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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 31, 1996
TOM BROWN, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other
jurisdiction of incorporation)
0-3880 95-1949781
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(Commission file (IRS employer
number) identification
number)
508 West Wall, Suite 500, Midland, Texas 79701
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(Address of principal executive offices) (Zip code)
(915) 682-9715
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(Registrant's telephone number including area code)
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
General
On January 31, 1996, Tom Brown, Inc., a Delaware corporation (the
"Company"), and K N Energy, Inc., a Kansas corporation, closed the joint
transactions announced by them on December 14, 1995, and reported in the
Company's Form 8- K Report dated December 19, 1995. As a result of these
transactions, (i) the Company acquired all of the issued and outstanding stock
of K N Production Company, formerly a wholly owned subsidiary of K N Energy,
Inc. ("KNE"), and KNE acquired 1,000,000 shares of the Company's $1.75
Convertible Preferred Stock, Series A (the "Series A Preferred Stock"), and
918,367 shares of the Company's Common Stock, and (ii) a new limited liability
company, Wildhorse Energy Partners, LLC, was formed by the Company and KNE
under the laws of Delaware for the principal purpose of providing gas
gathering, processing, marketing, field and storage services.
The principal terms of the joint transactions were consummated
pursuant to (i) an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated January 31, 1996, by and among the Company and its wholly
owned subsidiary, TBI Acquisition, Inc. ("TBIA"), and KNE and its wholly owned
subsidiary, K N Production Company ("KNPC"), and (ii) a Limited Liability
Company Agreement of Wildhorse Energy Partners, LLC, a Delaware limited
liability company of which the Company and KNE are the sole members. See "The
Reorganization Agreement" and "The Limited Liability Company Agreement" below.
The Company believes that the transactions with KNE will improve the
Company's cash flow through the addition of producing properties, provide for
additional development drilling opportunities and further enhance the Company's
ability to provide gas services to a broader range of markets with the
utilization of expanded gathering, processing, marketing, field services and
storage capabilities. As a result of these transactions, the Company acquired
interests in 624 gross producing wells in Colorado and Wyoming, of which the
Company became operator of 308. The Company also acquired a natural gas
storage facility in western Colorado. Based on the December 31, 1995
estimates prepared by KNPC in accordance with guidelines of the Securities and
Exchange Commission, the gas and oil reserves attributable to the properties
acquired by the Company were 31.4 Bcf of natural gas and 519,000 barrels of
oil. The properties acquired by the Company include approximately 170,000
net undeveloped areas in Colorado, Wyoming, Kansas and Nebraska and 85,000 net
developed acres located in Colorado and Wyoming. The transaction will be
recorded under the purchase method of accounting.
The Reorganization Agreement
Under terms of the Reorganization Agreement, TBIA was merged into KNPC
(the "Merger"), with KNPC being the surviving corporation and becoming a wholly
owned subsidiary of the Company. The separate existence of TBIA ceased. KNPC,
a Delaware corporation, continues to be governed by the General Corporation
Laws of Delaware and its separate existence and all of its rights, privileges,
immunities and franchises and all of
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its duties and liabilities as a Delaware corporation continue unaffected by the
Merger, except that KNPC's name was changed to TBI Production Company. For
federal income tax purposes, the Merger is intended to qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended. The effective date of the Merger for economic purposes was December
31, 1995. Upon consummating the Merger, and pursuant to the terms of the
Reorganization Agreement, all of the issued and outstanding shares of common
stock of KNPC held by KNE were converted into and became 918,367 shares of the
Company's Common Stock, $.10 par value per share, and 1,000,000 shares of
Series A Preferred Stock. See "Description of the Series A Preferred Stock"
below. Simultaneously, all of the issued and outstanding shares of common stock
of TBIA held by the Company were converted into and became 100,000 shares of
common stock of KNPC.
After giving effect to the Merger and the assumed conversion of all of
the Series A Preferred Stock at the initial conversion rate of 1.6660 shares of
Common Stock for each share of Series A Preferred Stock, KNE is the beneficial
owner of 2,584,367 shares (approximately 11.34%) of the Company's outstanding
Common Stock. The purchase price of the transaction was negotiated by the
Company and KNE and was determined to be $36.25 million, of which $25 million
was paid in the form of 1,000,000 shares of the Company's Series A Preferred
Stock and the remaining $11,250,000 was paid in the form of 918,367 shares of
the Company's Common Stock, based on a price per share of $12.25. The last
sale price of the Company's Common Stock on January 31, 1996 on the Nasdaq
National Market System was $13.93 per share.
The shares of Common Stock and Series A Preferred Stock issued to KNE
are "restricted" securities within the meaning of the Securities Act of 1933,
as amended (the "Act"), and the rules promulgated thereunder. Accordingly, the
Reorganization Agreement provides that prior to any proposed sale, assignment,
transfer or pledge of the Series A Preferred Stock or the Common Stock issued
to KNE as a result of the Merger (other than transfers not involving a change
in beneficial ownership) unless there is in effect a registration statement
under the Act covering the proposed transfer, KNE is required to give written
notice to the Company of such proposed transfer, sale, assignment or pledge
describing the manner and circumstances of the proposed transfer and
accompanied, at KNE's expense, by either (i) an unqualified opinion of counsel
to the effect that the proposed transfer may be effected without registration
under the Act, or (ii) a "no action" letter from the Securities and Exchange
Commission (the "Commission") to the effect that the transfer of such
securities without registration will not result in a recommendation by the
staff of the Commission that action be taken with respect thereto, or (iii)
other evidence of compliance with the Act acceptable to the Company. See "The
Registration Rights Agreement" below.
The Reorganization Agreement also provides that for a period of three
years following the Merger, neither KNE nor any of its affiliates will:
(a) acquire or agree, offer, seek or propose to acquire ownership
of any assets or businesses or any additional securities issued by the Company,
or any rights or options to acquire such ownership (including from a third
party); or
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(b) contest any election of Directors by the stockholders of the
Company, provided that if all cumulative dividends on the Series A Preferred
Stock have not been declared and paid by the Company as they accumulate, then
KNE and its affiliates may contest any such election of Directors; or
(c) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing.
Other terms of the Reorganization Agreement require the Company to
indemnify and hold harmless KNE and each subsidiary and each of their
respective officers and directors, and their respective successors and assigns,
at all times from and after the Merger in respect of the following:
(a) all liabilities of KNPC of any nature, whether accrued,
absolute, contingent or otherwise, which arise out of the conduct of any
business, the ownership or use of any property, or the existence or occurrence
of any events, condition or set of facts, on or after January 1, 1996,
including, but not limited to, any liabilities for federal, state or local
taxes for any year or period;
(b) any damage or loss resulting from any misrepresentation,
breach of representation or warranty or non-fulfillment of any agreement or
covenant on the part of the Company or TBIA under the Reorganization Agreement,
or from any misrepresentation in or omission from any certificate or other
instrument or document furnished by the Company or TBIA under the
Reorganization Agreement; and
(c) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs, attorney's fees and expenses of any nature incident to any of
the foregoing.
No indemnification obligation arises, however, until the aggregate
value of indemnification obligations is equal to or greater than $2,000,000,
whereupon the Company's indemnity obligations include the full amount of such
liability or claim.
The Limited Liability Company Agreement
As an integral part of the Merger, the Company and KNE entered into a
Limited Liability Company Agreement creating Wildhorse Energy Partners, LLC, a
limited liability company (the "Joint Venture") organized under the laws of
Delaware.
The principal purpose of the Joint Venture is to provide for the
furnishing of services related to natural gas, natural gas liquids and other
natural gas products, including gathering, processing and storage services,
marketing services and field services. The Company granted to the Joint
Venture the right to initially perform certain field services on properties
located in Colorado which were acquired by the Company in the Merger,
including such services as pumper services and other related physical
operation and measurement services.
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The Company and KNE are the sole members ("Members") of the Joint
Venture and KNE serves as manager (the "Manager") of the Joint Venture. KNE
and its successors and assigns are the Class A Members and the Company and its
successors and assigns are the Class B Members. KNE owns a 55% interest in the
Joint Venture and the Company owns a 45% interest in the Joint Venture.
Members may not sell, transfer or otherwise dispose of all or any part of their
respective interests in the Joint Venture without the prior written consent of
all other Members, which consent may be withheld or denied in the sole
discretion of each such Member; provided, however, a Member may transfer all or
any part of its interest in the Joint Venture to a wholly owned subsidiary of
such Member without the consent of the other Members.
If the Joint Venture interest of a Member is acquired by any person
other than a wholly owned subsidiary of such Member, the non-transferring
Member has the option to purchase the interest acquired by the transferee at
fair market value, as determined by the parties or by appraisers selected by
them. If the non-transferring Member does not purchase the interest, the
transferee is deemed to be a nonvoting owner of such interest.
The day to day business and affairs of the Joint Venture will be
managed by KNE under the direction of an operating team (the "Operating
Team") consisting of two representatives appointed by the Company and two
representatives appointed by KNE.
The Joint Venture establishes an area of mutual interest ("AMI") in
which the initial activities of the Joint Venture will be conducted. The
initial AMI covers parts of Colorado, Utah, Wyoming, Montana, North Dakota and
South Dakota. The overall scope of business of the Joint Venture is
contemplated to eventually include some or all of the Company's and/or third
party current and future operated and non-operated gas and oil production from
other areas, including the Rocky Mountain, Mid-Continent, and Permian basin
areas. Initially, the Joint Venture will provide the gathering, processing,
storage, marketing and field services in connection with gas produced from
properties in the AMI and operated by the Company. The Joint Venture will also
make such services available to third party properties located within the AMI.
On an ongoing basis, but in any event by December 31 of each year, the
Operating Team will determine, in its sole discretion, whether the AMI will be
extended to include other areas, and whether and to what extent the services
provided by the Joint Venture will be modified and/or extended to additional
properties. The AMI specifically excludes certain assets, including
transmission assets, assets previously dedicated under or subject to third
party agreements, assets subject to federal rate regulation or state rate
regulation as an intrastate pipeline, assets subject to contracts which are not
assignable to third parties, and any other assets or opportunities specifically
excluded by the Operating Team. Although the Members are free to pursue other
opportunities in the same or similar business as the Joint Venture, if any
opportunity arises within the AMI which is related to, or developed from, the
Joint Venture's business, such opportunity must first be accepted or rejected
by the Joint Venture (a "Company Opportunity"). If the Joint Venture (acting
through the Operating Team) elects to reject a Company Opportunity, the
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Member whose representatives on the Operating Team have voted for the proposal
may pursue it for its own account.
The Company will initially contribute to the capital of the Joint
Venture the right to perform gathering, processing, marketing and storage
services related to the Company's natural gas production in the AMI.
KNE's initial contribution to the Joint Venture will include the current
marketing opportunities for the sale of natural gas to specific end use markets
located within the AMI. KNE will also grant to the Joint Venture the right to
sell at least 30% of the Company's currently owned gas, into K N Marketing,
Inc.'s ("KNM") specific end use markets located in the Heartland and Front
Range markets in Nebraska and Colorado, respectively, but only to the extent
such volumes do not exceed 20% or 9000 MMBtu/D of the K N Interstate (KNI)
pool, whichever is lesser, and 20% or 6000 MMBtu/D of the Colorado Interstate
Gas (CIG) pool, whichever is lesser. The Company will cause Retex Gathering
Company, Inc. (the Company's wholly owned subsidiary and marketing affiliate)
to dedicate to the Joint Venture its CIG-firm and KNI-firm transportation
capacity, unless otherwise currently committed, and KNE will cause KNM to
dedicate to the Joint Venture 6000 MMBtu/D of its KNI-firm transportation
capacity and will cause Northern Gas Company, a wholly owned subsidiary of KNE,
to agree to use reasonable efforts to purchase volumes of gas available from
the Company, subject to physical requirements and prudency requirements
established by applicable state commissions. In addition, both the Company and
KNE will make proportionate working capital contributions to the Joint Venture
as necessary and appropriate, pursuant to decisions of the Operating Team. The
initial contributions by the Company and KNE to the Joint Venture are required
to be made to the Joint Venture on or before March 1, 1996. The Company and
KNE have agreed that fifty-five percent (55%) of the aggregate value of the
items to be contributed to the Joint Venture is being contributed by KNE or its
subsidiaries and that forty-five percent (45%) of the aggregate value of
the items to be contributed is being contributed by the Company or its
subsidiaries.
As part of the formation of the Joint Venture, KNE contributed a
Colorado gathering system and certain gas contracts related to the properties
acquired in the Merger, and TBI Production Company contributed the natural gas
storage facility acquired in the Merger.
The Company granted to the Joint Venture, and if the Joint Venture
declines, then to KNE, an exclusive preferential right during the term of the
Joint Venture to purchase, on a competitive basis, any assets downstream of the
wellhead sales meter now owned by the Company in the AMI (including such assets
as gathering, processing and pipelines) and, to the extent it is legally able
to do so, to assets acquired by the Company in the future which are located in
the AMI, but in each case only to the extent such assets become available for
sale prior to dissolution of the Joint Venture. KNE granted to the Company an
exclusive preferential right during the term of the Joint Venture to purchase,
on a competitive basis, any upstream assets owned by KNE now or in the future,
to the extent such assets become available for sale prior to dissolution of the
Joint Venture.
The Company and KNE also each granted to the Joint Venture (i) an
exclusive preferential right to participate in any gathering, processing,
storage, or field services projects which are made available to either of the
Company or KNE by any other person and which projects are within the AMI and
(ii) an exclusive preferential right to marketing sales opportunities for sales
of gas to specific end use markets and customers located within the AMI.
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Either Member proposing to sell any of the assets or to engage in any
other activities subject to a preferential right in favor of the Joint Venture
or the other Member must notify the Joint Venture and/or the other Member, with
full information concerning the proposed transaction. The Joint Venture or the
non-selling Member has 15 days after the notice is delivered to exercise its
preferential right on the same terms and conditions as set forth in the notice
received from the other Member. If the holder of the preferential right does
not exercise such right, the Member proposing the transaction subject to the
preferential right may, during the following sixty-day period, proceed with the
transaction on terms and at a price no less favorable than that offered to the
party with the preferential right.
If at any time during their ownership of an interest in the Joint
Venture, either the Company or KNE undergo a change of control, defined as any
situation in which a new person, or group of persons becomes in control (as
such term is defined in Rule 405 promulgated by the Commission under the Act)
of either the Company or KNE, or a majority of the board of directors of either
of them shall change within any twelve month period of time, then the party not
undergoing the change of control ("Notifying Party") shall have the right at
any time within the ninety (90) days following receipt by the Notifying Party
of written notice of such change of control to trigger a buy-sell right. Such
right is triggered by the Notifying Party giving to the other (the "Receiving
Party") notice in writing that it wishes to exercise its buy-sell right, which
notice is required to specify the value the Notifying Party has assigned to a
1% interest in the Joint Venture (the "Specified 1% Value"). For a period of
thirty (30) days after receipt of such notice, the Receiving Party shall have
the right to elect to sell its interest in the Joint Venture to the Notifying
Party at the price of the Specified 1% Value times the number of 1% interests
in the Joint Venture held by the Notifying Party. Such election by the
Receiving Party shall be made by written notice given by the Receiving Party to
the Notifying Party during such thirty-day period. If no such notice is given,
the Receiving Party is deemed to have elected to sell its interest in the Joint
Venture to the Notifying Party at the price of the Specified 1% Value times the
number of 1% interests in the Joint Venture held by the Receiving Party.
Description of the Series A Preferred Stock
Dividends (a) The holder of the Series A Preferred Stock is
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available therefor, cumulative dividends at the annual rate of
$1.75 per share, payable in cash on March 15, 1996, and thereafter quarterly on
the fifteenth day of March, June, September and December in each year (the
"Dividend Payment Date"). Dividends in arrears may be declared and paid at any
time, without reference to any regular Dividend Payment Date. The amount of
dividends payable on shares of the Series A Preferred Stock for each full
quarterly dividend period is computed by dividing by four the annual rate of
$1.75 per share.
(b) Except as described below with regard to any class of stock
ranking on a parity with the Series A Preferred Stock as to payment of
dividends, so long as shares of Series A Preferred Stock are outstanding, if
full cumulative dividends on the Series A Preferred Stock have not been
declared and paid or set apart for payment, the Company may not declare
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or pay or set apart for payment any dividends or make any other distributions
on, or make any payment on account of the purchase, redemption or retirement
of, the Company's Common Stock, or any other stock of the Company ranking on a
parity with or junior to the Series A Preferred Stock as to payment of
dividends or distribution of assets on liquidation, dissolution or winding up
of the Company (other than, in the case of dividends or distributions,
dividends or distributions paid in shares of Common Stock or such other junior
ranking stock), until full cumulative dividends on the Series A Preferred Stock
are declared and paid or set apart for payment. When dividends are not paid in
full on the Series A Preferred Stock and any other preferred stock ranking on a
parity as to payment of dividends with the Series A Preferred Stock, all
dividends declared on the Series A Preferred Stock and any other preferred
stock ranking on a parity as to dividends with the Series A Preferred Stock
must be declared pro rata so that the amount of dividends declared per share on
the Series A Preferred Stock and such other preferred stock will in all cases
bear to each other the same ratio that accrued dividends per share on the
Series A Preferred Stock and such other preferred stock bear to each other.
Redemption (a) The Company has the option, at any time beginning on
or after March 15, 2001, to redeem all or any part of the outstanding shares of
Series A Preferred Stock at the redemption price of $25.00 per share, plus an
amount equal to all accrued and unpaid dividends on such shares of Series A
Preferred Stock to the date of redemption.
(b) The Company may not purchase, redeem or otherwise acquire for
value any shares of Series A Preferred Stock or shares of any other series of
preferred stock then outstanding ranking on a parity with the Series A
Preferred Stock unless all accumulated dividends on all shares of Series A
Preferred Stock then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart.
(c) Notice of any proposed redemption of the Series A Preferred
Stock must be given by the Company no less than thirty (30) days nor more than
sixty (60) days prior to the date fixed for such redemption to holders of
record of the Series A Preferred Stock to be redeemed at their respective
addresses appearing on the books of the Company. Said notice shall specify the
shares called for redemption, the redemption price and the place at which and
the date on which the shares called for redemption will, upon presentation and
surrender of the certificates of stock evidencing such shares, be redeemed and
the redemption price therefor paid. If less than all the outstanding Series A
Preferred Stock is to be redeemed, the Company will select the shares to be
redeemed by lot or pro rata (as nearly as may be) among all then outstanding
Series A Preferred Stock or by any other means permitted or required by the
rules of any securities exchange on which the Series A Preferred Stock is then
listed. From and after the date fixed in any such notice as the date of
redemption of the Series A Preferred Stock, unless default is made by the
Company in providing monies at the time and place specified for the payment of
the redemption price pursuant to such notice, all dividends on the Series A
Preferred Stock called for redemption cease to accrue, such shares of Series A
Preferred Stock shall no longer be deemed to be outstanding and all rights of
the holders thereof as stockholders of the Company with respect to shares of
Series A Preferred Stock, except the right to receive the redemption price plus
accrued dividends to the date of redemption, cease and terminate.
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(d) Upon the occurrence of a "Change of Control" of the Company,
the holders of the Series A Preferred Stock have the right to cause the Series
A Preferred Stock to be redeemed by the Company, in whole or in part, at the
redemption price of $25.50 per share, plus an amount equal to all accrued and
unpaid dividends on such shares of Series A Preferred Stock to the date of
redemption. Within ten (10) days after the occurrence of a Change of Control,
the Company is required to send a notice thereof to each holder of shares of
Series A Preferred Stock setting forth: (i) a description of such Change of
Control; (ii) the date such Change of Control occurred; (iii) that each holder
of record of Series A Preferred Stock may require the Company to redeem all or
any part of such holder's shares; (iv) the redemption date, which is the first
business day next succeeding ten (10) days after the giving of such notice; (v)
the redemption price; (vi) that on the redemption date, the redemption price
will become due and payable with respect to each share of Series A Preferred
Stock elected to be redeemed and that dividends thereon cease to accrue on and
after said date, unless the Company defaults in redeeming such shares; and
(vii) the place or places where certificates representing shares of Series A
Preferred Stock are to be surrendered for payment of the redemption price.
For purposes of the Series A Preferred Stock, a "Change of Control" is
deemed to have occurred when any person or group of persons becomes in
"control" (as such term is defined in Rule 405 promulgated by the Commission
under the Act) of the Company, or a majority of the Board of Directors of the
Company changes within any twelve-month period of time.
Conversion (a) Each share of the Series A Preferred Stock is
convertible at the option of the holder thereof, at any time and from time to
time prior to the redemption of such share, into fully paid and nonassessable
shares of Common Stock of the Company at the initial conversion rate of 1.6660
shares of Common Stock for each share of Series A Preferred Stock, subject to
adjustment as described below.
If the Company consolidates into, or merges with or into, any other
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification,
change or conversion of outstanding shares of the Company's Common Stock), or
in case of any sale or transfer of all or substantially all of the assets of
the Company, or in case of any reclassification of the Company's Common Stock
(other than a change in par value, or as a result of a subdivision or
combination), the holder of each share of Series A Preferred Stock then
outstanding shall have the right thereafter to convert such share into the kind
and amount of shares of capital stock and other securities, cash and other
property receivable upon such consolidation, merger, sale, transfer or
reclassification by a holder of the number of shares of Common Stock of the
Company into which such share of Series A Preferred Stock might have been
converted immediately prior to such consolidation, merger, sale, transfer or
reclassification.
The conversion price is subject to adjustment upon certain events,
including: (i) the issuance of Common Stock as a dividend with respect to the
outstanding Common Stock, subdivisions, or combinations of Common Stock into a
smaller number of shares; (ii) the issuance to all holders of the Company's
Common Stock of rights or warrants to subscribe
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for or purchase Common Stock at a price per share less than the "Current Market
Price" per share of Common Stock; and (iii) the making of a distribution to all
holders of Common Stock of shares of capital stock of the Company (other than
Common Stock) or of evidences of its indebtedness, or of assets, or
subscription rights or warrants (excluding those rights, warrants, dividends
and distributions referred to above, and excluding dividends paid in, or
distributions of, cash from the retained earnings of the Company).
"Current Market Price" per share of Common Stock on any date is the
average of the daily "Closing Prices" for the thirty (30) consecutive business
days commencing forty-five (45) business days before such date. "Closing
Price" for each day is the reported last sale price regular way or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way, in either case as reported on the New York
Stock Exchange Composite Transactions reporting system or, if not so quoted, on
the New York Stock Exchange, or, if at any time the Common Stock is not listed
or admitted to trading on such Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, on the National Association of Securities Dealers Automated Quotation
National Market ("NASDAQ"), or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on NASDAQ, the average
of the closing bid and asked prices in the over-the-counter market as furnished
by any New York Stock Exchange member firm selected from time to time by the
Board of Directors or an authorized board committee for such purposes.
No adjustment in the conversion rate of the Series A Preferred Stock
is required to be made in any case until cumulative adjustments amount to 1% or
more of the conversion rate, but any such adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
The Company may make such increases in the conversion rate, in
addition to those described above, as it determines to be advisable in order
that any dividend of capital stock, subdivision or combination of shares,
distribution of rights or warrants to purchase capital stock or other
securities, or distribution of securities convertible into or exchangeable for
capital stock, made by the Company to its stockholders shall not be taxable.
Exchange (a) The shares of Series A Preferred Stock are
exchangeable, in whole or in part, at the option of the Company on any Dividend
Payment Date at any time on or after March 15, 1999, and prior to March 15,
2001, for fully paid and nonassessable shares of Common Stock at the exchange
rate of 1.6660 shares of Common Stock for each share of Series A Preferred
Stock; provided that (i) on or prior to the date of exchange the Company shall
have declared and paid or set apart for payment to the holders of Series A
Preferred Stock all accumulated and unpaid dividends to the date of exchange,
and (ii) the Current Market Price (as defined under "Conversion" above) of the
Common Stock is above $18.375 (the "Threshold Price"). The exchange rate is
subject to adjustment in the same manner and under the same circumstances as
the conversion rate is subject to adjustment as described under "Conversion"
above, and the Threshold Price is also subject to
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adjustment in the same manner and under the same circumstances, as the exchange
rate is subject to adjustment.
(b) From and after the date fixed by the Company as the date for
the exchange (unless default is made by the Company in issuing shares of Common
Stock in exchange for, or making the final dividend payment on, the Series A
Preferred Stock on the date fixed for exchange), dividends on the Series A
Preferred Stock cease to accrue, and such shares will not be deemed to be
issued and outstanding, and all rights of the holders of the Series A Preferred
Stock (except the right to receive from the Company the shares of Common Stock)
in respect of the Series A Preferred Stock shall cease and terminate.
(c) All shares of Series A Preferred Stock which have been
exchanged for shares of Common Stock of the Company will, after such exchange,
be restored to the status of authorized but unissued shares of preferred stock,
without designation as to series, until such shares are once more designated as
part of a particular series by the Board of Directors of the Company.
Liquidation Rights Upon the dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, the holders of the Series A
Preferred Stock are entitled to receive out of the assets of the Company
available for distribution to stockholders, the amount of $25.00 per share plus
an amount equal to all dividends on such shares (whether or not earned or
declared) accrued and unpaid thereon to the date of final distribution, before
any payment or distribution may be made on the Common Stock or on any other
class of stock ranking junior to the Series A Preferred Stock with respect to
distributions upon dissolution, liquidation or winding up. The merger or
consolidation of the Company or the sale of all or substantially all of the
Company's assets is not deemed to be a liquidation, dissolution or winding up
of the Company. If the assets of the Company available for distribution to the
holders of the Series A Preferred Stock upon dissolution, liquidation or
winding up of the Company are insufficient to pay in full all amounts to which
such holders are entitled, no distributions may be made on account of any
shares of any other class of stock of the Company ranking on a parity with the
Series A Preferred Stock upon such dissolution, liquidation or winding up
unless proportionate distributive amounts are paid on account of the Series A
Preferred Stock, ratably, in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up. After payment to the holders of the
Series A Preferred Stock of the full preferential amounts, such holders will
not have any right or claim to any remaining assets of the Company.
Voting Rights The Series A Preferred Stock has the following voting
rights:
(a) As long as any shares of Series A Preferred Stock remain
outstanding, the Company may not, directly or indirectly, without the
affirmative vote at a meeting or the written consent with or without a meeting
of the holders of at least 66 2/3% of the shares of Series A Preferred Stock
then outstanding, amend, alter or repeal any of the provisions of the
Certificate of the Designations, Powers, Preferences and Rights of the Series A
Preferred Stock (the "Certificate") or the Certificate of Incorporation of the
Company, or
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authorize any reclassification of the Series A Preferred Stock, so as in any
such case to affect adversely the preferences, special rights or powers of the
Series A Preferred Stock or authorize any capital stock of the Company ranking,
either as to payment of dividends or upon liquidation, dissolution or winding
up of the Company, prior to the Preferred Stock.
(b) As long as any shares of Series A Preferred Stock remain
outstanding, the Company may not, directly or indirectly, without the
affirmative vote at a meeting or the written consent with or without a meeting
of the holders of at least a majority in voting power of shares of Series A
Preferred Stock then outstanding, increase the authorized number of shares of
preferred stock or create, or increase the authorized number of shares of, any
other class of capital stock of the Company ranking on a parity with the
preferred stock either as to payment of dividends or upon liquidation,
dissolution or winding up of the Company.
(c) If at any time dividends payable on the Series A Preferred
Stock are in arrears and unpaid in an amount equal to or exceeding the amount
of dividends payable thereon for four quarterly dividend periods, the total
number of Directors on the Company's Board of Directors will be limited to a
maximum of nine and the holders of the outstanding Series A Preferred Stock
will have the exclusive right, voting separately as a class without regard to
series, to designate a special class of two Directors of the Company (the
"Special Directors") at the next annual or special meeting of stockholders of
the Company irrespective of whether such meeting otherwise would involve the
election of directors, and the membership of the Board of Directors of the
Company shall be increased by the number of the Special Directors so
designated. Such right of the holders of Series A Preferred Stock to designate
Special Directors will continue until all dividends accumulated and payable on
the Series A Preferred Stock have been paid in full, at which time such right
to designate Special Directors terminates, subject to re-vesting in the event
of a subsequent arrearage. Upon any termination of such right of designation,
the term of office of all the Special Directors designated by holders of Series
A Preferred Stock will immediately terminate without action by the Company or
the Board of Directors of the Company.
(d) In exercising the right to designate Special Directors or when
otherwise granted voting rights by operation of law, each share of Series A
Preferred Stock shall be entitled to one vote, except as described below.
(e) To the extent that the rights provided in the Certificate do
not prevent the continued listing for quotation on NASDAQ of the Common Stock
of the Company, then (i) for so long as KNE owns 80% or more of the voting
power of the securities of the Company issued pursuant to the Merger, KNE has
the right to elect a special class of two Directors to the Board of Directors
of the Company, and (ii) for so long as KNE owns securities of the Company
issued pursuant to the Merger possessing less than 80% of the voting power of
the securities of the Company issued pursuant to the Merger, but more than 30%
of such voting power, KNE shall have the right to elect a special class of one
Director to the Board of Directors of the Company.
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(f) So long as any Series A Preferred Stock remains outstanding,
the holders of the Series A Preferred Stock are entitled to vote on all matters
upon which holders of the Company's Common Stock have the right to vote. In
such voting, each share of Series A Preferred Stock is entitled to a number of
votes per share equivalent to the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock and shall vote together with
the holders of the outstanding shares of the Company's Common Stock as if a
part of that class.
No consent of the holders of the Series A Preferred Stock is required
for (i) the creation of any indebtedness of any kind of the Company, or (ii)
the authorization or issuance of any class of capital stock of the Company
ranking junior to the Series A Preferred Stock in payment of dividends or upon
liquidation, dissolution or winding up of the Company.
The Registration Rights Agreement
Pursuant to the Reorganization Agreement, the Company and KNE also
entered into a Registration Rights Agreement, dated as of January 31, 1996,
which provides KNE with certain "demand" registration rights and "piggyback"
registration rights, as further described below.
Requested Registration. At any time during the period of ten years
following the date of consummation of the Merger (January 31, 1996), KNE or its
assignees may request that the Company prepare and file with the Commission a
registration statement effecting the registration of (i) the shares of the
Company's Common Stock issued to KNE as a result of the Merger and (ii) the
shares of Common Stock underlying the Series A Preferred Stock issued to KNE as
a result of the Merger (collectively, the "Registrable Common Stock"). Upon
its receipt of any request for registration of the Registrable Common Stock,
the Company is obligated to use its best efforts to effect any such requested
registration; provided that any requested registration must include not less
than 1,000,000 shares of Registrable Common Stock and that the Company is not
required to effect any requested registration of the Registrable Common Stock
on more than two occasions.
Company Registration. At any time during the period of ten years
following the date of consummation of the Merger, if the Company registers any
shares of Common Stock for its own account or for the account of other security
holders exercising their respective demand registration rights, the Company is
obligated to give notice thereof to KNE and, if KNE or its assignees so
request, include in any such registration all the Registrable Common Stock
specified by KNE; provided that the Company is not obligated to effect more
than two "piggyback" registrations for the account of KNE.
The Company is obligated to bear all expenses incurred in connection
with each demand or piggyback registration effected for the account of KNE
(excluding underwriter's commissions, fees and expenses allocable to the
Registrable Common Stock and KNE's fees of independent counsel and accountants,
if any, which commissions, fees and expenses and
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fees of counsel and accountants are to be borne pro rata (by share) by KNE and
any other offeror employing such counsel and accountants in such registration).
If shares of Registrable Common Stock are included in any registration
being effected by the Company, the Company has agreed to indemnify KNE and each
of its officers and directors, and each person controlling KNE, and each
underwriter, if any, and each person who controls any underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements not misleading, and to
reimburse each of the foregoing persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided that the Company is not
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by KNE or
underwriter specifically for use therein.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
It is impracticable to provide the financial statements
required by Item 7 of this Report on Form 8-K at the time of filing hereof.
Such financial statements will be filed not later than April 15, 1996.
(b) Exhibits.
Exhibit No. Description
10.1 Agreement and Plan of Reorganization, dated
January 31, 1996, By and Among Tom Brown,
Inc., TBI Acquisition, Inc., K N Production
Company and K N Energy, Inc.
10.2 Limited Liability Company Agreement, dated
January 31, 1996, of Wildhorse Energy
Partners, LLC, between Tom Brown, Inc. and
K N Energy, Inc.
10.3 Certificate of Designations, Powers,
Preferences and Rights of the $1.75
Convertible Preferred Stock, Series A, $.10
par value
10.4 Registration Rights Agreement, dated January
31, 1996, between Tom Brown, Inc. and K N
Energy, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 13, 1996
TOM BROWN, INC.
By: /s/ R. Kim Harris
-----------------------------------
R. Kim Harris, Controller and
Principal Financial Officer
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INDEX TO EXHIBITS
Exhibit No. Description
10.1 Agreement and Plan of Reorganization, dated
January 31, 1996, By and Among Tom Brown
Inc., TBI Acquisition, Inc., K N Production
Company and K N Energy, Inc.
10.2 Limited Liability Company Agreement, dated
January 31, 1996, of Wildhorse Energy
Partners, LLC, between Tom Brown, Inc. and
K N Energy, Inc.
10.3 Certificate of Designations, Powers,
Preferences and Rights of the $1.75
Convertible Preferred Stock, Series A, $.10
par value
10.4 Registration Rights Agreement, dated January
31, 1996, between Tom Brown, Inc. and K N
Energy, Inc.