such underwriters.
EXPERTS
The consolidated financial statements of Tom Brown, Inc. as of December 31,
2002, and for the year ended December 31, 2002, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing. The audit
report covering the December 31, 2002, consolidated financial statements refers
to a change in the method of accounting for goodwill and other intangible assets
in 2002, and the method of accounting for derivative instruments and hedging
activities in 2001.
The consent of Arthur Andersen LLP to the inclusion of its report regarding
the consolidated financial statements of Tom Brown with respect to periods prior
to 2002, incorporated in this prospectus and elsewhere in this registration
statement by reference, is omitted pursuant to the Securities Act Rule 437a. In
June of 2002, Arthur Andersen LLP was convicted of obstructing justice, which is
a felony offense. The SEC prohibits firms convicted of a felony from auditing
public companies. Arthur Anderson LLP is thus unable to deliver a consent with
respect to such financial statements. Because Arthur Andersen LLP has not
consented to the inclusion of their report in this prospectus, you will not be
able to recover against Arthur Andersen LLP under Section 11 of the Securities
Act for any untrue statement of a material fact contained in the financial
statements audited by Arthur Andersen LLP or any omissions to state a material
fact required to be stated therein.
The estimated reserve evaluations and related calculations, which were
prepared by our petroleum engineering staff and reviewed by Ryder Scott Company,
L.P., independent petroleum engineering consultants, incorporated by reference
in this prospectus have been incorporated by reference in reliance on the
authority of said firm as experts in petroleum engineering.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a joint registration statement with the SEC; however, we did
not include separate financial statements of Tom Brown Resources in this
prospectus because:
- all of the voting rights of Tom Brown Resources are owned by Tom Brown
directly, and Tom Brown files regular reports with the SEC;
- Tom Brown Resources has no operations other than transferring funds to
Tom Brown's subsidiaries; and
- Tom Brown will fully and unconditionally guarantee Tom Brown Resources'
obligations and the rights of holders.
Each time we offer to sell securities, whether by Tom Brown or Tom Brown
Resources, we will provide a prospectus supplement that will contain specific
information about the terms of that offering, including any guarantees. The
prospectus supplement may also add, update or change information contained in
this prospectus. This prospectus, together with the applicable prospectus
supplement, will include or refer you to all material information relating to
each offering.
Tom Brown files annual, quarterly and current reports, proxy statements and
other information with the SEC (File No. 001-31308). Tom Brown's SEC filings are
available to the public over the Internet at
22
the SEC's web site at http://www.sec.gov. You may also read and copy at
prescribed rates any document Tom Brown files at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the SEC's public reference room by calling the SEC at
1-800-SEC-0330.
Tom Brown Resources is not required to file periodic and other documents
under the Securities Exchange Act of 1934. Tom Brown does not intend to include
in its consolidated financial statements any separate financial information
regarding Tom Brown Resources. Also, in view of Tom Brown's guarantees, Tom
Brown Resources does not intend to furnish holders of its debt securities with
separate financial statements or other reports.
Tom Brown's common stock is listed on the New York Stock Exchange under the
symbol "TBI." Tom Brown's reports, proxy statements and other information may be
read and copied at the NYSE at 20 Broad Street, 7th Floor, New York, New York
10005.
The SEC allows us to "incorporate by reference" the information Tom Brown
files with them, which means that we can disclose important information to you
by referring you to other documents. The information incorporated by reference
is an important part of this prospectus, and information that Tom Brown files
later with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and all documents Tom Brown
subsequently files with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until we sell all of the securities described in this prospectus or
we terminate this offering:
- Tom Brown's annual report on Form 10-K, as amended, for the year ended
December 31, 2002, filed with the SEC on August 5, 2003;
- Tom Brown's quarterly report on Form 10-Q for the quarter ended June 30,
2003, filed with the SEC on August 14, 2003;
- Tom Brown's quarterly report on Form 10-Q, as amended, for the quarter
ended March 31, 2003, filed with the SEC on August 5, 2003;
- Tom Brown's current report on Form 8-K, filed with the SEC on August 14,
2003;
- Tom Brown's current report on Form 8-K, as amended, filed with the SEC on
August 1, 2003;
- Tom Brown's current report on Form 8-K, filed with the SEC on July 11,
2003;
- Tom Brown's current report on Form 8-K, filed with the SEC on July 7,
2003;
- Tom Brown's current report on Form 8-K, filed with the SEC on June 18,
2003;
- Tom Brown's current report on Form 8-K, filed with the SEC on May 16,
2003;
- Tom Brown's current report on Form 8-K, filed with the SEC on May 9,
2003;
- Tom Brown's current reports on Forms 8-K, filed with the SEC on February
25, 2003; and
- the description of Tom Brown's common stock and attached preferred share
purchase rights contained in Tom Brown's Form 8-A registration statement,
filed with the SEC on April 29, 2002.
23
You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing),
at no cost, by writing to us at the following address or calling the following
number:
Tom Brown, Inc.
Attention: Corporate Secretary
555 Seventeenth Street
Suite 1850
Denver, Colorado
(303) 260-5000
You should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized any dealer, salesman or other person to provide you with additional
or different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement or in any document
incorporated by reference in this prospectus or any prospectus supplement is
accurate as of any date other than the date of the document containing the
information.
24
PROSPECTUS
(TOM BROWN INC. LOGO)
TOM BROWN, INC.
5,800,000 SHARES
COMMON STOCK
---------------------
This prospectus relates to the offer and sale from time to time of up to an
aggregate of 5,800,000 shares of our common stock for the account of the selling
stockholder referred to in this prospectus. We will not receive any of the
proceeds from the sale of shares of common stock by the selling stockholder. Our
common stock is listed on the New York Stock Exchange under the symbol "TBI."
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This prospectus is dated August 20, 2003.
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... i
About Tom Brown............................................. 1
Use of Proceeds............................................. 1
Description of Common Stock and Preferred Stock............. 1
Selling Stockholder......................................... 5
Plan of Distribution........................................ 6
Legal Matters............................................... 8
Experts..................................................... 8
Where You Can Find More Information......................... 8
---------------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we and one of our
subsidiaries filed with the Securities and Exchange Commission, which we refer
to as the "SEC," using a "shelf" registration process. Under this shelf
registration process, the selling stockholder may, over time, offer and sell the
common stock described in this prospectus in one or more offerings. This
prospectus provides you with a general description of the common stock the
selling stockholder may offer. If required, each time the selling stockholder
offers common stock, we will provide one or more prospectus supplements that
will contain specific information about the terms of that offering. A prospectus
supplement may also add, update or change information contained in this
prospectus. Any statement that we make in this prospectus will be modified or
superseded by any inconsistent statement made by us in a prospectus supplement.
You should read both this prospectus and any prospectus supplement together with
the additional information described under the heading "Where You Can Find More
Information."
Unless the context requires otherwise or unless otherwise noted, all
references in this prospectus or any prospectus supplement to "Tom Brown," "we,"
"us" or "our" are to Tom Brown, Inc. and its subsidiaries.
i
ABOUT TOM BROWN
Tom Brown is engaged primarily in the exploration for, and the acquisition,
development, production, marketing, and sale of, natural gas, natural gas
liquids and crude oil in North America. Our activities are conducted principally
in the Wind River and Green River Basins of Wyoming, the Piceance Basin of
Colorado, the Paradox Basin of Utah and Colorado, the Val Verde Basin and
Permian Basin of west Texas and southeastern New Mexico, the east Texas Basin
and the western Canadian Sedimentary Basin. We also, to a lesser extent, conduct
exploration and development activities in other areas of the continental United
States and Canada.
Our executive offices are located at 555 Seventeenth Street, Suite 1850,
Denver, Colorado 80202, and the telephone number there is (303) 260-5000. We
maintain a website on the Internet at http://www.tombrown.com. Unless
specifically incorporated by reference in this prospectus, information that you
may find on our website is not part of this prospectus.
USE OF PROCEEDS
This prospectus relates to the offer and sale from time to time of up to an
aggregate of 5,800,000 shares of common stock for the account of the selling
stockholder referred to in this prospectus. We will not receive any proceeds
from the sale of any shares of common stock by the selling stockholder.
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK
Our authorized capital stock currently consists of 55,000,000 shares of
common stock, $.10 par value per share, and 2,500,000 shares of preferred stock,
$.10 par value per share. We have summarized all material information relating
to our capital stock. For a detailed description, reference is made to our
certificate of incorporation.
COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the symbol
"TBI." As of August 20, 2003, 39,564,497 shares of common stock were issued and
held of record by approximately 1,727 holders.
Holders of shares of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights with respect to the election of directors. Holders of
common stock have no preemptive rights and are entitled to such dividends as may
be declared by our board of directors out of legally available funds. The common
stock is not entitled to any sinking fund, redemption or conversion provisions.
If we liquidate, dissolve, or wind up our business, the holders of common stock
will be entitled to share ratably in our net assets remaining after the payment
of all creditors and the liquidation preferences of any preferred stock. The
outstanding shares of common stock are, and additional shares of common stock
that we issue will be, fully paid and non-assessable. We have never paid any
cash dividends and do not intend to pay any cash dividends on the common stock
in the foreseeable future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock, as well as the
rights agent under our rights plan, is EquiServe Trust Company, N.A.
PREFERRED STOCK
Our certificate of incorporation authorizes our board to issue up to
2,500,000 shares of preferred stock without stockholder approval and to set the
rights, preferences and other designations, including voting rights, of those
shares as our board of directors may determine. These provisions, alone or in
combination with each other and with the stockholder rights plan described
below, may discourage transactions
involving actual or potential changes of control of Tom Brown, including
transactions that otherwise could involve payment of a premium over prevailing
market prices to holders of common stock.
SPECIAL PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW
Our certificate of incorporation and bylaws contain provisions that may
have the effect of delaying, deferring or preventing a change in control of Tom
Brown. These provisions, among other things, provide for noncumulative voting in
the election of directors, impose certain procedural requirements on
stockholders who wish to make nomination for the election of directors or
propose other actions at stockholders' meetings and two-thirds voting
requirements for the amendment of certain provisions of our bylaws.
Our certificate of incorporation limits the liability of our directors (in
their capacity as directors but not in their capacity as officers) to us or our
stockholders. Specifically, our directors will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability for (a) any breach of the director's duty of loyalty to Tom Brown
or our stockholders, (b) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (c) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (d) any transaction from which
the director derived an improper personal benefit. In addition to the
circumstances in which a director is not personally liable as set forth in the
preceding sentence, a director will not be liable to the fullest extent
permitted by any amendment to the Delaware General Corporation Law hereafter
enacted that further limits the liability of a director.
Our bylaws and certificate of incorporation provide that we shall indemnify
our officers, directors, employees and agents to the full extent permitted by
law only if such indemnification with respect to any particular proceeding is
authorized by our board of directors. In addition, we may pay expenses incurred
in defending any proceeding in advance of its final disposition if the
indemnified person undertakes to repay all amounts advanced if it should
ultimately be determined that such person was not entitled to indemnification.
Section 145 of the Delaware General Corporation Law, inter alia, authorizes
a corporation to indemnify any person who was or is a party or is threatened to
be made a party to any suit or proceeding (other than an action by or in the
right of the corporation) because such person is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation. Similarly, indemnity is authorized for such persons against
expenses (including attorneys' fees) actually and reasonably incurred in defense
or settlement of any pending, completed or threatened action or suit by or in
the right of a corporation, if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the
2
person became an interested stockholder, unless (a) before that person became an
interested stockholder, the corporation's board of directors approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (b) upon completion of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (c) following the transaction in which that person became an interested
stockholder, the business combination is approved by the corporation's board of
directors and authorized at a meeting of stockholders by the affirmative vote of
the holders of at least two-thirds of the outstanding voting stock not owned by
the interested stockholder. Under Section 203, these restrictions also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who was not an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
that extraordinary transaction is approved or not opposed by a majority of the
directors who were directors before any person became an interested stockholder
in the previous three years or who were recommended for election or elected to
succeed such directors by a majority of such directors then in office. "Business
combination" includes mergers, assets sales and other transactions resulting in
a financial benefit to the stockholder. "Interested stockholder" is a person
who, together with affiliates and associates, owns (or, within three years, did
own) 15% or more of the corporation's voting stock.
STOCKHOLDER RIGHTS PLAN
We have a stockholder rights plan.
Under the rights plan, each right entitles the registered holder to
purchase from us one-hundredth of a share of our Series B Preferred Stock, $.10
par value (the "preferred shares"), at a price of $120 per one one-hundredth of
a preferred share, subject to adjustment.
Until the distribution date, the rights will be evidenced by the
certificates representing our common stock.
The rights will separate from the common stock, or a distribution date will
occur, upon the earlier of:
- 10 business days following a public announcement that a person or group
of affiliated or associated persons acquired beneficial ownership of 15%
or more of our outstanding common stock (an "acquiring person"), subject
to certain exceptions set forth in the rights plan, or
- 10 business days following the commencement or announcement of an
intention to make, a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of
15% or more of our common stock.
Until the distribution date, the rights will be transferred with and only
with our common stock. As soon as practicable following the distribution date,
separate certificates evidencing the rights will be mailed to holders of record
of our common stock as of the close of business on the distribution date and
such separate rights certificates alone will thereafter evidence the rights.
The rights are not exercisable until the distribution date. The rights will
expire on March 1, 2011, unless the expiration date is extended or unless the
rights are earlier redeemed as described below.
The preferred shares purchasable upon exercise of the rights will be
nonredeemable. Each preferred share will have a minimum preferential quarterly
dividend rate of $1.00 per share, but will be entitled to an aggregate dividend
of 100 times the dividend, if any, declared on our common stock. In the event of
liquidation, the holders of the preferred shares will receive a preferential
liquidation payment of $100 per share, but will be entitled to receive an
aggregate liquidation payment equal to 100 times the payment made per share of
common stock. Each preferred share will have one hundred votes, voting together
with
3
the common stock. Finally, in the event of any merger, consolidation or other
transaction in which common stock is exchanged, each preferred share will be
entitled to receive 100 times the amount received per share of common stock.
Because of the nature of the preferred shares' dividend, liquidation and
voting rights, the value of one one-hundredth interest in a preferred share
purchasable upon exercise of each right should approximate the value of one
share of common stock.
The purchase price and the number of preferred shares or other securities
issuable upon exercise of the rights are subject to adjustment from time to time
to prevent dilution.
If, after any person becomes an acquiring person, we were acquired in a
merger or other business combination transaction or more than 50% of our
consolidated assets, earning power or cash flow generation capacity were sold,
proper provision will be made so that each holder of a right will thereafter
have the right to receive upon the exercise thereof at the then current purchase
price of the right, that number of shares of common stock of the acquiring
company that at the time of such transaction would have a market value of two
times the purchase price of the right.
In the event any person becomes an acquiring person, each right then
outstanding would "flip-in" and become a right to buy that number of shares of
common stock that at the time of such acquisition would have a market value of
two times the exercise price of the right. The acquiring person who triggered
the rights would be excluded from the "flip-in" because his rights would have
become void upon his triggering acquisition.
At anytime after a person has become an acquiring person and the acquiring
person owns less than 50% of our voting shares then outstanding, our board of
directors would have the option to issue shares of common stock in exchange for
the rights (other than rights owned by the acquiring person, which would be
void) at the rate of one share for each right.
At any time prior to a person becoming an acquiring person, our board of
directors may redeem the rights in whole, but not in part, at a price of $.01
per right subject to adjustment. Immediately upon the action of our board of
directors ordering redemption of the rights, the right to exercise the rights
will terminate and the only right of the holders of rights will be to receive
the redemption price.
The terms of the rights may be amended by our board of directors without
the consent of the holders of the rights. However, from and after the date that
any person becomes an acquiring person, the rights may be amended by our board
of directors solely in order (1) to cure any ambiguity, (2) to correct or
supplement any defective or otherwise inconsistent provision in the rights plan,
(3) subject to certain restrictions, to shorten or lengthen any time period or
(4) to otherwise change or supplement the rights plan in a manner that does not
adversely affect the interests of the holders of the rights (other than an
acquiring person or an affiliate or associate of an acquiring person). The
amendment provision of the rights plan provides that the 15% threshold can be
lowered to not less than 10%; provided, however, that no person who then
beneficially owns a number of shares of common stock equal to or greater than
the reduced threshold shall be an acquiring person unless such person acquires
additional shares.
4
SELLING STOCKHOLDER
On July 14, 2003, we received notice from Chicago Carbon Company, the
selling stockholder, that Chicago Carbon was exercising certain of its rights
under the stock rights agreement described below by requesting that we register
under the registration statement of which this prospectus is a part all shares
of Tom Brown common stock held by Chicago Carbon. Accordingly, this prospectus
relates to the offer and sale of up to 5,800,000 shares of our common stock by
the selling stockholder and certain of its donees, pledgees, transferees and
successors-in-interest.
The following table sets forth certain information with respect to the
beneficial ownership of our common stock by the selling stockholder as of August
20, 2003. Beneficial ownership is calculated based on 39,564,497 shares of our
common stock outstanding as of August 20, 2003.
SHARES OWNED SHARES OWNED
SHARES BEFORE OFFERING AFTER OFFERING(1)
OFFERED ------------------- ------------------
NAME OF SELLING STOCKHOLDER HEREBY NUMBER PERCENT NUMBER PERCENT
--------------------------- --------- --------- ------- ------- --------
Chicago Carbon....................... 5,800,000 5,800,000 14.65% -- --
---------------
(1) Assumes the sale of all shares of common stock offered by this prospectus
and no other purchases or sales of our common stock by the selling
stockholder. If the selling stockholder does not sell all of the shares of
common stock offered by this prospectus, actual ownership after the offering
will be higher than this table reflects.
We, Union Oil Company of California and Chicago Carbon, an indirect, wholly
owned subsidiary of Union Oil Company, are parties to a stock ownership and
registration rights agreement, dated as of June 29, 1999 and amended as of
September 30, 1999. The stock rights agreement affords Chicago Carbon certain
rights, including the right to: (i) require us to undertake, from time to time,
the registration with the SEC of some or all of the shares of common stock
Chicago Carbon owns, subject to customary limitations as set forth in the stock
rights agreement; (ii) request that some or all of the shares of common stock
owned by Chicago Carbon be included with other shares of common stock that we
propose to register with the SEC, whether such registration relates to a primary
or secondary offering or an offering of shares of common stock under a universal
shelf registration statement, subject to customary limitations as set forth in
the stock rights agreement; and (iii) acquire as many shares of common stock as
may be required to maintain Chicago Carbon's then current ownership percentage
if we sell or transfer additional shares of common stock that would otherwise
dilute that percentage.
Pursuant to the stock rights agreement, Union Oil Company is currently
entitled to appoint one of our directors; Union Oil Company's current designated
director is Mr. Kenneth Butler.
We will pay all expenses incurred in connection with the registration of
the common stock owned by Chicago Carbon, excluding underwriting discounts and
commissions.
5
PLAN OF DISTRIBUTION
The selling stockholder may offer and sell shares of our common stock from
time to time with this prospectus. We will not receive any of the proceeds of
the sales of these shares.
WHO MAY SELL AND APPLICABLE RESTRICTIONS
The selling stockholder may offer and sell shares with this prospectus
directly to purchasers. The selling stockholder may donate, pledge or otherwise
transfer its shares to any person so long as the transfer complies with
applicable securities laws. As a result, donees, pledgees, transferees and other
successors in interest that receive such shares as a gift, distribution or other
non-sale related transfer may offer shares of common stock under this
prospectus.
The selling stockholder may from time to time offer shares through brokers,
dealers or agents. Brokers, dealers, agents or underwriters participating in
transactions may receive compensation in the form of discounts, concessions or
commissions from the selling stockholder (and, if they act as agent for the
purchaser of the shares, from that purchaser). The discounts, concessions or
commissions may be in excess of those customary in the type of transaction
involved. Any brokerage commissions and similar selling expenses attributable to
the sale of shares covered by this prospectus will be borne by the selling
stockholder. To comply with some state securities laws, the shares may be sold
in those jurisdictions only through registered or licensed brokers or dealers.
The selling stockholder and any brokers, dealers or agents who participate
in the distribution of the shares may be deemed to be underwriters, and any
profits on the sale of shares by them and any discounts, commissions or
concessions received by any broker, dealer or agent may be deemed underwriting
discounts and commissions under the Securities Act of 1933.
PROSPECTUS DELIVERY
A prospectus supplement or a post-effective amendment may be filed with the
SEC to disclose additional information with respect to the distribution of the
shares. In particular, if we receive notice from the selling stockholder that a
donee, pledgee, transferee or other successor intends to sell more than 500
shares of our common stock, or that the selling stockholder has entered into a
material arrangement with an underwriter or broker-dealer for the sale of shares
covered by this prospectus, then to the extent required we will file a
supplement to this prospectus.
MANNER OF SALES
The selling stockholder may act independently of us in making decisions
with respect to the timing, manner and size of each sale. Sales may be made on
the New York Stock Exchange or any other national securities exchange or
quotation service on which the securities may be listed or quoted at the time of
sale. The shares may be sold at then prevailing market prices, at prices related
to prevailing market prices, at fixed prices or at other negotiated prices.
The shares may be sold according to one or more of the following methods:
- a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the broker or
dealer for its account as allowed under this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- pledges of shares to a broker-dealer or other person, who may, in the
event of default, purchase or sell the pledged shares;
- an exchange distribution under the rules of the exchange;
6
- face-to-face transactions between sellers and purchasers without a
broker-dealer;
- transactions directly with a market-maker;
- through the writing of options; and
- any other method permitted pursuant to applicable law.
In addition, the selling stockholder may generally enter into option,
derivative or hedging transactions with respect to the shares, and any related
offers or sales of shares may be made under this prospectus. The selling
stockholder may, for example:
- enter into transactions involving short sales of the shares by
broker-dealers in the course of hedging the positions they assume with
the selling stockholder;
- sell shares short and deliver the shares registered hereby to settle such
short sales or to close out stock loans incurred in connection with its
short positions;
- write call options, put options or other derivative instruments
(including exchange-traded options or privately negotiated options) with
respect to the shares, or which it settles through delivery of the
shares;
- enter into option transactions or other types of transactions that
require the selling stockholder to deliver shares to a broker, dealer or
other financial institution, who may then resell or transfer the shares
under this prospectus; or
- loan or pledge the shares to a broker, dealer or other financial
institution, who may sell the loaned shares.
These option, derivative and hedging transactions may require the delivery
to a broker, dealer or other financial institution of shares offered under this
prospectus, and that broker, dealer or other financial institution may resell
those shares under this prospectus.
If a material arrangement with any broker-dealer or other agent is entered
into for the sale of any shares of common stock through a block trade, special
offering, exchange distribution, secondary distribution, or a purchase by a
broker or dealer, a prospectus supplement will be filed, if necessary, pursuant
to Rule 424(b) under the Securities Act disclosing the material terms and
conditions of these arrangements.
The selling stockholder may also sell its shares in accordance with Rule
144 under the Securities Act, or pursuant to other available exemptions from the
registration requirements of the Securities Act, rather than pursuant to this
prospectus.
Under the Securities Exchange Act of 1934, any person engaged in the
distribution of the shares of common stock may not simultaneously engage in
market-making activities with respect to common stock for five business days
prior to the start of the distribution. In addition, the selling stockholder and
any other person participating in a distribution will be subject to the Exchange
Act, which may limit the timing of purchases and sales of common stock by the
selling stockholder or any other person.
INDEMNIFICATION
The selling stockholder may agree to indemnify any broker-dealer or agent
that participates in transactions involving sales of the shares against some
liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholder against certain
liabilities, including certain liabilities under the Securities Act.
7
LEGAL MATTERS
Vinson & Elkins L.L.P., Houston, Texas, has issued a preliminary opinion
regarding the validity of the issuance of the shares of common stock offered by
this prospectus, which opinion is an exhibit to the registration statement of
which this prospectus forms a part. Legal counsel to any underwriters may pass
upon legal matters for such underwriters.
EXPERTS
The consolidated financial statements of Tom Brown, Inc. as of December 31,
2002, and for the year ended December 31, 2002, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing. The audit
report covering the December 31, 2002, consolidated financial statements refers
to a change in the method of accounting for goodwill and other intangible assets
in 2002, and the method of accounting for derivative instruments and hedging
activities in 2001.
The consent of Arthur Andersen LLP to the inclusion of its report regarding
the consolidated financial statements of Tom Brown with respect to periods prior
to 2002, incorporated in this prospectus and elsewhere in this registration
statement by reference, is omitted pursuant to the Securities Act Rule 437a. In
June of 2002, Arthur Andersen LLP was convicted of obstructing justice, which is
a felony offense. The SEC prohibits firms convicted of a felony from auditing
public companies. Arthur Anderson LLP is thus unable to deliver a consent with
respect to such financial statements. Because Arthur Andersen LLP has not
consented to the inclusion of their report in this prospectus, you will not be
able to recover against Arthur Andersen LLP under Section 11 of the Securities
Act for any untrue statement of a material fact contained in the financial
statements audited by Arthur Andersen LLP or any omissions to state a material
fact required to be stated therein.
The estimated reserve evaluations and related calculations, which were
prepared by our petroleum engineering staff and reviewed by Ryder Scott Company,
L.P., independent petroleum engineering consultants, incorporated by reference
in this prospectus have been incorporated by reference in reliance on the
authority of said firm as experts in petroleum engineering.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC (File No. 001-31308). Our SEC filings are available to
the public over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy at prescribed rates any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the SEC's public reference room by
calling the SEC at 1-800-SEC-0330.
Our common stock is listed on the New York Stock Exchange under the symbol
"TBI." Our reports, proxy statements and other information may be read and
copied at the NYSE at 20 Broad Street, 7th Floor, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to other documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and all documents we subsequently file
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until
all of the securities described in this prospectus are sold or this offering is
terminated:
- our annual report on Form 10-K, as amended, for the year ended December
31, 2002, filed with the SEC on August 5, 2003;
8
- our quarterly report on Form 10-Q for the quarter ended June 30, 2003,
filed with the SEC on August 14, 2003;
- our quarterly report on Form 10-Q, as amended, for the quarter ended
March 31, 2003, filed with the SEC on August 5, 2003;
- our current report on Form 8-K, filed with the SEC on August 14, 2003;
- our current report on Form 8-K, as amended, filed with the SEC on August
1, 2003;
- our current report on Form 8-K, filed with the SEC on July 11, 2003;
- our current report on Form 8-K, filed with the SEC on July 7, 2003;
- our current report on Form 8-K, filed with the SEC on June 18, 2003;
- our current report on Form 8-K, filed with the SEC on May 16, 2003;
- our current report on Form 8-K, filed with the SEC on May 9, 2003;
- our current reports on Forms 8-K, filed with the SEC on February 25,
2003; and
- the description of our common stock and attached preferred share purchase
rights contained in our Form 8-A registration statement, filed with the
SEC on April 29, 2002.
You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing),
at no cost, by writing to us at the following address or calling the following
number:
Tom Brown, Inc.
Attention: Corporate Secretary
555 Seventeenth Street
Suite 1850
Denver, Colorado
(303) 260-5000
You should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized any dealer, salesman or other person to provide you with additional
or different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement or in any document
incorporated by reference in this prospectus or any prospectus supplement is
accurate as of any date other than the date of the document containing the
information.
9
9,500,000 SHARES
(TOM BROWN, INC. LOGO)
TOM BROWN, INC.
COMMON STOCK
PROSPECTUS SUPPLEMENT
September 10, 2003