SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Tom Brown, Inc.
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(Name of Registrant as Specified In Its Charter)
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[TOM BROWN, INC.LOGO]
TOM BROWN, INC.
555 SEVENTEENTH STREET, SUITE 1850
DENVER, COLORADO 80202
(303) 260-5000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 2002
Dear Stockholder:
On behalf of the Board of Directors, you are cordially invited to attend
the 2002 Annual Meeting of Stockholders of Tom Brown, Inc., a Delaware
corporation (the "Company"), to be held in the Moulin Rouge Room located on the
first floor of the Hyatt Regency Hotel, 1750 Welton Street, Denver, Colorado at
9:00 a.m., Mountain Time, on Thursday, May 9, 2002, for the following purposes:
- To elect nine directors and
- To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors fixed the close of business on March 12, 2002 as the
record date for determining stockholders entitled to notice of and to vote at
the meeting. Only stockholders of record at the close of business on that date
are entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof. A list of stockholders entitled to vote at the meeting
will be available at the Company's offices in Denver, Colorado for a period of
at least ten days prior to the meeting for examination during ordinary business
hours by any stockholder for any purpose germane to the meeting.
Your vote is important regardless of the number of shares you may own. The
Company urges you to date, sign and promptly return your proxy so that your
shares may be voted in accordance with your wishes and in order that the
presence of a quorum may be assured. The prompt return of your signed proxy will
aid the Company in reducing the expense of additional proxy solicitation. The
giving of such proxy does not affect your right to vote in person if you attend
the meeting.
By Order of the Board of Directors
[/S/ BRUCE R. DEBOER]
BRUCE R. DEBOER
Secretary
April 1, 2002
TOM BROWN, INC.
555 SEVENTEENTH STREET, SUITE 1850
DENVER, COLORADO 80202
(303) 260-5000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 2002
PROXY SOLICITATION
This statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Tom Brown, Inc., a Delaware corporation (the
"Company"), of proxies to be voted at the Company's Annual Meeting of
Stockholders to be held in the Moulin Rouge Room located on the first floor of
the Hyatt Regency Hotel, 1750 Welton Street, Denver, Colorado at 9:00 a.m.,
Mountain Time, on May 9, 2002, or at any adjournment or postponement thereof
(the "Annual Meeting"). This Proxy Statement and form of proxy included herewith
are first being sent to stockholders on or about April 1, 2002.
If the enclosed proxy is properly executed and returned, the shares
represented by the proxy will be voted at the Annual Meeting. If a stockholder
indicates in the proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with such choice. If no choice is indicated,
the shares will be voted "FOR" the director nominees. A stockholder giving a
proxy may revoke it by giving written notice of revocation to the Secretary of
the Company at any time before it is voted, by executing another valid proxy
bearing a later date and delivering such proxy to the Secretary of the Company
prior to or at the Annual Meeting, or by attending the Annual Meeting and voting
in person.
PERSONS MAKING THE SOLICITATION
This proxy is solicited on behalf of the Board. The initial solicitation
will be by mail. The total expense of solicitation will be borne by the Company
and will include reimbursement paid to brokerage firms and others for their
expenses in forwarding solicitation material regarding the Annual Meeting to
beneficial owners of the Company's stock. Further solicitation of proxies may be
made by mail, telephone or oral communication with some stockholders of the
Company following the original solicitation. All such further solicitation will
be made by the Board or consultants currently retained by the Company or
employees of the Company, who will not be additionally compensated therefor, or
by the Company's transfer agent in which case the cost will be borne by the
Company.
STOCKHOLDERS ENTITLED TO VOTE
Holders of the Company's common stock, $.10 par value per share ("Common
Stock"), of record at the close of business on March 12, 2002 (the "Record
Date") will be entitled to vote at the Annual Meeting. As of the Record Date,
there were issued and outstanding 39,158,124 shares of Common Stock. Each share
of Common Stock entitles its owner to one vote. Cumulative voting is not
authorized.
The holders of a majority of the issued and outstanding shares of Common
Stock entitled to vote, whether present in person or represented by proxy,
constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business. A broker non-vote occurs when a nominee holding shares
of the Company's Common Stock for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received instructions from the beneficial
owner. Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders, whereas broker non-votes are not counted for purposes
of determining whether a proposal has been approved.
Assuming the presence of a quorum, the affirmative vote of the holders of a
majority of the shares of Common Stock and represented in person or by proxy at
the Annual Meeting is required for the election of the nine nominees for
director.
The proxy confers discretionary authority on the persons named therein to
vote with respect to the election of any person as a director where the nominee
is unable to serve and matters incident to the conduct of the Annual Meeting,
including matters of which the Company did not receive notice until after
February 19, 2002.
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
Directors of the Company are elected annually by the stockholders to serve
until the next annual meeting of stockholders and until their successors are
duly elected and qualified. The number of directors is established from time to
time by resolution of the Board. The current authorized number of directors is
nine, which includes one director nominee designated by Union Oil Company of
California ("Unocal"), the beneficial owner of 5.8 million shares of the
Company's Common Stock, pursuant to that certain Stock Ownership and
Registration Rights Agreement between Unocal and the Company dated June 29, 1999
(the "Stock Rights Agreement").
DIRECTOR NOMINEES
The nominees were elected directors of the Company at the last annual
meeting of stockholders. The Board is recommending that the nine nominees listed
below be elected to hold office until the 2003 annual meeting of stockholders
and until their respective successors have been duly elected and qualified. If
any nominee becomes unavailable for any reason, a substitute nominee may be
proposed by the Board and the shares represented by proxy will be voted for such
substitute nominee, unless the Board elects to reduce the number of directors.
The nominees listed below have consented to being nominated and to serve if
elected. THE BOARD RECOMMENDS VOTING "FOR" THE ELECTION OF THE FOLLOWING
DIRECTOR NOMINEES:
DIRECTOR
NOMINEE AGE POSITION WITH COMPANY AND PRINCIPAL OCCUPATION SINCE
------- --- ---------------------------------------------- --------
Thomas C. Brown....................... 75 Director of the Company; Chairman of the Board 1968
and Chief Executive Officer of TMBR/Sharp
Drilling, Inc.
Kenneth B. Butler..................... 48 Director of the Company; Vice President of 2000
Unocal Gulf Region USA, a business unit of
Union Oil Company of California
David M. Carmichael................... 63 Director of the Company (currently and 1996
1985-1986); Director of Ensco International
Inc.; former Chairman of the Board, Chief
Executive Officer and President of American
Oil and Gas Corporation; former Director of KN
Energy, Inc.
Henry Groppe.......................... 76 Director of the Company; Partner in oil and 1989
gas consulting firm of Groppe, Long & Littell
Edward W. LeBaron, Jr. ............... 72 Director of the Company; Partner in LeBaron 1968
Ranches L.P.; Retired partner Pillsbury &
Winthrop law firm
James D. Lightner..................... 49 Director, President and Chief Executive 2000
Officer of the Company
2
DIRECTOR
NOMINEE AGE POSITION WITH COMPANY AND PRINCIPAL OCCUPATION SINCE
------- --- ---------------------------------------------- --------
Wayne W. Murdy........................ 57 Director of the Company; Director, Chairman of 2001
the Board and Chief Executive Officer of
Newmont Mining Corporation
James B. Wallace...................... 73 Director and Chairman of the Board of the 1992
Company; Partner in Brownlie, Wallace,
Armstrong and Bander Exploration
Robert H. Whilden, Jr. ............... 66 Director of the Company; Senior Vice 1989
President, General Counsel and Secretary of
BMC Software, Inc.; Director of W-H Energy
Services, Inc.
OTHER INFORMATION ABOUT THE BOARD
The Board held seven meetings during 2001 and action was also taken by
unanimous written consent on three occasions. During 2001, each incumbent
director attended at least 75% of the total number of meetings of the Board or
committees of the Board on which he served for the period during which he was a
member.
Except for the rights of Unocal to designate one director nominee pursuant
to the terms of the Stock Rights Agreement, there are no arrangements or
understandings between any nominee and any other person pursuant to which any
nominee was selected.
The Board has established the following standing committees, each of which
is comprised of independent directors:
- The Executive Committee has responsibility, as necessary or advisable
from time-to-time, for the oversight and management of the business of
the Company. The Executive Committee held seven meetings and took action
by unanimous written consent on one other occasion during 2001 and is
comprised of Messrs. Carmichael, Lightner and Wallace.
- The Audit Committee has the responsibility of recommending employment of
the Company's independent auditors, reviewing with management and the
independent auditors the Company's financial statements, basic accounting
and financial policies and practices, audit scope and adequacy of
internal control systems. The Audit Committee is comprised of directors
who are not salaried employees of the Company, namely, Messrs. Butler,
LeBaron, and Murdy. The Audit Committee held five meetings during 2001.
- The Compensation Committee reviews and recommends to the Board the
compensation and promotion of officers of the Company, the terms of any
proposed employee benefit arrangements and the making of awards under
such arrangements. The Compensation Committee held two meetings and took
action by unanimous written consent on ten occasions during 2001. The
members of the Compensation Committee in 2001 were Messrs. Carmichael,
Groppe and Whilden.
- The Nominating Committee was established in January 2002 to review and
recommend director nominees to the Board to be elected at the annual
meeting of stockholders and to fill vacancies on the Board as necessary
from time-to-time. Stockholders may recommend director candidates for
consideration by the Nominating Committee by writing to the Secretary of
the Company. The Nominating Committee is comprised of Messrs. LeBaron,
Murdy and Whilden.
AUDIT COMMITTEE REPORT
The Audit Committee is governed by a written charter which was adopted in
May 2000. All three members of the Audit Committee are independent directors. We
have reviewed and discussed with management the Company's audited financial
statements as of and for the year ended December 31, 2001. We have discussed
with the independent auditors the matters required to be discussed by Statement
on Auditing
3
Standards No. 61, Communication with Audit Committees, as amended, by the
Auditing Standards Board of the American Institute of Certified Public
Accountants. We have received and reviewed the written disclosures and the
letter from the independent auditors required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the Independence
Standards Board, and have discussed with the auditors the auditors'
independence.
Based on our review with management and the auditors, we recommended to the
Board that the audited financial statements referred to above be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 for
filing with the Securities and Exchange Commission. The foregoing report is made
by the members of the Audit Committee, Messrs. Butler, LeBaron and Murdy.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the Record Date
with respect to the Common Stock beneficially owned by (i) each person or group
known to the Company to be the beneficial owner of more than five percent (5%)
of the outstanding Common Stock, (ii) each director and each executive officer
named in the Summary Compensation Table, and (iii) all directors, nominees and
executive officers as a group.
NUMBER OF SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
------------------------ ---------------- --------
(a) Five Percent (5%) Holders:
Unocal Corporation........................................ 5,800,000(2) 14.8%
2141 Rosecrans Avenue
El Segundo, California 90245
Compression, Inc.......................................... 2,977,100(3) 7.6%
Two West Second Street
Tulsa, Oklahoma 74103
Steinberg Priest Capital Management Company, Inc. ........ 2,718,943(4) 6.9%
12 East 49th Street
New York, New York 10017
State Farm Mutual Automobile Insurance Company............ 2,610,254(5) 6.7%
One State Farm Plaza
Bloomington, Illinois 61710
Shapiro Capital Management Company, Inc................... 2,274,789(6) 5.8%
3060 Peachtree Road, N.W
Atlanta, Georgia 30305
(b) Directors and Named Executive Officers:
Donald L. Evans........................................... 0 0
Thomas W. Dyk............................................. 229,100 *
James D. Lightner......................................... 214,000 *
Peter R. Scherer.......................................... 137,832 *
Henry Groppe.............................................. 101,767 *
James B. Wallace.......................................... 82,767 *
Daniel G. Blanchard....................................... 82,250 *
Thomas C. Brown........................................... 71,395 *
Bruce R. DeBoer........................................... 62,459 *
Robert H. Whilden, Jr. ................................... 60,167 *
Edward W. LeBaron, Jr. ................................... 53,427 *
4
NUMBER OF SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
------------------------ ---------------- --------
Wayne W. Murdy............................................ 5,000 *
David M. Carmichael....................................... 2,500 *
Kenneth B. Butler......................................... 300 *
(c) All Directors, Nominees and Executive Officers as a
Group (16 persons)........................................ 1,161,749(7) 3.0%
---------------
* Does not exceed one percent (1%) of the class.
(1) Unless otherwise indicated, all shares of Common Stock are held directly
with sole voting and dispositive powers. Beneficial ownership in respect of
stock options includes shares that may be acquired within sixty (60) days of
the Record Date and is set forth as follows in respect of the individuals
listed in part (b) of this table:
Number
Name of Shares
---- ---------
Donald L. Evans 0
Thomas W. Dyk 217,138
James D. Lightner 210,000
Peter R. Scherer 125,750
Henry Groppe 65,167
James B. Wallace 70,167
Daniel G. Blanchard 81,250
Thomas C. Brown 65,167
Bruce R. DeBoer 62,459
Robert H. Whilden, Jr. 55,167
Edward W. LeBaron, Jr. 25,167
Wayne W. Murdy 5,000
David M. Carmichael 2,500
Kenneth B. Butler 0
(2) As reported in Amendment No. 1 to Schedule 13D dated November 15, 1999,
filed jointly by Unocal Corporation ("Unocal Corp."), Union Oil Company of
California ("Unocal"), Chicago Carbon Company ("CCC"), Lemont Carbon, Inc.
("Lemont"), Midwest 76, Inc. ("Midwest 76"), and Midwest Natural Gas
Pipeline Company ("Midwest"), all such entities report shared voting and
dispositive powers with respect to 5,800,000 shares. CCC is a general
partnership comprised of Lemont, Midwest 76 and Midwest and each of such
partners is a subsidiary of Unocal which is itself a subsidiary of Unocal
Corp.
(3) As reported in Amendment No. 8 to Schedule 13D dated January 7, 2002,
Compression, Inc. has sole voting and dispositive power with respect to
2,977,100 shares. Based on previous reports, a partnership known as CS
Holding Associates beneficially owns Samson Investment Company which owns
Compression, Inc.
(4) As reported in Amendment No. 7 to Schedule 13G dated January 28, 2002, filed
jointly by Steinberg Priest Capital Management Company, Inc. ("Steinberg"),
Michael A. Steinberg & Company, Inc. ("S&C"), and Michael A. Steinberg ("Mr.
Steinberg"), Steinberg has sole voting power with respect to 1,124,550
shares and sole dispositive power with respect to 2,493,882 shares; S&C has
sole dispositive power with respect to 67,361 shares; and Mr. Steinberg has
sole voting and dispositive powers with respect to 157,700 shares. Mr.
Steinberg may be deemed to have beneficial ownership of the shares owned by
all of the reporting entities.
5
(5) As reported in Amendment No. 23 to Schedule 13G dated January 25, 2002,
State Farm Mutual Automobile Insurance Company has sole voting and
dispositive power with respect to 2,600,000 shares, State Farm Investment
Management Corp. (together with State Farm Variable Product Trust) has
shared voting and dispositive power with respect to 6,254 shares and State
Farm Mutual Fund Trust has sole voting and dispositive power with respect to
4,600 shares.
(6) As reported on Schedule 13G filed on February 14, 2002, jointly by Shapiro
Capital Management Company, Inc. ("Shapiro"), Samuel R. Shapiro ("Mr.
Shapiro") and The Kaleidoscope Fund, LP (the "Fund"), Shapiro has sole
voting and dispositive power with respect to 2,187,289 shares; Mr. Shapiro
may be deemed to be the beneficial owner of 25,000 shares owned by his
spouse and reports sole voting and dispositive power with respect thereto;
and the Fund has sole voting and dispositive power with respect to 62,500
shares.
(7) Includes 1,042,717 shares issuable upon the exercise of stock options.
EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY AND POLICIES
The Compensation Committee of the Board is responsible for setting and
administering the policies which govern both annual cash compensation and
incentive programs for the Company's executive officers. The Compensation
Committee is currently comprised of three directors, none of whom are employed
by the Company or any of its subsidiaries. Following review and approval of
executive compensation by the Compensation Committee, such recommendations of
the Compensation Committee are submitted to the full Board for approval.
With respect to 2001 compensation, the Compensation Committee has not
adopted a structured salary, stock option or other incentive compensation
program but does utilize performance factors as described below to assist in the
determination of compensation. The Compensation Committee maintains the
philosophy that compensation of its executive officers should be balanced
between a fair and reasonable cash compensation and incentives linked to the
Company's overall operating performance. To achieve this balance, executives
have, in addition to their salaries and cash bonuses, been awarded stock options
that reward executives through the creation of stockholder value. The
Compensation Committee takes into account that corporate performance, especially
in the oil and gas industry, is often cyclical and that the Company's
performance in any given year, whether favorable or unfavorable, may not
necessarily be representative of immediate past results or future performance.
Consequently, the Compensation Committee examines and recommends executive
compensation levels based on certain factors compared over a period of several
consecutive years, rather than applying such factors on an isolated or
"snapshot" basis at the time compensation levels are recommended by the
Compensation Committee to the full Board. In this regard, and partly due to the
peculiarities of financial accounting requirements for oil and gas companies,
the Compensation Committee emphasizes performance factors such as growth in the
Company's proved oil and gas reserves, increases in volumes of oil and gas sold
by the Company, oil and gas finding costs and operating costs, and the
achievement by management of specific goals set by the Board from time to time;
however, the Compensation Committee has not established any specific performance
levels which would automatically result in increases in compensation, nor does
the Compensation Committee assign absolute weights or rankings to factors
considered by it, but instead makes a subjective determination based upon a
consideration of all of such factors. The Compensation Committee has utilized
from time to time various compensation survey reports as prepared for the oil
and gas industry by consultants such as William M. Mercer, Incorporated, KPMG
LLP, Effective Compensation Inc. and W. T. Haigh and Associates when analyzing
current compensation amounts for executive officers and employees. The
Compensation Committee believes that the current mix between the cash and equity
incentive opportunities presently in place for the executive officers of the
Company is adequate to motivate and retain them.
In addition to the factors described above, in the case of Mr. Lightner,
the Chief Executive Officer for substantially all of 2001, the Compensation
Committee also considered and took into account Mr. Lightner's
6
ability to maintain and strengthen the Company's relationships with the
investment community, generate employee confidence and morale, and demonstrate
other leadership qualities. Under Mr. Lightner's leadership and managerial
capabilities, the Company reported total revenues of approximately $326 million
for the year ended December 31, 2001, as compared to total revenues of $253
million for 2000. The Company's oil and gas sales improved from $217 million in
2000 to $274 million in 2001. The Company also reported a 23% increase in
natural gas production in 2001 as compared to 2000 and an increase of reserves
from 603 BCFE in 2000 to 732 BCFE in 2001. Based upon this outstanding
performance in 2001, the Compensation Committee approved a cash bonus to Mr.
Lightner of $250,000. Mr. Lightner's base salary was increased from $250,000 to
$350,000 as of January 19, 2001, the date he was named Chief Executive Officer.
The Compensation Committee believes the salary paid to Mr. Lightner for 2001 was
appropriate and consistent with the Compensation Committee's objective of
recommending compensation levels and components based on factors compared over a
period of several years and, at the same time, more closely approximate
competition levels. The Company's former Chief Executive Officer, Mr. Evans,
resigned on January 19, 2001 in conjunction with his early retirement from the
Company to serve as U.S. Secretary of Commerce. In recognition of Mr. Evans'
past performance and contributions to the stability and success of the Company,
the Compensation Committee, after consultation with an independent compensation
analyst, recommended, and the Board approved, a retirement compensation package
including (i) a cash payment in the amount of $1,525,000 and (ii) acceleration
of the vesting of Mr. Evans' unvested stock options.
Section 162(m) of the Code precludes a publicly held corporation from
taking a deduction for compensation in excess of $1 million for its chief
executive officer or any of its four other highest-paid officers, unless
compensation is awarded under plans meeting a number of requirements based upon
objective performance standards and advance stockholder approval. Although the
Compensation Committee has not established a policy with respect to qualifying
compensation paid to its executive officers under Section 162(m), the
Compensation Committee will continue to assess the implications of Section
162(m) on executive compensation and determine what action, if any, will be
appropriate.
The foregoing report is made by the members of the Compensation Committee,
Messrs. Carmichael, Groppe and Whilden.
7
SUMMARY OF ANNUAL COMPENSATION
The following table sets forth compensation paid by the Company to its
Chief Executive Officer and the other four most highly compensated executive
officers for fiscal years 1999, 2000 and 2001.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND -------------------- OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDED(#) COMPENSATION($)(1)
------------------ ---- --------- -------- ------------ ------------------
D.L. Evans.......................... 2001 21,394 0 0 1,526,442(3)
Chairman and CEO(2) 2000 375,000 500,000 85,000 40,364(3)
1999 355,698 275,000 50,000 40,342(3)
J.D. Lightner....................... 2001 346,265 250,000 100,000 7,151
CEO and President(4) 2000 250,008 300,000 70,000 7,000
1999 166,671 140,000 300,000 100,000(5)
T.W. Dyk............................ 2001 229,604 160,000 50,000 9,276
EVP and COO(6) 2000 215,016 193,500 55,000 2,867
1999 203,424 150,000 125,000 6,675
D.G. Blanchard...................... 2001 229,604 145,000 75,000 9,165
EVP and CFO(7) 2000 190,016 209,000 45,000 2,837
1999 80,174 54,000 100,000 0
P.R. Scherer........................ 2001 176,676 85,000 17,500 8,616
EVP 2000 165,000 109,000 21,500 6,600
1999 158,245 80,000 15,000 6,322
B.R. DeBoer......................... 2001 180,846 100,000 17,500 8,750
VP, GC and Secretary 2000 164,168 98,500 21,500 6,545
1999 154,975 51,000 20,000 6,172
---------------
(1) Except as otherwise noted, amounts represent the Company contribution to
each named executive officer's 401(k) Plan account.
(2) Mr. Evans retired from the Company on January 19, 2001.
(3) Upon his retirement on January 19, 2001, Mr. Evans received a retirement
award of $1,525,000 and $1,442 for unused vacation time. Such amounts for
2000 and 1999, respectively, also include (i) $5,412 and $4,954 attributable
to the Company's payment for the term portion of a split dollar life
insurance policy on behalf of Mr. Evans, and (ii) $28,352, and $28,713
representing the net present value of the interest savings on the whole life
portion of the policy for a period of ten years computed at an annual
interest savings rate of 8% per annum (in conjunction with Mr. Evans'
retirement and decision not to take assignment of the policy, this policy
was surrendered and the cash surrender value was paid to the Company).
(4) Mr. Lightner became President of the Company on May 3, 1999 at an annual
salary of $250,000. On January 19, 2001, Mr. Lightner was elected Chief
Executive Officer upon Mr. Evans' resignation.
(5) Mr. Lightner received a signing bonus of $100,000 on his hire date.
(6) Mr. Dyk became Executive Vice President of the Company on April 16, 1998. On
February 17, 1999, Mr. Dyk added the title of Chief Operating Officer.
(7) Mr. Blanchard became Vice President and Chief Financial Officer of the
Company on August 3, 1999 at an annual salary of $185,000. On November 14,
2000 Mr. Blanchard was elected Executive Vice President.
8
STOCK OPTION GRANTS
2001 OPTION GRANTS
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------- -------- ---------- ---------- ----------
D.L. Evans................... 0 0 31.00 2/22/11 0 0
J.D. Lightner................ 100,000 6.7 31.00 2/22/11 1,949,573 4,940,602
T.W. Dyk..................... 50,000 3.4 31.00 2/22/11 974,787 2,470,301
D.G. Blanchard............... 75,000 5.0 31.00 2/22/11 1,462,180 3,705,451
P.R. Scherer................. 17,500 1.2 31.00 2/22/11 341,175 864,605
B.R. DeBoer.................. 17,500 1.2 31.00 2/22/11 341,175 864,605
---------------
(1) These amounts are calculated based on the indicated annual rates of
appreciation and annual compounding from the date of grant to the end of the
option term. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions. There is no assurance that the amounts reflected in this table
will be achieved.
OPTION EXERCISES AND HOLDINGS
AGGREGATED OPTION EXERCISES IN 2001
AND 2001 YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS ON
SHARES VALUE OPTIONS ON 12/31/01(#) 12/31/01($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
D.L. Evans............. 486,101 8,163,480 0 0 0 0
J.D. Lightner.......... -- -- 117,500 352,500 1,602,738 3,457,213
T.W. Dyk............... 12,862 194,123 165,888 176,250 2,043,236 1,780,794
D.G. Blanchard......... -- -- 51,250 168,750 697,231 1,288,594
P.R. Scherer........... -- -- 120,375 48,625 1,551,297 410,858
B.R. DeBoer............ -- -- 52,709 46,291 637,426 387,451
---------------
(1) Value of in-the-money options is equal to the fair market value of a share
of Common Stock on December 31, 2001 of $27.01 (based on the last sale price
of the Common Stock), less the exercise price.
(2) The value realized for shares exercised and sold is the actual amount of
sale proceeds less the exercise price, unadjusted for tax consequences. The
value realized for shares exercised and held is the difference between the
fair market value of the Common Stock on the exercise date and the exercise
price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
During 2001, the Company had an employment agreement with each of Messrs.
Evans and Lightner which provided for a severance payment upon the executive's
resignation from employment, preceded by either (i) the assignment of the
executive without his consent to any duties inconsistent with his position,
duties, responsibilities or status with the Company or a reduction of his duties
or responsibilities for reasons other than good cause; (ii) any failure of the
Company or its stockholders, as the case may be, to re-elect the executive to
office or his removal from any such office for reasons other than good cause; or
(iii) any breach by the Company (or any successor) of any of the provisions of
the agreement or any failure by the Company to carry out any of its obligations
under the agreement for reasons other than good cause. The severance benefit
9
payment is an amount equal to the executive's then existing annual base pay (or
an amount equal to his base pay for the balance of the term of the agreement if
less than one year). Under the terms of the agreement, if a dispute were to
arise regarding the termination of the executive or the interpretation or
enforcement of the agreement, all legal fees and expenses incurred by the
executive in contesting or disputing any such termination or seeking to obtain
or enforce any right or benefit provided for in the agreement would be paid by
the Company, to the extent the executive were to prevail. An amendment to each
agreement provided the executive with the option of electing the benefits of the
employment agreement or the Severance Agreement described below. On January 19,
2001, Mr. Evans retired from the Company to serve as U.S. Secretary of Commerce.
Accordingly, his employment agreement is no longer in force or effect. Mr.
Lightner's agreement expires on April 30, 2002.
The Company has entered into Severance Agreements with certain officers of
the Company (including the named executive officers) regarding compensation upon
termination of employment for reasons other than cause, death, disability or
retirement due to any of the following events: (i) a change in control of 20% of
the Company's securities, (ii) an acquisition of over 50% of the Company's
assets, (iii) a change in the composition of a majority of the board, (iv)
failure of more than one of management's director nominees to be elected and (v)
a merger or sale of assets of the Company in which the Company does not survive.
The term of the agreements is through December 2003 with automatic annual
extensions thereafter. The agreements provide that eligible officers shall
receive a multiple of their annual base salary plus bonus and continuation of
medical insurance benefits for a time period equal to such multiple. The
multiple for Messrs. Evans and Lightner is 2.5 and the multiple for Messrs. Dyk,
Blanchard, Scherer and DeBoer is 2. (As a result of Mr. Evans' resignation, his
agreement is no longer in force or effect.)
As of the Record Date, the Company's 1989 Stock Option Plan, 1993 Stock
Option Plan and 1999 Long-Term Incentive Plan contain "change of control"
provisions which are applicable to all holders of options, restricted stock or
other awards granted under the plans, including the named executive officers.
The change of control provisions in such plans, which are substantially
identical, generally provide that if (i) any person, entity or group directly or
indirectly acquires beneficial ownership of 50% or more of the outstanding
shares of the Company's voting stock, (ii) the Company is involved in any
merger, consolidation, share exchange, or sale, lease or exchange of all or
substantially all of its assets, (iii) in connection with a contested election
of directors, the persons who were directors of the Company before such election
cease to constitute a majority of the Board or (iv) the stockholders approve a
complete liquidation or dissolution of the Company (each such event constituting
a "Change of Control"), each option is fully vested and exercisable and each
restricted stock award is fully vested immediately prior to such Change of
Control or earlier as specified by the Compensation Committee. Within ten days
after the approval by the stockholders of a Change of Control in clauses (ii),
(iii) or (iv) above or thirty days of a Change of Control of the type described
in clause (i) above, the Compensation Committee may effect one or more of the
following alternatives:
- accelerate the time at which options then outstanding may be exercised so
that such options may be exercised in full for a limited period of time
on or before a specified date (before or after a Change of Control) fixed
by the Compensation Committee, after which specified date all unexercised
options and all rights of optionees shall terminate,
- require the mandatory surrender to the Company by selected optionees of
some or all of the outstanding options held by such optionees
(irrespective of whether such options are then exercisable under the
provisions of the plan) as of a date, before or after a Change of
Control, specified by the Compensation Committee, in which event the
Compensation Committee shall thereupon cancel such options and the
Company shall pay to each optionee an amount of cash per share equal to
the excess, if any, of the "Change of Control Value" of the shares
subject to such option over the exercise prices under such options for
such shares,
- make such adjustments to options then outstanding as the Compensation
Committee deems appropriate to reflect the Change of Control, or
- provide that, upon any exercise of an option theretofore granted, the
optionee shall be entitled to purchase under such option, in lieu of the
number of shares of stock as to which such option shall then
10
be exercisable, the number and class of shares of stock or other
securities or property or cash to which the optionee would have been
entitled pursuant to the terms of the agreement effecting such Change of
Control if, immediately prior to such Change of Control, the optionee had
been the holder of record of the number of shares of stock as to which
such option is then exercisable.
The "Change of Control Value" is an amount equal to, whichever is
applicable, (i) the per share price offered to stockholders of the Company in
any Change of Control transaction, (ii) the price per share offered to
stockholders of the Company in any tender offer or exchange offer whereby a
Change of Control takes place, or (iii) if such Change of Control occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such options being surrendered are exercisable, as
determined by the Compensation Committee as of the date determined by the
Compensation Committee to be the date of cancellation and surrender of such
options. If the consideration offered to stockholders of the Company in any
transaction consists of anything other than cash, the Compensation Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other than cash.
PERFORMANCE GRAPH
The following performance graph compares the annual cumulative total
stockholder return on the Common Stock with the cumulative total return of the
S&P 600 Smallcap Stock Index and the Amex Natural Gas Index (the Company is not
using the S&P Energy Composite 500 Index because it is no longer a published
index) for the period of five fiscal years commencing December 31, 1996 and
ending December 31, 2001. The table assumes that the value of an investment in
the Common Stock and each Index was $100 on December 31, 1996 and that all
dividends were reinvested. The stock price performance shown on the graph below
is not necessarily indicative of future price performance.
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
--------------------------------------------------------------------------------
Tom Brown, Inc. 100.00 92.22 48.05 64.07 157.49 129.39
S&P 600 Smallcap
Index 100.00 124.53 121.91 135.96 150.94 159.60
Amex Natural Gas
Index 100.00 96.35 61.49 70.82 145.52 102.08
COMPENSATION OF DIRECTORS
For his service as Chairman of the Board, Mr. Wallace is paid an annual fee
of $75,000 payable quarterly. Pursuant to the Company's arrangement with Mr.
Brown, the Company pays Mr. Brown a consulting fee in
11
the amount of $6,355 per month inclusive of director fees. During 2001, the
Company paid $76,260 to Mr. Brown under such arrangement.
Other directors who are not employees of the Company or the Unocal designee
are paid an annual fee of $20,000 payable quarterly plus $1,500 for attendance
at each meeting of the Board and $750 for attendance at each meeting of a
committee thereof. The Company also reimburses its directors for actual expenses
incurred in attending meetings of the Board.
Directors who are employees of the Company and the director designated by
Unocal receive no compensation for service on the Board or its committees.
STOCK OPTION PARTICIPATION OF DIRECTORS
All non-employee directors of the Company are eligible to participate in
the Company's stock option plans. During 2001, the directors other than
employees and the Unocal stockholder designee were each granted a ten-year
option vesting in equal increments over four years to purchase 10,000 shares of
Common Stock at a price of $31.00 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Brownlie, Wallace, Armstrong and Bander Exploration ("BWAB"), a
partnership, owns interests in options to purchase working interests in oil and
gas leases located in Wyoming, and in which the Company also owns interests and
acts as operator. Mr. Wallace, a director of the Company, is a partner in BWAB.
As a result of its ownership interest in the options, and oil and gas leases
acquired by the Company pursuant to such options, BWAB has at various times been
indebted to the Company. During 2001, the Company billed BWAB approximately
$469,000 for BWAB's proportionate share of costs associated with the acquisition
of leases under option as well as exploration and development costs. The largest
amount owed by BWAB to the Company at any one time during 2001 was approximately
$288,900 and BWAB was indebted to the Company in the approximate amount of
$28,800 at December 31, 2001. Payments to the Company are due after monthly
billings by the Company on the same basis as all other interest owners, and
BWAB's participation in the option and underlying leases is on the same basis as
all other participants.
Mr. Groppe, a partner in the oil and gas consulting firm of Groppe, Long &
Littell, Houston, Texas, is a director of the Company and is a member of the
Compensation Committee. The Company retains the services of Groppe, Long &
Littell from time to time and paid the firm $41,000 in consulting fees during
2001.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires, among other
things, that the Company's directors and officers file with the SEC, at
specified times, reports of beneficial ownership and changes in beneficial
ownership of the Company's Common Stock and other equity securities. Based
solely on a review of copies of such reports furnished to the Company, or
written representations that no Forms 5 were required, the Company believes that
all Section 16(a) filing requirements for its directors and officers for the
fiscal year ending December 31, 2001 have been complied with in a timely manner,
except that one transaction by Mr. Butler reported on one Form 4 report was
filed 28 days late.
ACCOUNTANTS
Effective March 19, 2002, the Company engaged KPMG LLP as its independent
accountant to provide audit services in respect of fiscal year 2002 and the
Company dismissed Arthur Andersen LLP ("Andersen") as its independent
accountant. Andersen served as the Company's independent auditors since March
1990. Andersen's report on the Company's financial statements for the past two
fiscal years neither contained an adverse opinion or a disclaimer of opinion nor
was qualified or modified as to uncertainty, audit scope, or accounting
principals. The decision to change independent accountants was recommended and
approved by the Audit Committee as well as the Board. During the Company's two
most recent fiscal years and any
12
subsequent interim periods preceding the foregoing dismissal, there were no
disagreements between the Company and Andersen on any matter of accounting
principals or practices, financial statement disclosure, or auditing scope or
procedure. Representatives of Andersen and KPMG are expected to be present at
the Annual Meeting and each representative will have an opportunity to make a
statement to the stockholders, if he or she desires to do so, and to respond to
appropriate questions.
AUDIT FEES
The aggregate fees billed for professional services rendered by Andersen
for the audit of the Company's consolidated financial statements for the fiscal
year ended December 31, 2001 and reviews of financial statements on Form 10Q for
that fiscal year were $150,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed for professional services rendered by Andersen
for financial information systems design and implementation for the fiscal year
ended December 31, 2001.
ALL OTHER FEES
The aggregate fees billed for other services rendered by Andersen for the
fiscal year ended December 31, 2001 were $103,750, including 401(k) plan audit
services, tax services and miscellaneous consulting services.
The Audit Committee has concluded that the provision of services covered in
the sections captioned "Financial Information Systems Design and Implementation
Fees" and "All Other Fees" are compatible with maintaining Andersen's
independence.
STOCKHOLDER PROPOSALS
In accordance with rules of the SEC, stockholders of the Company may
present proposals to the Company for inclusion in the Company's Proxy Statement
and form of proxy prepared in connection with its next regular annual meeting of
stockholders. Such proposals must be received by the Company no later than
December 2, 2002, in order to be considered for inclusion in the Proxy Statement
for the 2003 annual meeting. In accordance with the advance notice provisions of
the Company's bylaws, notice of stockholder nominations or proposals to be
submitted from the floor of the 2003 annual meeting shall be given in the manner
prescribed by the bylaws and shall be considered untimely and improper if notice
of any such matter is delivered to the Company earlier than December 12, 2002
and later than February 8, 2003.
13
OTHER MATTERS
The Board knows of no matters other than those discussed in this Proxy
Statement that properly may be, or are likely to be, brought before the meeting.
In the event any other matters are properly brought before the meeting, however,
the proxy holders or their substitutes will vote in accordance with their best
judgment on such matters.
By Order of the Board of Directors
/s/ BRUCE R. DEBOER
BRUCE R. DEBOER
Secretary
April 1, 2002
14
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2001, EXCLUSIVE OF EXHIBITS, IS AVAILABLE TO EACH BENEFICIAL
OWNER OF THE COMPANY'S SECURITIES WITHOUT CHARGE UPON WRITTEN REQUEST SETTING
FORTH A GOOD FAITH REPRESENTATION THAT, AS OF THE RECORD DATE, SUCH PERSON WAS A
BENEFICIAL OWNER OF THE COMPANY'S SECURITIES ENTITLED TO VOTE AT THE ANNUAL
MEETING, TO: SECRETARY, TOM BROWN, INC., 555 SEVENTEENTH STREET, SUITE 1850,
DENVER, COLORADO 80202.
15
PROXY
TOM BROWN, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 2002
The undersigned hereby appoints James B. Wallace and James D. Lightner,
and each of them, attorneys and proxies, with power of substitution, and hereby
authorizes them to represent and to vote, as designated on the reverse side of
this proxy, all shares of Common Stock of TOM BROWN, INC. held of record in the
name of the undersigned at the close of business on March 12, 2002, at the
Annual Meeting of Stockholders of Tom Brown, Inc., to be held at 9:00 a.m.,
Mountain Time, on May 9, 2002, in the Hyatt Regency Hotel, 1750 Welton Street,
Denver, Colorado, and at all adjournments or postponements thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[X] Please mark
votes as in
this example.
THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF SPECIFIC DIRECTIONS, IT SHALL BE
VOTED FOR ITEM 1 AND IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS NAMED AS PROXIES
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. Election of Nine Directors. 2. To transact such other business as may
NOMINEES: Thomas C. Brown, Kenneth B. properly come before the meeting or any
Butler, David M. Carmichael, Henry Groppe, adjournments thereof, all as set forth in
Edward W. LeBaron, Jr., James D. Lightner, the Notice of Annual Meeting and Proxy
Wayne W. Murdy, James B. Wallace and Robert Statement dated April 1, 2002, receipt of
H. Whilden, Jr. which is acknowledged.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT
FOR WITHHELD LEFT
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES PLEASE RETURN PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
Please date this Proxy and sign exactly as
-------------------------------------- your name appears on your stock certificate.
For all nominees except as noted above If stock is held jointly, signature should
include both names. Executors,
administrators, trustees, guardians and
others signing in a representative capacity
should state their full titles.
Dated , 2002
--------------------------------
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Signature of Stockholder