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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [x] Filed by a Party other than Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DEEPTECH INTERNATIONAL INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DEEPTECH INTERNATIONAL INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11.
4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identity the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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DEEPTECH INTERNATIONAL INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 22, 1996
TO THE STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
of DeepTech International Inc. ("DeepTech") to be held at The St. Regis Hotel,
2 East 55th Street, New York, New York at 9:30 a.m., New York time, on Tuesday,
October 22, 1996, for the following purposes:
1. To elect thirteen directors of DeepTech to hold office until the
next annual meeting of stockholders and until their respective
successors are duly elected and qualified;
2. To ratify the Board of Directors' appointment of Price Waterhouse
LLP as DeepTech's independent accountants for the fiscal year
ending June 30, 1997; and
3. To transact such other business as may properly be brought before
the meeting or any adjournment(s) thereof.
Holders of record of DeepTech's common stock at the close of business
on September 27, 1996 will be entitled to notice of and to vote at the meeting
or any adjournment(s) thereof.
Stockholders who do not expect to attend the meeting are requested to
sign and return the enclosed proxy, for which a postage-paid, return envelope
is enclosed. The proxy must be signed and returned in order to be counted.
By Order of the Board of Directors,
/s/ THOMAS P. TATHAM
THOMAS P. TATHAM
Chairman of the Board
Houston, Texas
September 30, 1996
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DEEPTECH INTERNATIONAL INC.
7500 TEXAS COMMERCE TOWER
600 TRAVIS STREET
HOUSTON, TEXAS 77002
PROXY STATEMENT
1996 ANNUAL MEETING OF STOCKHOLDERS
--------------
The enclosed form of proxy is solicited by the Board of Directors of
DeepTech International Inc. ("DeepTech") to be used at the 1996 Annual Meeting
of Stockholders (the "Annual Meeting") to be held at The St. Regis Hotel, 2
East 55th Street, New York, New York at 9:30 a.m., New York time, on Tuesday,
October 22, 1996. This Proxy Statement and the related proxy are to be first
sent or given to the stockholders of DeepTech on or about October 2, 1996. Any
stockholder giving a proxy may revoke it at any time provided written notice of
such revocation is received by the Secretary of DeepTech before such proxy is
voted; otherwise, if received in time, properly completed proxies will be voted
at the meeting in accordance with the instructions specified thereon.
Stockholders attending the Annual Meeting may revoke their proxies and vote in
person.
Holders of record at the close of business on September 27, 1996 of
DeepTech's common stock, $.01 par value per share ("Common Stock"), will be
entitled to one vote per share on all matters submitted to a vote of the
stockholders at the meeting. The Common Stock is the only class of capital
stock of DeepTech that is outstanding. On September 27, 1996, the record date,
there were outstanding 17,035,262 shares of Common Stock.
DeepTech's Annual Report on Form 10-K for the fiscal year ended June
30, 1996, including financial statements, is being mailed herewith to all
stockholders entitled to vote at the Annual Meeting. The Annual Report does
not constitute a part of the proxy soliciting material.
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Unless the context otherwise requires, references in this Proxy
Statement to "DeepTech" shall mean DeepTech International Inc., a Delaware
corporation, and references to the "Company" or its operations shall mean
DeepTech and its seven operating subsidiaries, Leviathan Gas Pipeline Company
(indirectly 85%-owned) ("Leviathan"), Tatham Offshore, Inc. (39%-owned)
("Tatham Offshore"), Deepwater Production Systems, Inc. (85%-owned) ("Deepwater
Systems"), DeepFlex Production Services, Inc. (100%-owned) ("DeepFlex"), FPS V,
Inc. (100%-owned) ("FPS V"), Offshore Gas Marketing, Inc. (80%-owned)
("Offshore Marketing") and Offshore Gas Processors, Inc. (85%-owned) ("Offshore
Processors"), and their respective operations. Leviathan is the general
partner of Leviathan Gas Pipeline Partners, L.P., a Delaware limited
partnership (together with its subsidiaries, the "Partnership"), in which
DeepTech owns an indirect 23.2% effective interest.
ELECTION OF DIRECTORS
(ITEM 1)
At the Annual Meeting, thirteen directors are to be elected to hold
office until the next succeeding annual meeting of the stockholders and until
their respective successors have been duly elected and qualified. Twelve of
the director nominees are currently directors of DeepTech. Proxies cannot be
voted for a greater number of persons than the number of nominees named on the
enclosed form of proxy. A plurality of the votes cast in person or by proxy by
the holders of Common Stock is required to elect a director. Accordingly,
under Delaware law and DeepTech's Restated Certificate of Incorporation and
By-laws, abstentions and "broker non-votes" would not have the same legal
effect as a vote against a particular director. A broker non-vote occurs if a
broker or other nominee does not have discretionary authority and has not
received instructions with respect to a particular item. Stockholders may not
cumulate their votes in the election of directors. The Board of Directors
recommends a vote "FOR" each of the following thirteen nominees. Unless
otherwise instructed or unless authority to vote is withheld, the enclosed
proxy will be voted FOR the election of the nominees listed below. Although
the Board of Directors does not contemplate that any of the nominees will be
unable to serve, if such a situation arises prior to the Annual Meeting, the
persons named in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
DIRECTOR NOMINEES
THOMAS P. TATHAM, age 50, has served as Chairman of the Board and
Chief Executive Officer of DeepTech and as Chairman of the Board of Leviathan
since October 1989 and February 1989, respectively. Mr. Tatham served as Chief
Executive Officer of Leviathan from February 1989 until June 1995 and has
served as Chairman of the Board of Tatham Offshore since its inception in 1988.
Mr. Tatham has over 25 years experience in the oil and gas industry. He
founded Mid American Oil Company in 1970 and served as Chairman of the Board
and Chief Executive Officer until he sold his interest therein to Centex
Corporation in 1979. In 1979, Mr. Tatham founded Tatham Corporation to acquire
Sugar Bowl Gas Corporation ("Sugar Bowl"), the second largest intrastate
pipeline system in Louisiana. He served as Chairman of the Board of Tatham
Corporation from 1979 to December 1983, at which time it sold the assets of
Sugar Bowl to a joint venture between MidCon Corp. and Texas Oil and Gas, Inc.
From 1984 to 1988, Mr. Tatham pursued personal investments in various
industries, including the oil and gas industry. Mr. Tatham is also a Director
of J. Ray McDermott, S.A.
CONRAD P. ALBERT, age 50, has served as a Director of DeepTech since
February 1992. Since December 1991, he has pursued personal investments. From
1969 to 1991, Mr. Albert served in various positions with Manufacturers Hanover
Trust Company, most recently serving as Executive Vice President in charge of
worldwide energy lending and corporate finance. He is a Director of Anadarko
Petroleum Corporation and Enterprise Products Co. Mr. Albert holds a B.A. from
the University of North Carolina at Chapel Hill.
LANEY CHOUEST, age 42, is the Senior Vice-President and one of the
owners of Edison Chouest Offshore and associated companies. Edison Chouest
Offshore is a fourteen hundred employee, family owned business which builds and
operates specialized offshore vessels. Edison Chouest Offshore conducts
operations worldwide and is headquartered in Galliano, Louisiana. Dr. Chouest
holds a doctorate in medicine from Louisiana State University Medical School
and conducted a private medical practice from 1979 until joining the
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family business in 1983. He currently serves as a Director of the Offshore
Marine Service Association, a group which he has previously served as Chairman.
Dr. Chouest is also a member of the United States Coast Guard's National
Offshore Safety Advisory Committee and is a former Director of the National
Ocean Industry Association. Dr. Chouest is a Director of Kaman Corporation.
CHARLES M. DARLING, IV, age 48, has served as a Director of DeepTech
and Leviathan since October 1989 and February 1989, respectively. Mr. Darling
has been a partner in the law firm of Baker & Botts, L.L.P. since January 1980,
originally joining the firm in 1974. Mr. Darling has represented companies in
the oil and gas industry for over 20 years.
RALPH EADS, age 37, is a Managing Director and Co-Head of the Energy
Investment Banking Group at Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"). Prior to joining DLJ in 1996, Mr. Eads was a Managing Director and
Head of Equity Capital Markets at S.G. Warburg & Co., an investment banking
firm, from 1993 to 1996. Prior thereto, Mr. Eads was a Vice-President of
Lehman Brothers, Inc. Mr. Eads is a graduate of Duke University.
ROBERT E. FOX, age 67, is President of TERM Energy Corporation, a
family corporation based in Harrisville, West Virginia which operates oil and
gas wells. Mr. Fox also serves as consultant to various companies in the oil
and gas industry. Mr. Fox is a Director of Century Offshore Management
Corporation, Lexington, Kentucky. Mr. Fox was Chairman of Richmond Oil and Gas
PLC, a London Stock Exchange listed oil and gas company, from October 1990 to
December 1993. Mr. Fox served as Managing Director and Chief Executive Officer
of Oil Exploration (Holdings) Ltd. from 1974 to 1979. He served on the Board
of LASMO Energy PLC from 1979 to 1989. He also served as Managing Director and
Chief Executive Officer in the Netherlands for Placid Oil Company from 1964 to
1973. Mr. Fox holds a B.S. degree in geology from Marshall University, a M.S.
in geology from University of Illinois and an honorary doctorate in science
degree from Heriot Watt University, Edinburgh, Scotland. He is a Registered
Petroleum Engineer, a Trustee and Life Member of the American Association of
Petroleum Geologists, a Fellow of the Geological Society of America and a
Member of the Society of Petroleum Engineers.
STEVEN L. GERARD, age 51, has served as a Director of DeepTech since
August 1992. Since September 1992, Mr. Gerard has served as Chairman of the
Board and Chief Executive Officer of Triangle Wire & Cable, Inc. From April
1992 to May 1992, he served as Chief Executive Officer of Mountleigh Group,
plc, a London based property management company ("Mountleigh"), during its
restructuring. Mountleigh was placed in receivership under United Kingdom law
on May 25, 1992. From July 1990 until April 1992, Mr. Gerard was a Senior
Managing Director of Citibank, N.A. ("Citibank") responsible for credit,
portfolio and risk management for Citibank's corporate and investment banking
activities in the United States, Japan, Europe and Australia. From August 1987
to July 1990, he was Division Executive for the National Corporate Finance
Division of Citibank. Prior thereto, Mr. Gerard was the Senior Corporate
Workout Officer in the Institutional Recovery Management Division of Citibank.
Mr. Gerard is also a Director of Banner Aerospace, Inc. and U.S. Home
Corporation.
MICHAEL H. LAM, age 50, served as an Advisory Director of DeepTech
from March 1995 until October 1995 and as a Director of DeepTech since October
1995. Mr. Lam is President of Marine Construction Services, J. Ray McDermott,
S.A. and is a Director of J. Ray McDermott, S.A. and was Vice Chairman and
Chief Operating Officer of Offshore Pipelines, Inc. ("OPI") until its merger
with J. Ray McDermott, S.A. in February 1995. Mr. Lam joined OPI in 1990 and
served as Executive Vice President of worldwide operations until 1992, when he
became Vice Chairman and Chief Operating Officer. Mr. Lam has 23 years of
experience in the offshore oil and gas industry and holds a B.S. degree in
civil engineering from Texas A&M University.
BEN T. MORRIS, age 50, has served as a Director of DeepTech since
1989. Mr. Morris is President, Chief Executive Officer and a Director in the
investment banking firm of Sanders Morris Mundy Inc. ("SMM") and has been
employed by the firm since 1987. Mr. Morris is a Director of Centrax, Inc.,
Fresh America Corporation, Intersport Limited, Hydra Fluids, Inc., L-D
Communications, Inc. and USA Company, Inc. Mr. Morris served as Chief
Operating Officer of Tatham Corporation from 1980 until 1984. Prior thereto,
he worked
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for Mid American Oil Company from 1973 until 1980, serving as President in 1979
and 1980. Mr. Morris has a B.B.A. from the University of North Texas and is a
certified public accountant.
NANCY K. QUINN, age 43, has served as a Director of the Beacon Group
Capital Services, L.L.C. since August 1996. Ms. Quinn was a Managing Director
and co-head of the Energy and Natural Resources Group at PaineWebber
Incorporated from December 1994 through November 1995. Ms. Quinn was employed
by Kidder, Peabody & Co. Incorporated from 1982 until December 1994, serving as
a Managing Director and co-head of the Natural Resources Group from 1990
through 1994. Ms. Quinn holds a B.F.A. degree from Louisiana State University
and an M.B.A. degree from the University of Arkansas.
JANET E. SIKES, age 42, has served as Secretary of DeepTech since
August 1993, a Director of DeepTech since July 1993, Treasurer of DeepTech
since May 1991 and as a Director of Leviathan since September 1991. Ms. Sikes
has managed accounting, treasury, cash management and financial reporting
functions for various entities owned and controlled by Mr. Tatham since 1981.
Prior thereto, Ms. Sikes worked in the audit division of Price Waterhouse LLP
("Price Waterhouse"), and for two years as the Assistant Controller of Ocean
Marine Services, Inc. Ms. Sikes holds a B.B.A. from Texas A&M University and
is a certified public accountant.
GRANT E. SIMS, age 41, has served as a Senior Vice President of
DeepTech since December 1992, as a Director of DeepTech since July 1993 and as
Chief Executive Officer of Leviathan since June 1995. Mr. Sims has served as a
Director of Leviathan since July 1994. In addition, Mr. Sims served as the
President of Leviathan from March 1994 to June 1995. Prior to his employment
with the Company, Mr. Sims served as an independent consultant with clients
ranging from United Gas Pipe Line Company to DLJ following a ten year career at
Transco Energy Company ("Transco") where he directed Transco's non
jurisdictional gas activities. Mr. Sims received a B.A. and Ph.D. in Economics
from Texas A&M University.
DONALD V. WEIR, age 55, has served as Chief Financial Officer and a
Director of DeepTech since June 1991, Vice President of DeepTech since 1989 and
Secretary of DeepTech from 1989 to August 1993. In addition, Mr. Weir has
served as a Director of Leviathan since 1989, Secretary of Leviathan since
March 1994, Chief Operating Officer of Leviathan from 1989 to March 1994,
Secretary and a Director of Dover Technology, Inc., a 50% owned affiliate of
DeepTech, since 1989, Secretary and a Director of Tatham Offshore from 1988 to
September 1995 and as Chief Financial Officer of Tatham Offshore from 1991 to
September 1995. From 1988 until 1991, he served as a Vice President of Tatham
Offshore. Prior to joining the Company, Mr. Weir served in various executive
capacities with numerous entities owned and controlled by Mr. Tatham. Prior to
joining Mr. Tatham's organizations in 1980, Mr. Weir was with Price Waterhouse
for 14 years.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD
Board Meetings. The Board of Directors held six meetings during the
fiscal year ended June 30, 1996. During the fiscal year ended June 30, 1996,
each director attended at least 75% of the total number of meetings of the
Board of Directors and the committees on which each such director served.
Committees of the Board of Directors. DeepTech had the following
committees of the Board of Directors during the fiscal year ended June 30,
1996:
Compensation Committee. The Compensation Committee of the Board of
Directors, which is comprised of Messrs. Gerard (Chairman), Albert, Morris and
Mr. Paul Thompson, III, met two times during the fiscal year ended June 30,
1996. Mr. Thompson is currently a Director of DeepTech who is not standing for
re-election. The Compensation Committee is responsible for reviewing and
recommending to the Board of Directors the compensation to be paid to the
executive officers of DeepTech.
Executive Committee. The Executive Committee did not meet during the
fiscal year ended June 30, 1996. The Executive Committee may exercise all of
the power of the Board of Directors, except where restricted by DeepTech's
By-laws or by applicable law. Approval of any matter before the Executive
Committee
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is subject to approval by an outside Director, currently Mr. Morris. The
Executive Committee is currently comprised of Messrs. Tatham (Chairman), Weir,
Sims and Morris.
Conflicts and Audit Committee. The Conflicts and Audit Committee,
which is currently comprised of Messrs. Morris (Chairman), Gerard, Albert and
Thompson, met one time during the fiscal year ended June 30, 1996. The
Conflicts and Audit Committee provides two primary services. First, it advises
the Board of Directors in matters regarding the system of internal controls and
the annual independent audit, and reviews policies and practices of DeepTech,
including changes in accounting practices and significant estimates made by
management affecting the financial statements. Second, the Conflicts and Audit
Committee, at the request of the Board of Directors, reviews specific matters
as to which the Board of Directors believes there may be a conflict of interest
in order to determine if the resolution of such potential conflict proposed by
the Board of Directors is fair and reasonable to DeepTech. The Conflicts and
Audit Committee also reviews other matters that it deems appropriate. Any such
matters approved by a majority vote of the Conflicts and Audit Committee will
be deemed conclusively to be fair and reasonable to DeepTech.
COMPENSATION OF DIRECTORS
Directors of DeepTech are entitled to reimbursement for their
reasonable out-of-pocket expenses in connection with their travel to and from,
and attendance at, meetings of the Board of Directors or committees thereof.
Directors of DeepTech who are not officers or affiliates of DeepTech are paid
an annual fee of $30,000 plus $2,000 per meeting attended. Mr. Darling does
not receive compensation for his service as Director of DeepTech.
On November 1, 1994, each of Messrs. Morris and Thompson were granted
stock options to purchase 150,000 shares of Common Stock at an exercise price
of $10.15 per share. The terms of the options provided that they expired one
year after the service of the respective board members cease and that they were
immediately exercisable. The grant of these options was subject to shareholder
approval. In October 1995, the Company substituted stock options issued
pursuant to the Non-Employee Director Stock Option Plan (the "Director Plan")
to purchase 150,000 shares of Common Stock at $4.00 per share for each of these
grants. See "Non-Employee Director Stock Option Plan."
In December 1991, Mr. Tatham entered into an agreement with Mr. Albert
regarding Mr. Albert's service as a consultant to and Director of DeepTech.
The agreement was agreed to and accepted by DeepTech. In addition to standard
director compensation, the agreement provides that Mr. Albert shall have during
the term of the agreement and for a period of 180 days thereafter the option to
purchase from Mr. Tatham 150,000 shares of Common Stock at Mr. Tatham's actual
cost for same (including carrying costs). The agreement provides for Mr.
Albert's service as a Director upon election at the first scheduled meeting of
DeepTech's shareholders following the date of the agreement. The agreement may
be terminated by either party upon 30 days prior written notice.
On February 21, 1994, Mr. Tatham entered into an agreement with Mr.
Gerard regarding Mr. Gerard's service as a consultant to and Director of
DeepTech effective January 1, 1992. The agreement was agreed to and accepted
by DeepTech. In addition to standard director compensation, the agreement
provides that Mr. Gerard shall have during the term of the agreement and for a
period of 180 days thereafter the option to purchase from Mr. Tatham 150,000
shares of Common Stock at Mr. Tatham's actual cost for same (including carrying
costs). The agreement provides for Mr. Gerard's service as a Director
effective January 1, 1992. The agreement may be terminated by either party
upon 30 days prior written notice.
In November 1994, the Board of Directors authorized DeepTech to
reimburse Mr. Tatham for costs he incurred in connection with the agreements he
made with each of Messrs. Albert and Gerard. In September 1995, the
Compensation Committee of the Board of Directors authorized DeepTech to grant
Mr. Tatham options to purchase 300,000 shares of Common Stock at $5.00 per
share, the estimated fair market value at the date of grant, and to pay Mr.
Tatham $705,000 which was settled in part by canceling Mr. Tatham's obligation
under an unsecured demand note in the original principal amount of $600,000.
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In February 1995, DeepTech entered into an agreement with Mr. Lam
regarding his service as an Advisory Director of DeepTech and as a member of
the Board of Directors of DeepFlex. The agreement provides that Mr. Lam is to
receive $30,000 base compensation per year and $1,000 per meeting attended as
an Advisory Director or as Vice-Chairman of the Engineering and Technical
Review Committee of DeepTech and $2,000 per meeting attended as a Director of
DeepFlex. The agreement also provides for consulting services to be provided
by Mr. Lam at the request of DeepTech or DeepFlex at the rate of $250 per hour
with a minimum $40,000 paid during twelve month period following the date Mr.
Lam agreed to become a Director. The agreement also provided that for a period
of one year following the commencement of service, Mr. Lam had the right to
elect to receive (i) the option to purchase a number of shares of DeepFlex
common stock that represents 5% of the common stock outstanding at the date of
the agreement or (ii) options to purchase 150,000 shares of Common Stock. The
DeepFlex option would have been exercisable at a price per share equal to
DeepTech's total per share equity investment in DeepFlex plus 12% per annum
from the date of investment to the date of exercise. The DeepTech option was
to be exercisable at fair market value. The agreement also provided that Mr.
Lam could elect to receive options to purchase common stock of both companies
on a prorated basis. In October 1995, Mr. Lam elected to receive options to
purchase DeepTech shares. As a result, DeepTech issued Mr. Lam options to
purchase 150,000 shares of Common Stock at $4.00 per share pursuant to the
Director Plan. See "Non-Employee Director Stock Option Plan."
In February 1995, DeepTech entered into an agreement with Mr. Phillip
G. Clarke regarding his service as an Advisory Director, Chairman of the
Engineering and Technical Review Committee for DeepTech and a Director of
Tatham Offshore. The agreement provides that Mr. Clarke is to receive $30,000
base compensation per year and $1,000 per meeting attended as an Advisory
Director or as Chairman of the Engineering and Technical Review Committee of
DeepTech in addition to director compensation of $30,000 per year and $2,000
per meeting attended for serving as a Director of Tatham Offshore. The
agreement also provided for consulting services to be provided by Mr. Clarke at
the request of DeepTech or Tatham Offshore at the rate of $250 per hour with a
minimum $40,000 paid during twelve month period following the date Mr. Clarke
agreed to become a Director. The agreement also provided that for a period of
one year following the commencement of service, Mr. Clarke had the right to
elect to receive (i) options to purchase 30,000 shares of Tatham Offshore
common stock, (ii) options to purchase 150,000 shares of Common Stock or (iii)
options to purchase common stock of both companies on a prorated basis. The
options were to be exercisable at fair market value. In October 1995, Mr.
Clarke elected to receive options to purchase DeepTech shares. As a result,
DeepTech issued Mr. Clarke options to purchase 150,000 shares of Common Stock
at $4.00 per share pursuant to the Director Plan. See "Non-Employee Director
Stock Option Plan."
In February 1995, DeepTech entered into an agreement with Mr. Clyde
Nath regarding his service as Director of Tatham Offshore and as a special
advisor to the Board of Directors of DeepTech. In addition to standard
director compensation, the agreement provides that to the extent Mr. Nath
performs consulting services upon request by Tatham Offshore and/or DeepTech or
affiliates thereof beyond the scope of services usually performed by a
director, he will be compensated at a rate of $250 per hour. The agreement
also provided that for a period of one year following the commencement of
service, Mr. Nath had the right to elect to receive (i) options to purchase
30,000 shares of Tatham Offshore common stock and (ii) options to purchase
30,000 shares of Common Stock. The options were to be exercisable at fair
market value. During the year ended June 30, 1996, Mr. Nath was issued options
to purchase 30,000 shares of Tatham Offshore common stock at $.8125 per share.
These options are immediately exercisable during Mr. Nath's term as a Director
and for a period of twelve months thereafter. In addition, during October
1995, Mr. Nath was granted options to purchase 30,000 shares of Common Stock at
$4.00 per share pursuant to DeepTech's Amended Equity Incentive Plan (the
"Plan"). See "Equity Incentive Plan."
Mr. Nath also entered into a business consulting agreement with
Flextrend Development Company, L.L.C. ("Flextrend Development"), which is 100%
owned by the Partnership and Leviathan, immediately after Flextrend Development
acquired working interests in certain oil and gas leases from Tatham Offshore
on June 30, 1995. Pursuant to this agreement, Mr. Nath agreed to provide
Flextrend Development consulting services in exchange for a one time consulting
fee of $150,000. The business consulting agreement had a one year term
commencing on the date of the agreement (July 1, 1995). Effective July 1,
1996, Mr. Nath and Flextrend
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Development entered into a similar agreement providing that Mr. Nath would
devote 25% of his time to Flextrend Development for annual fee of $75,000
payable in January 1997.
In September 1995, DeepTech entered into an agreement with Dr. Chouest
regarding his service as Director of DeepTech. In addition to standard
director compensation, the agreement provided that for a period from the
commencement of service until one year from the cessation of service, Dr.
Chouest had the right to exercise options to purchase 150,000 shares of Common
Stock. The options were to be exercisable at fair market value as of October
26, 1995. The agreement provided that the options shall be assignable, at Dr.
Chouest's election, to Alpha Marine Services, Inc., and that any stock
purchased pursuant to such options shall, after such purchase, be included in a
DeepTech shelf registration to be filed with the Securities and Exchange
Commission (the "Commission"). In October 1995, DeepTech issued Dr. Chouest
options to purchase 150,000 shares of Common Stock at $4.00 per share pursuant
to the Director Plan in full settlement of its obligations under this
agreement. See "Non-Employee Director Stock Option Plan."
In September 1995 DeepTech entered into an agreement with Mr. Fox
regarding his service as a Director of DeepTech. In addition to standard
director compensation, the agreement provided that for a period from the
commencement of service until one year from the cessation of service, Mr. Fox
had the right to exercise options to purchase 150,000 shares of Common Stock.
The options were to be exercisable at fair market value as of October 26, 1995.
The agreement provides that the options shall be assignable, and that any stock
purchased pursuant to such options shall, after such purchase, be included in a
DeepTech shelf registration to be filed with the Commission. In October 1995,
DeepTech issued Mr. Fox options to purchase 150,000 shares of Common Stock at
$4.00 per share pursuant to the Director Plan in full settlement of its
obligations under this agreement. See "Non-Employee Director Stock Option
Plan."
In October 1995, DeepTech entered into an agreement with Ms. Quinn
regarding her service as Director of DeepTech. In addition to standard
director compensation, the agreement provided that for a period from the
commencement of service until one year from the cessation of service, Ms. Quinn
had the right to exercise options to purchase 150,000 shares of Common Stock.
The options were to be exercisable at fair market value as of October 26, 1995.
The agreement provides that the options shall be assignable, and that any stock
purchased pursuant to such options shall, after such purchase, be included in a
DeepTech shelf registration to be filed with the Commission. In October 1995,
DeepTech issued Ms. Quinn options to purchase 150,000 shares of Common Stock at
$4.00 per share pursuant to the Director Plan in full settlement of its
obligations under this agreement. See "Non-Employee Director Stock Option
Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Thompson and Mr. Eads are Managing Directors of DLJ and officers
of certain of DLJ's affiliates that have made loans to DeepTech and certain of
its affiliates. DLJ and certain of its affiliates have provided investment
banking and related services to DeepTech, Leviathan, Tatham Offshore and the
Partnership in the past for which they have received customary compensation.
As of September 15, 1996, five officers of DLJ owned overriding royalty
interests in certain oil and gas leases held by Tatham Offshore. These
overriding royalty interests were acquired in partial consideration for loans
made by such officers to Tatham Offshore which have since been repaid. DLJ and
its affiliates also own interests in DeepTech and overriding royalty interests
in certain other oil and gas leases held by Tatham Offshore. See "Voting
Securities and Principal Stockholders."
Mr. Morris, a Director of DeepTech, is an officer and shareholder of
SMM. During the past several years, SMM has provided investment banking
services to DeepTech and its affiliates, including acting as an underwriter in
connection with Tatham Offshore's initial public offering of its common stock
and a public offering by the Partnership of its preference units, for which it
has received customary compensation. In December 1995, SMM entered into a
Standby Underwriting Agreement, relative to their acting as underwriter for a
rights offering by Tatham Offshore. As compensation for SMM's commitment to
purchase any warrants remaining after the exercise of rights to which the
rights holders excluding DeepTech were entitled, Tatham Offshore paid the sum
of $500,000. In addition, SMM was reimbursed for other customary expenses. In
June 1994, SMM and DeepTech entered into a Financial Advisory Agreement
pursuant to which SMM provided
-7-
<PAGE> 10
DeepTech with consulting services in exchange for a monthly fee of $12,500.
The Financial Advisory Agreement could be terminated upon 30 days prior written
notice by either party. Effective September 1995, DeepTech elected to
terminate this agreement. In addition to quarterly cash dividends, Mr. Morris
received overriding royalty interests in certain oil and gas leases held by
Tatham Offshore in connection with dividends received on Leviathan Holding
Company's common stock held by him. Leviathan Holdings Company, an 85% owned
subsidiary of DeepTech, owns 100% of Leviathan.
-8-
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by
DeepTech's Chief Executive Officer and each of its four other most highly
compensated executive officers for the fiscal year ended June 30, 1996
(collectively, the "Named Officers") in salary and bonus for services rendered
in all capacities to DeepTech and its subsidiaries for the fiscal years ended
June 30, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------------------------
MARKET VALUE OTHER ANNUAL
NAME/PRINCIPAL FISCAL SALARY BONUS OF STOCK COMPENSATION(1)
POSITION YEAR ($) ($) ISSUED(2) ($)
<S> <C> <C> <C> <C> <C>
Thomas P. Tatham........... 1996 -- (3) -- (3) $3,331,750 (3) $ 39,178 (4)
Chief Executive Officer 1995 $600,000 -- (6) $ 600,000 (6) $107,714 (7)
DeepTech 1994 $600,000 -- -- --
James H. Lytal............. 1996 $120,000 (9) -- $ 66,100 (9) --
President 1995 $125,301 $32,067 (10) -- --
Leviathan 1994 -- (12) -- -- --
Edward L. Moses, Jr........ 1996 -- (13) -- $ 328,215 (13) $ 16,883 (14)
Senior Vice President 1995 $152,875 -- -- $ 17,162 (16)
DeepTech 1994 $120,000 -- -- --
Grant E. Sims.............. 1996 $315,000 -- -- --
Chief Executive Officer 1995 $193,750 $54,547 (18) -- $ 25,722 (19)
Leviathan 1994 $150,000 $15,256 (18) -- --
Donald V. Weir............. 1996 $200,000 -- -- $ 19,241 (21)
Chief Financial Officer 1995 $179,162 -- -- $ 86,899 (22)
DeepTech 1994 $132,507 -- -- --
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS ALL OTHER
NAME/PRINCIPAL OPTIONS COMPENSATION
POSITION (#) ($)
<S> <C> <C>
Thomas P. Tatham........... -- (5) --
Chief Executive Officer 100,000 (8) --
DeepTech -- --
James H. Lytal............. -- --
President 50,000 (11) --
Leviathan -- --
Edward L. Moses, Jr........ 75,000 (8) $89,775 (15)
Senior Vice President -- $ 3,500 (17)
DeepTech -- $42,000 (17)
Grant E. Sims.............. 100,000 (8) --
Chief Executive Officer 350,000 (20) --
Leviathan -- --
Donald V. Weir............. 125,000 (8) --
Chief Financial Officer 50,000 (8) --
DeepTech 75,000 (23) --
</TABLE>
- -----------
(1) Other Annual Compensation excludes the aggregate value of perquisites
when such value is less than the lesser of $50,000 or 10% of total
annual Salary and Bonus for each Named Officer.
(2) Consists of the aggregate market value of Common Stock and Tatham
Offshore common stock issued as a result of the exercise of options
granted pursuant to the Deferred Compensation Arrangement for salary
and bonuses. The aggregate market value is calculated based on the
last reported sales prices of the Common Stock and/or the Tatham
Offshore common stock on the dates of exercise of the options. See
"Deferred Compensation Arrangement."
(3) Mr. Tatham's salary and bonus for the year ended June 30, 1996 was
settled through the issuance of options pursuant to DeepTech's
Deferred Compensation Arrangement. Under the Deferred Compensation
Arrangement, for each $1 of salary deferred, Mr. Tatham was entitled to
apply $3 in the exercise of options to acquire Common Stock or Tatham
Offshore common stock under DeepTech's Plan or Tatham Offshore's
Equity Incentive Plan, respectively. Through June 30, 1996, Mr.
Tatham had exercised options to acquire 600,125 shares of Common Stock
in full settlement of his salary for the fiscal year ended June 30,
1996. In addition, Mr. Tatham was awarded a bonus during the year
ended June 30, 1996 related to the sale of the FPS Eddie Delahoussaye.
This bonus was settled pursuant to the Deferred Compensation
Arrangement in September 1995 when Mr. Tatham exercised options to
purchase 150,000 shares of Common Stock. The aggregate market value
of the 750,125 shares of Common Stock issued, calculated based on the
last reported sales price on the dates of exercise, was $3,331,750.
See "Option Exercises and Year-End Value Table."
(4) Represents dues for club memberships.
(5) Excludes options to acquire 1,966,666 shares of Common Stock that were
granted by DeepTech to Mr. Tatham during the fiscal year ended June
30, 1996 related to matters other than for executive compensation.
See "Certain Relationships and Related Transactions."
(6) Mr. Tatham's bonus was earned during the year ended June 30, 1995 but
was deferred under the Deferred Compensation Arrangement with
DeepTech. In August 1995, Mr. Tatham exercised options to purchase
150,000 shares of Common Stock in settlement of this bonus obligation.
The market value of the 150,000 shares of
-9-
<PAGE> 12
Common Stock issued, calculated based on the last reported sales price
on the date of exercise, was $600,000. See "Option Exercises and
Year-End Value Table."
(7) Includes $85,400 to pay the initial membership fee at two country
clubs.
(8) Options granted pursuant to the Plan. See "Equity Incentive Plan."
(9) A portion of Mr. Lytal's salary for the year ended June 30, 1996 was
settled through the issuance of options pursuant to DeepTech's
Deferred Compensation Arrangement. Under the Deferred Compensation
Arrangement, for each $1 of bonus deferred, Mr. Lytal was entitled to
apply $1.50 in the exercise of options to acquire Common Stock under
DeepTech's Plan or $2.00 in the exercise of options to acquire Tatham
Offshore common stock under Tatham Offshore's Equity Incentive Plan.
Through June 30, 1996, Mr. Lytal had exercised options to acquire
10,000 shares of Common Stock and 21,979 shares of Tatham Offshore
common stock in full settlement of the portion of salary deferred.
The aggregate market value of the 10,000 shares of Common Stock and
the 21,979 shares of Tatham Offshore common stock issued, calculated
based on the last reported sales prices on the dates of exercise, was
$66,100. See "Deferred Compensation Arrangement."
(10) Includes $22,067 of bonus payable pursuant to Mr. Lytal's employment
agreement. See "Employment Agreements."
(11) Options were issued pursuant to Mr. Lytal's employment agreement. See
"Employment Agreements" and "Ten Year Options Repricings."
(12) Mr. Lytal was not employed by DeepTech during this period.
(13) Mr. Moses' salary for the year ended June 30, 1996 was settled through
the issuance of options pursuant to DeepTech's Deferred Compensation
Arrangement. Under the Deferred Compensation Arrangement, for each $1
of bonus deferred, Mr. Moses was entitled to apply $1.50 in the
exercise of options to acquire Common Stock under DeepTech's Plan or
$2.00 in the exercise of options to acquire Tatham Offshore common
stock under Tatham Offshore's Equity Incentive Plan. Through June 30,
1996, Mr. Moses had exercised options to acquire 35,515 shares of
Common Stock. In July 1996, Mr. Moses exercised options to acquire an
additional 18,752 shares of Common Stock in full settlement of his
salary for the fiscal year ended June 30, 1996. The aggregate market
value of the 54,267 shares of Common Stock issued, calculated based on
the last reported sales price on the dates of exercise, was $328,215.
See "Deferred Compensation Arrangement."
(14) Includes $5,375 related to use of an automobile provided by DeepTech
and $11,508 of dues for club memberships.
(15) Consists of an advance by Tatham Offshore that was forgiven during
the fiscal year ended June 30, 1996 in exchange for consulting fees
rendered to Tatham Offshore.
(16) Includes $5,843 related to use of an automobile provided by DeepTech
and $11,319 of dues for club memberships.
(17) Consists of consulting fees rendered to DeepTech and/or Tatham
Offshore during the periods indicated.
(18) Bonuses payable pursuant to Mr. Sims' employment agreement. See
"Employment Agreements."
(19) Includes $20,400 to pay the initial membership fee at a country club.
(20) Includes options to purchase 50,000 shares of Common Stock granted
pursuant to the Plan which were canceled during the fiscal year ended
June 30, 1996 in connection with the grant of 100,000 options pursuant
to the Plan and options to purchase 300,000 shares of Common Stock
issued in connection with Mr. Sims' continued employment. See
"Employment Agreements."
(21) Includes $7,125 related to the use of an automobile provided by
DeepTech and $12,116 of dues for club memberships.
(22) Includes $8,136 related to the use of an automobile provided by
DeepTech and $74,025 to pay the initial membership fees at two country
clubs.
(23) Options granted pursuant to the Plan which were canceled during the
fiscal year ended June 30, 1996 in connection with the grant of
125,000 options pursuant to the Plan. See "Equity Incentive Plan" and
"Ten Year Option Repricings."
-10-
<PAGE> 13
OPTION GRANTS
The following table sets forth certain information with respect to
option grants made to the Named Officers under the Plan and otherwise during
the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OPTIONS
GRANTED
NUMBER OF TO EXERCISE POTENTIAL REALIZABLE VALUE AT
SHARES OF COMMON EMPLOYEES OR ASSUMED ANNUAL RATES OF
STOCK UNDERLYING IN FISCAL BASE PRICE EXPIRATION STOCK PRICE APPRECIATION FOR
NAME OPTIONS GRANTED YEAR ($/SH) DATE OPTION TERM
5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Tatham 300,000 N/A $5.00 9/7/05 $ 849,182 $2,103,107
1,666,666 N/A $4.50 7/15/97 $1,267,562 $1,702,641
850,000 36.6% $4.00 7/15/96 N/A N/A
50,125 2.2% $3.99 7/15/96 N/A N/A
James H. Lytal 50,000 2.2% $4.00 11/13/05 $ 195,053 $ 411,117
15,000 .1% $4.00 7/15/96 N/A N/A
5,013 * $3.99 7/15/96 N/A N/A
Edward L. Moses, Jr. 75,000 3.2% $4.00 11/13/05 $ 292,579 $ 616,675
51,568 2.2% $4.00 7/15/96 N/A N/A
4,699 * $3.99 7/15/96 N/A N/A
Grant E. Sims 100,000 4.3% $4.00 11/13/05 $ 390,105 $ 822,233
7,032 * $4.00 7/15/96 N/A N/A
2,350 * $3.99 7/15/96 N/A N/A
Donald V. Weir 125,000 5.4% $4.00 11/13/05 $ 487,632 $1,027,791
9,375 * $4.00 7/15/96 N/A N/A
3,133 * $3.99 7/15/96 N/A N/A
</TABLE>
- --------------
*Less than .1%
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth certain information regarding the
outstanding options and warrants to purchase DeepTech common stock held by the
Named Officers at June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE FISCAL YEAR-END (#) FISCAL YEAR-END ($)
NAME ON EXERCISE (#)(1) REALIZED ($)(2) EXERCISABLE/UNEXERCISABLE(3) EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Tatham .......... 900,125 $2,731,750 2,066,666(4) / -- $833,333(4)/ --
James H. Lytal ............ 10,000 $ 13,332 -- / 50,000 -- / $ 50,000
Edward L. Moses, Jr. ...... 37,515 $ 87,575 18,752 / 75,000 $ 43,760 / $ 75,000
Grant E. Sims ............. -- -- 200,000 / 175,000(5) $112,500 / $156,250
Donald V. Weir ............ -- -- 50,000 / 125,000 -- / $125,000
</TABLE>
- --------------
(1) Consists of shares acquired as a result of the exercise of options issued
pursuant to the Deferred Compensation Arrangement. See "Summary
Compensation Table" and "Deferred Compensation Arrangement."
(2) Consists of the spread between the salary and/or bonus being settled and
the last reported sale price of Common Stock times the number of shares
acquired on the dates of exercise. Accordingly, the Named Officers would
have realized these amounts had they sold such shares on the dates of
exercise.
(3) All unexercisable options in this column, except as otherwise discussed
in footnote 5 below, relate to options which were issued pursuant to
DeepTech's Plan and which vest 25% annually beginning November 14, 1996.
(4) Excludes options to acquire 125,000 shares of Common Stock at $4.50 per
share purchased by Mr. Tatham in August 1996.
(5) Includes 75,000 options issued pursuant to an employment agreement with
Mr. Sims. See "Employment Agreements."
-11-
<PAGE> 14
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
As members of the Compensation Committee, it is our duty to administer
the executive compensation program for DeepTech. The Compensation Committee is
responsible for establishing appropriate compensation goals for the executive
officers of the Company and evaluating the performance of such executive
officers in meeting such goals and making recommendations to the Board of
Directors with regard to executive compensation.
The goals of the Compensation Committee in establishing DeepTech's
executive compensation program are as follows:
(1) To fairly compensate the executive officers of DeepTech and
its subsidiaries for their contributions to DeepTech's short-term and long-term
performance. The elements of DeepTech's executive compensation program are (a)
annual base salaries, (b) annual bonuses and (c) equity incentives.
(2) To allow DeepTech to attract, motivate and retain the
management personnel necessary to DeepTech's success by providing an executive
compensation program comparable to that offered by companies with which DeepTech
competes for such management personnel.
The elements of the executive compensation program described above are
implemented and periodically reviewed and adjusted by the Compensation
Committee. The annual base salaries of the Chief Executive Officer of DeepTech
and the other executive officers are determined based on individual
performance, experience and comparison with salaries paid by DeepTech's
industry peers and other companies in similar industries with comparable
revenues while linking the payment of compensation to DeepTech's achievement of
certain financial goals. In developing salary recommendations, the
Compensation Committee reviewed salaries of similar positions in similarly
sized companies which engage in DeepTech's business. The Committee confirmed
that the overall compensation packages over the last several years, including
the executive officers' equity ownership in DeepTech and/or its subsidiaries,
were consistent with the Compensation Committee's stated objective.
TEN YEAR OPTION REPRICINGS
The following table sets forth certain information with respect to
stock options canceled and new options granted at the new exercise price during
the last ten years to Named Officers of the Company.
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
OPTIONS MARKET PRICE OF EXERCISE PRICE ORIGINAL OPTION
REPRICED OR STOCK AT TIME AT TIME OF TERM REMAINING
AMENDED OF REPRICING OR REPRICING OR NEW EXERCISE AT REPRICING OF
NAME DATE (#) AMENDMENT AMENDMENT PRICE AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
James Lytal 11/14/95 50,000 $4.00 $10.50 $4.00 105 months
Donald V. Weir 11/14/95 75,000 $4.00 $13.50 $4.00 102 months
</TABLE>
In October 1995, the Compensation Committee of the Board of Directors
authorized the exchange and repricing of certain outstanding stock options (the
"Old Options") held by employees of DeepTech whereby these employees could
voluntarily surrender certain existing stock options and receive new stock
options (the "New Options") on the terms described below. The Board of
Directors noted that the overall purpose of DeepTech's Plan is to attract and
retain the services of DeepTech's employees and to provide incentives to such
person to exert maximum efforts for DeepTech's success. The Board of Directors
concluded that the decline in the market value of DeepTech's Common Stock had
frustrated these purposes and diminished the value of DeepTech's stock option
program as an element of DeepTech's compensation arrangements. Accordingly,
the Board of Directors adopted a repricing program. At the time of the
repricing, the exercise price of the Old Options ranged from $10.50 to $13.50
per share. The exercise price of all New Options is $4.00 per share. In
connection with the repricing, Mr. Lytal exchanged an aggregate of 50,000
shares subject to Old Options for 50,000 shares of New Options. In connection
with the repricing, Mr. Weir exchanged an aggregate of 75,000 shares subject to
Old Options for 75,000 shares
-12-
<PAGE> 15
subject to New Options. Mr. Weir also received options to purchase an
additional 50,000 shares at $4.00 per share at the time of the repricing.
COMPENSATION COMMITTEE
----------------------
Steven L. Gerard (Chairman)
Conrad P. Albert
Ben T. Morris
Paul Thompson, III
EQUITY INCENTIVE PLAN
General. In 1993, the Board of Directors of DeepTech adopted, and the
stockholders of DeepTech approved, the 1993 Employee Stock Option Plan. The
1993 Employee Stock Option Plan was amended and restated in 1995 and renamed
the Amended Equity Incentive Plan (as so amended and restated, the "Plan").
The amendment and restatement of the Plan was effected to provide DeepTech with
additional flexibility in making a variety of awards pursuant to the Plan
including stock options, restricted stock, and stock value equivalent awards.
In addition, during the Company's fiscal year ending June 30, 1996, the Company
issued stock options under the Plan to certain employees of DeepTech who agreed
to defer certain cash salary and bonus otherwise due. See "Deferred
Compensation Arrangement".
Summary of Plan. Under the Plan, DeepTech may grant to employees,
consultants or agents of DeepTech or any of its subsidiaries one or more
options (each, a "Stock Option") to purchase shares of Common Stock as
hereinafter set forth. Stock Options granted under the Plan may be either
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
or options that do not qualify as Incentive Stock Options ("Non-Qualified Stock
Options"). Pursuant to the Plan, DeepTech may grant awards of Common Stock
subject to restrictions on sale or other disposition of such shares
("Restricted Stock Grant"), and such other requirements as the Committee deems
appropriate including the requirement that such shares be forfeited upon
termination of employment for certain reasons within a specified period of
time. Pursuant to the Plan, DeepTech may also grant rights to receive an
amount equal to the fair market value of shares of Common Stock or rights to
receive an amount equal to any appreciation or increase in the fair market
value of Common Stock over a specified period of time ("Stock Value Equivalent
Awards"). Stock Options, Restricted Stock Grants and Stock Value Equivalent
Awards are referred to collectively herein as "Awards."
Except with respect to outstanding Awards, and unless sooner
terminated by action of DeepTech's Board of Directors (the "Board"), or the
committee thereof charged with administration of the Plan, the Plan will
terminate on December 31, 2005. The maximum number of shares of Common Stock
with respect to which Awards may be granted under the Plan is 4,000,000,
subject to adjustments for stock splits, stock dividends and certain other
changes in capitalization.
The Board may terminate or suspend the Plan (or any portion thereof)
at any time with respect to any shares for which Awards have not previously
been granted and remain outstanding. The Board has the right to alter or amend
the Plan or any part thereof from time to time; provided, however, that no
change in any Award theretofore granted may be made which would materially
adversely affect the rights and obligations of the holder of any such Award
without the written consent of such Plan participant; and provided, further,
that the Board may not, without stockholder approval as required under the
Plan, (i) materially increase the number of shares of Common Stock which may be
issued under the Plan (other than in connection with adjustments permitted by
the Plan), (ii) materially modify the requirements as to eligibility for
participation in the Plan, (iii) materially increase the benefits accruing to
participants under the Plan, or (iv) extend the termination date of the Plan.
In addition, no amendment, suspension or termination can be adopted which would
disqualify the Plan from (i) the exemption provided by Rule 16b-3, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor rule or regulation to such Rule 16b-3, as such rule is applicable
from time to time, or (ii) the benefits provided under Section 422 of the
Internal Revenue Service Code of 1986, as amended (the "Code"), or any
successor thereto.
-13-
<PAGE> 16
The Plan is not subject to any provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), nor the qualification
requirements of Section 401 of the Code.
The Plan is administered by the Compensation Committee, a committee
appointed by the Board composed of two or more directors of DeepTech (the
"Committee"). Each member of the Committee is a disinterested person within
the meaning of Rule 16b-3 of the Exchange Act and qualifies as an "outside
director," as such term is used for the purposes of Section 162(m) of the Code
and any rules and regulations promulgated thereunder.
Subject to the provisions of the Plan, the Committee has sole
authority to select the individuals who are to be granted Awards from among
those persons who are eligible and to determine the restrictions, terms and
conditions of each Award granted under the Plan (subject to the terms of the
Plan). The Committee is authorized to interpret the Plan and may, from time to
time, adopt, amend, or rescind rules and regulations relating to the
implementation, administration and maintenance of the Plan.
As of June 30, 1996, there were 2,103,752 Nonqualified Stock Options
outstanding that were issued pursuant to the Plan.
DEFERRED COMPENSATION ARRANGEMENT
Effective July 1, 1995, DeepTech established three deferred
compensation arrangements: (i) a mandatory arrangement for Mr. Tatham, (ii) a
mandatory arrangement for certain senior executives of DeepTech and (iii) an
optional arrangement for all other employees of DeepTech. Pursuant to the
terms of each arrangement, participants deferred all or a portion of their cash
salary until no later than July 1, 1996. During each month in the deferral
period, each participant was entitled to receive options to purchase a number
of shares of either DeepTech or Tatham Offshore or Preference Units of the
Partnership equal to a percentage (ranging from 100% to 300% times their cash
salary) divided by the lesser of the closing price on June 30, 1995 (DeepTech -
$4.00, Tatham Offshore - $3.50 and the Partnership - $23.75) or the average
closing price for the applicable month. Options were exercised only by
cancellation of the participant's cash salary. Each participant earned credits
equal to a multiple, based on the option elected, of their deferred cash
salary. Any participant except Mr. Tatham could have received all or a portion
of their salary in cash if they did not elect to exercise any options. In
November 1995, DeepTech terminated the deferred compensation arrangement for
all but three employees of DeepTech. Mr. Tatham exercised options issued
pursuant to the Plan to purchase 600,125 shares of Common Stock in payment of
salary due for the year ended June 30, 1996. In addition, other senior
executives and employees exercised options issued pursuant to the Plan to
purchase 127,521 shares of Common Stock and options to purchase 245,182 shares
of Tatham Offshore common stock through June 30, 1996 in connection with the
deferred compensation arrangements. As of June 30, 1996, 18,752 options issued
pursuant to the Plan remained outstanding under the deferred compensation
arrangements which were exercised in July 1996 to purchase an equal number of
shares of Common Stock and 125,961 options issued pursuant to the Plan had
expired unexercised. As a result of issuing its common stock, Tatham Offshore
received a $360,000 credit against its management fees payable to DeepTech.
See "Certain Relationships and Related Transactions -- Management Fees" and
"Equity Incentive Plan".
EMPLOYMENT AGREEMENTS
In December 1992, the Company entered into an employment agreement
with Mr. Sims, Senior Vice President and a Director of DeepTech and Chief
Executive Officer of Leviathan, the terms of which provide for: (i) a $150,000
minimum annual salary, (ii) annual bonuses based on the earnings performance of
Offshore Marketing, (iii) the transfer to Mr. Sims of 5% of the then
outstanding common stock of Offshore Marketing, (iv) a 15% interest in Offshore
Marketing's net profits after taxes, (v) the conditional right to exchange such
15% net profits interest for shares of Offshore Marketing common stock
representing 15% of its then outstanding common stock and (vi) the grant of a
series of options to purchase a total of 375,000 shares of Common Stock at an
exercise price of $4.25 per share (the estimated fair market value on date of
grant). Such options vest in increments of 75,000 per year beginning January
31, 1993. Mr. Sims exercised options to purchase 75,000 shares of Common Stock
in each of January 1994 and June 1994 and sold 5,000 shares of such Common
Stock
-14-
<PAGE> 17
in January 1994. As of June 30, 1995, Mr. Sims held 145,000 shares of Common
Stock purchased pursuant to such options. The Company determined that the
Offshore Marketing common stock transferred to Mr. Sims pursuant to his
employment agreement had only de minimis value given the financial position of
Offshore Marketing on the date of such transfer. Pursuant to his employment
agreement, Mr. Sims received no bonuses for the fiscal years ended June 30,
1993 and 1996 because Offshore Marketing recorded net losses for such fiscal
years, and received bonuses of $15,256 and $54,547 for the fiscal years ended
June 30, 1994 and 1995, respectively.
Additionally, in June 1995, DeepTech granted stock options to purchase
300,000 shares of Common Stock to Mr. Sims at an exercise price of $4.00 per
share. The options were exercised on June 12, 1995 in exchange for a note
payable to DeepTech in the aggregate amount of $1.2 million. The note accrues
interest at 8% per annum and if Mr. Sims continues to be employed by DeepTech
for three years from the date of grant, DeepTech will forgive the note. If Mr.
Sims does not continue to be employed by DeepTech for three years from the date
of grant, he must repay the note by either (i) paying principal and interest or
(ii) returning the Common Stock to DeepTech to satisfy repayment of principal
and interest.
In July 1994, DeepTech entered into an employment agreement with Mr.
James Lytal, President of Leviathan, the terms of which provide for: (i) a
$145,000 minimum annual salary, (ii) annual bonuses based on the earnings
performance of Offshore Marketing, (iii) a 5% interest in Offshore Marketing's
net profits after taxes, (iv) the conditional right to exchange such 5% net
profits interest for shares of Offshore Marketing common stock representing 5%
of its then outstanding common stock and (v) the grant of options to purchase a
total of 50,000 shares of Common Stock at an exercise price of $10.50 per share
(the estimated fair market value on date of grant). Such options vested 30,000
on the first anniversary and 10,000 per year thereafter. During the year ended
June 30, 1996, Mr. Lytal's options were repriced. See "Ten Year Option
Repricings." Pursuant to his employment agreement, Mr. Lytal received no bonus
for the fiscal year ended June 30, 1996 because Offshore Marketing recorded a
net loss for such fiscal year and received a $22,067 bonus for the fiscal year
ended June 30, 1995.
SUMMARY OF THE NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Director Plan was adopted at the 1995 Annual Meeting of
Stockholders in October 1995. The purpose of the Director Plan is to allow
DeepTech to attract the best available individuals to serve as outside
directors of DeepTech. DeepTech also issued stock under the Plan to
non-employee directors of DeepTech who elected to receive stock instead of cash
director compensation for DeepTech's fiscal year ending June 30, 1996.
All non-employee directors of DeepTech are eligible to participate in
the Director Plan. The Director Plan provides for both automatic one time
grants of Stock Options to DeepTech's non-employee directors and for the
issuance and exercise of Stock Options in lieu of standard cash director
compensation upon the election of non-employee directors. All Stock Options
granted under the Director Plan are Non-Qualified Stock Options.
Except with respect to outstanding Stock Options, and unless sooner
terminated by action of DeepTech's Board, the Director Plan will terminate on
December 31, 2005. The maximum number of shares of Common Stock with respect
to which Stock Options may be granted under the Director Plan is 2,000,000,
subject to adjustments for stock splits, stock dividends and certain other
changes in capitalization.
Under the Director Plan, grants of Stock Options to purchase 150,000
shares of Common Stock will be automatically made to all non-employee directors
of DeepTech provided that such non-employee directors have not already received
stock options to purchase 150,000 shares of Common Stock in connection with
their service as a director of DeepTech. In addition, after the effective date
of the Plan, any newly elected non-employee director will automatically receive
Stock Options to purchase 150,000 shares of Common Stock. The exercise price
for the Stock Options to purchase 150,000 shares of Common Stock will be 100%
of the Fair Market Value of the Common Stock on the later to occur of (i) the
effectiveness of the Director Plan, or (ii) the election of the participant as
a director of DeepTech. The Stock Options issued pursuant to these provisions
will be immediately exercisable and, unless terminated sooner in accordance
with the Director Plan, shall expire on a date which is ten (10) years after
the date of the grant.
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<PAGE> 18
Under the Director Plan, each non-employee director could have elected
to receive Stock Options in lieu of all or a portion of his or her director
compensation, including the annual director base compensation of $30,000 and
$2,000 meeting fees attributable to DeepTech's fiscal year ended June 30, 1996.
The Stock Options issued in lieu of cash director compensation were issued on a
monthly basis for purchase of the number of shares of Common Stock of DeepTech
equal to (A) 150% of the director compensation for such month subject to
deferral pursuant to such director's election divided by (B) the lesser of (w)
$4.00 or (x) the average NASDAQ closing price for Common Stock for such month.
The exercise price of the Stock Options shall be a price per share equal to the
lesser of (w) $4.00 or (x) the average NASDAQ closing price for Common Stock in
the applicable month for which the Stock Options are issued. Such Stock Options
were exercised in full on June 30, 1996, the exercise price being satisfied in
full by the cancellation of the deferred director compensation, each dollar of
which counted $1.50 toward the exercise price of the Stock Option.
The Board may terminate or suspend the Director Plan (or any portion
thereof) at any time with respect to any shares for which Stock Options have
not previously been granted and remain outstanding. The Board has the right to
alter or amend the Director Plan or any part thereof from time to time;
provided, however, that no change in any Stock Option theretofore granted may
be made which would materially adversely affect the rights and obligations of
the holder of any such Stock Option without the written consent of such
Director Plan participant; and provided, further, that the Board may not,
without stockholder approval as required under the Director Plan, (i)
materially increase the number of shares of Common Stock which may be issued
under the Director Plan (other than in connection with adjustments permitted by
the Director Plan), (ii) materially modify the requirements as to eligibility
for participation in the Director Plan, (iii) materially increase the benefits
accruing to participants under the Director Plan, or (iv) extend the
termination date of the Director Plan. In addition, no amendment, suspension
or termination can be adopted which would disqualify the Director Plan from (i)
the exemption provided by Rule 16b-3, promulgated under the Exchange Act, or
any successor rule or regulation to such Rule 16b-3, as such rule is applicable
from time to time, or (ii) the benefits provided under Section 422 of the Code,
or any successor thereto.
The Director Plan is not subject to any provisions of ERISA, nor the
qualification requirements of Section 401 of the Code.
The Director Plan Committee is authorized to interpret the Director
Plan and may, from time to time, adopt, amend, or rescind rules and regulations
relating to the implementation, administration and maintenance of the Director
Plan.
Included in the warrants outstanding at June 30, 1996 are 1,050,000
Nonqualified Stock Options issued pursuant to the Director Plan. In June 1996,
DeepTech issued 99,066 shares of Common Stock to outside directors pursuant to
the exercise of Stock Options granted under the Director Plan in settlement of
directors fees and meeting attendance fees for the year ended June 30, 1996.
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<PAGE> 19
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 15, 1996, the beneficial
ownership of the outstanding Common Stock of DeepTech by (i) each person who is
known to the Company to beneficially own more than 5% of the outstanding Common
Stock of DeepTech, (ii) each director and director nominee of DeepTech, (iii)
each of the Named Officers and (iv) all executive officers and directors of
DeepTech as a group. The following table and the footnotes thereto also set
forth, as of August 15, 1996, the beneficial ownership of the common stock of
certain subsidiaries of DeepTech by (i) each director and director nominee of
DeepTech, (ii) each of the Named Officers and (iii) executive officers and
directors of DeepTech as a group.
<TABLE>
<CAPTION>
Shares of Class Beneficially Owned(1)
----------------------------------------------------------------------------------
DeepTech Tatham Offshore Leviathan Holdings
Common Stock Common Stock(2)(3) Common Stock(4)
--------------------------- --------------------------- ----------------------
Number Percent Number Percent Number Percent
----------- ---------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Conrad P. Albert........................ 150,000 (5) * -- -- -- --
Harry J. Briscoe(6)(7).................. 1,197,524 (8) 7.0% 2,904,797 (9) 10.4% -- --
Laney Chouest........................... 259,756 (10) 1.5% 164,855 (11) * -- --
Citicorp................................ 1,312,500 (12) 7.2% -- -- -- --
Phillip G. Clarke....................... 172,260 (13) 1.0% 63,786 * -- --
Charles M. Darling, IV(14).............. 526,981 (15) 3.1% 73,080 (16) * 50.0 5.0%
DLJ Capital Corporation................. 1,421,375 (17) 7.9% -- -- -- --
Ralph Eads.............................. -- -- -- -- -- --
The Equitable Companies
Incorporated.......................... 2,343,105 (18) 12.6% -- -- -- --
Robert E. Fox........................... 159,756 (13) 1.0% 32,971 (19) * -- --
Steven L. Gerard(20).................... 164,260 (21) 1.0% 9,891 (22) * -- --
Mike H. Lam............................. 163,508 (13) 1.0% 14,177 (23) * -- --
Lehman Commercial
Paper Inc. ........................... 1,333,333 (24) 7.3% -- -- -- --
James H. Lytal(25)...................... 10,000 * -- -- -- --
Ben T. Morris........................... 550,382 (26) 3.2% 6,175 (27) * 2.5 *
Edward L. Moses, Jr.(28)................ 78,130 * 1,764,918 (29) 6.3% -- --
Nancy Quinn(30). ....................... 159,756 (13) 1.0% 16,485 (31) * -- --
Janet E. Sikes.......................... 300,973 (32) 1.8% 4,946 (33) * -- --
Grant E. Sims(34)....................... 645,000 (35) 3.7% -- -- -- --
Thomas P. Tatham(36).................... 8,855,469 (37) 46.1% 7,656,188 (38) 23.9% 30.0 3.0%
Donald S. Taylor(6)(39)................. 1,274,027 (8) 7.5% 2,920,610 (40) 10.4% -- --
Paul Thompson, III(41).................. 228,912 (42) 1.3% 37,023 (43) * -- --
Donald V. Weir(44)...................... 346,253 (45) 2.0% 7,743 (46) * 2.5 *
Robert H. Williams(6)(47)............... 1,192,945 (8) 7.0% 2,831,378 (48) 10.1% -- --
Executive officers and directors
as a group (16 persons)(49)........... 12,707,896 (50) 60.9% 9,864,738 (51) 29.0% 85.0 8.5%
</TABLE>
- --------------------------
* Less than 1%.
(1) Shares of Common Stock that are not outstanding but that may be acquired
by a person upon exercise of options or warrants within 60 days of the
date of this Proxy Statement are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by such
person. However, such shares are not deemed to be outstanding for the
purpose of computing the percentage of shares beneficially owned by any
other person.
(2) Shares of Tatham Offshore's Series A 12% Convertible Exchangeable
Preferred Stock ("Series A Preferred Stock") held by each named person
are assumed converted into shares of Tatham Offshore common stock for the
purpose of computing the number of shares of Tatham Offshore common stock
beneficially owned by such person. In addition, options held by each
named person to acquire Series A Preferred Stock are assumed exercised
and the shares of Series A Preferred Stock are assumed converted into
shares of Tatham Offshore common stock for the purpose of computing the
number of shares of
-17-
<PAGE> 20
Tatham Offshore common stock beneficially owned by such person.
Alternatively, each share of Series A Preferred Stock may be exchanged
for four exchange warrants which are each exercisable to purchase one
share of Tatham Offshore common stock at $0.653 per share. Warrants
which are outstanding may be exercised to acquire Tatham Offshore Series
B 8% Convertible Exchangeable Preferred Stock ("Series B Preferred
Stock"), Tatham Offshore Series C 4% Convertible Exchangeable Preferred
Stock ("Series C Preferred Stock") or automatically converted into Tatham
Offshore Mandatory Redeemable Preferred Stock. Each share of Series B
and C Preferred Stock may be converted into shares of Tatham Offshore
common stock or alternatively may be exchanged for four exchange warrants
which are each exercisable to purchase one share of Tatham Offshore
common stock at $0.653 per share. Warrants outstanding have been assumed
to be exercised to acquire shares of Series C Preferred Stock which are
then exchanged for exchange warrants which are then exercised to purchase
shares of Tatham Offshore common stock. See "Certain Relationships and
Related Transactions -- Rights Offering, Sale of Warrants and Convertible
Exchangeable Preferred Stock."
(3) Excludes each named person's indirect ownership interest, if any, in the
48,045,782 shares (74.8% of the outstanding shares) of Tatham Offshore
beneficially owned by DeepTech.
(4) Excludes each named person's indirect ownership interest, if any, in the
850 shares (85% of the outstanding shares) of Leviathan Holdings Company
owned by DeepTech.
(5) Consists of shares which may be acquired pursuant to an option agreement
among Mr. Albert, Mr. Tatham and DeepTech.
(6) In addition to the share ownership set forth in the table, each of
Messrs. Taylor and Briscoe and Dr. Williams may be deemed to be the
beneficial owner of 1,000 shares of common stock of Dover (representing
50% of Dover's outstanding common stock) that is owned by Dover Energy,
Inc., a corporation in which each of such persons serves as an officer
and director.
(7) Mr. Briscoe's address is 2703 Rocky Woods, Kingwood, Texas 77339.
(8) Includes 789,086 shares held of record by Dover Energy, Inc. Each of
Messrs. Taylor and Briscoe and Dr. Williams is a Director and officer of
Dover Energy, Inc. Also includes options to purchase 50,000 shares of
Common Stock.
(9) Includes 1,837,672 shares assumed acquired as a result of exercise of an
option to purchase 800,000 shares of Tatham Offshore's Series A Preferred
Stock and conversion of those shares into Tatham Offshore common stock.
Also includes 18,898 shares assumed acquired as a result of conversion of
8,227 shares of Series A Preferred Stock into Tatham Offshore common
stock.
(10) Includes 100,000 shares held by Alpha Marine Services. Dr. Chouest owns
30% of Alpha Marine Services. Also includes options to purchase 150,000
shares of Common Stock.
(11) Includes 114,855 shares assumed acquired as a result of conversion of
50,000 shares of Tatham Offshore's Series A Preferred Stock into Tatham
Offshore common stock. Dr. Chouest is deemed to be the beneficial owner
of 40,000 shares of Series A Preferred Stock and 40,000 shares of Tatham
Offshore common stock held by Alpha Marine Services. See footnote 10.
(12) Consists of 50,000 shares of Common Stock held through Citicorp North
America, a wholly-owned subsidiary of Citicorp and options to purchase
1,262,500 shares of Common Stock held by Citicorp USA, Inc., a
wholly-owned subsidiary of Citicorp. Citicorp's address is 153 E. 53rd
Street, New York, New York 10022.
(13) Includes options to purchase 150,000 shares of Common Stock.
(14) In addition to the share ownership set forth in the table, Mr. Darling
owns 50 shares of the common stock of Offshore Processors, representing
5.0% of such subsidiary's outstanding common stock, and 50 shares of the
common stock of Offshore Marketing, representing 5.0% of such
subsidiary's outstanding common stock. In addition, Mr. Darling may be
deemed to be the beneficial owner of 2,000 Preference Units of the
Partnership owned by his wife and 2,000 Preference Units of the
Partnership owned by a trust of which he is Trustee.
(15) Includes 40,731 shares held of record by a corporation of which Mr.
Darling is a Director and officer. Excludes 100,000 shares held in trust
for Mr. Darling's children.
(16) Includes 16,080 shares assumed acquired as a result of conversion of
7,000 shares of Tatham Offshore Series A Preferred Stock owned by his
wife and/or children into Tatham Offshore common stock. Mr. Darling may
be deemed to be the beneficial owner of 3,000 shares of each of Tatham
Offshore's common stock and Series A Preferred Stock owned by his wife;
2,000 shares of each of Tatham Offshore's common stock and Series A
Preferred Stock owned by each of his two children; and 20,000 shares of
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<PAGE> 21
Tatham Offshore's common stock owned by a trust of which he is Trustee.
Excludes 20,000 shares of Tatham Offshore common stock held in trust for
Mr. Darling's children.
(17) Consists of 371,852 shares and warrants to purchase 1,049,523 shares.
DLJ Capital's address is 277 Park Avenue, New York, New York 10172.
(18) The shares reflected in the table are held of record as follows: 223,800
shares and warrants to purchase 47,054 shares held by the Equitable Life
Assurance Society of the United States ("Equitable Life"), which is a
direct subsidiary of The Equitable Companies Incorporated ("Equitable"),
46,303 shares and warrants to purchase 9,735 shares held by Equitable
Variable Life Insurance Company, which is a direct subsidiary of
Equitable Life, 371,852 shares and warrants to purchase 1,049,523 shares
by DLJ Capital Corporation ("DLJ Capital"), which is a direct subsidiary
of Donaldson, Lufkin & Jenrette, Inc. ("DLJ, Inc."), which in turn is
wholly-owned by Equitable and its subsidiary, Equitable Life, and 169,164
shares and warrants to purchase 425,674 shares held by DLJ, which is a
direct subsidiary of DLJ, Inc., as Custodian for the benefit of
approximately 215 employees or former employees of DLJ and its
affiliates, including Mr. Thompson, who are participants in certain
employee benefit plans of DLJ and its affiliates. Of the shares that may
be acquired upon exercise of outstanding warrants by DLJ Capital, 142,872
are subject to pro rata reduction from time to time based upon the
expiration or other termination of certain other outstanding rights to
purchase shares of Common Stock. Each of the foregoing subsidiaries of
Equitable operates under independent management and makes independent
voting and investment decisions, which are executed by appropriate
officers of the subsidiary in accordance with the bylaws and enabling
resolutions of each subsidiary. The address of Equitable is 277 Park
Avenue, New York, New York 10172.
(19) Includes 22,971 shares assumed acquired as a result of conversion of
10,000 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(20) In addition to the share ownership set forth in the table, Mr. Gerard
owns 600 Preference Units of the Partnership, representing less than 1%
of the outstanding Preference Units.
(21) Includes 150,000 shares which may be acquired pursuant to an option
agreement among Mr. Gerard, Mr. Tatham and DeepTech.
(22) Includes 6,891 shares assumed acquired as a result of conversion of 3,000
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(23) Includes 9,877 shares assumed acquired as a result of conversion of 4,300
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(24) Consists of options to acquire Common Stock. Lehman Commercial Paper
Inc.'s address is 3 World Financial Center, 9th Floor, New York, New York
10285.
(25) In addition to the share ownership set forth in the table, Mr. Lytal also
owns 500 Preference Units of the Partnership, representing less than 1%
of the outstanding Preference Units.
(26) Includes 384,168 shares of Common Stock owned by trusts for Mr. Tatham's
children for which Mr. Morris serves as the trustee. Also includes
options to purchase 150,000 shares of Common Stock. These trusts also
own 3,000 Preference Units in the Partnership, representing less than 1%
of the outstanding Preference Units. In addition, Mr. Morris owns 1,200
Preference Units in the Partnership, representing less than 1% of the
outstanding Preference Units.
(27) Includes 5,175 shares assumed acquired as a result of conversion of 2,253
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(28) In addition to the ownership set forth in the table, Mr. Moses owns
18,000 Preference Units in the Partnership, representing less than 1% of
the outstanding Preference Units.
(29) Includes 459,418 shares assumed acquired as a result of conversion of
200,000 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock. Also includes 1,224,400 shares assumed acquired
as a result of exercise of Tatham Offshore warrants to acquire 306,100
shares of Tatham Offshore Series C Preferred Stock and exchange of those
shares for exchange warrants which are exercised to purchase shares of
Tatham Offshore common stock.
(30) In addition to the share ownership set forth in the table, Ms. Quinn owns
1,000 Preference Units in the Partnership.
(31) Includes 11,485 shares assumed acquired as a result of conversion of
5,000 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(32) Includes 58,500 shares held of record by a Texas limited liability
company. Ms. Sikes is a manager of such company. Ms. Sikes disclaims
beneficial ownership of 43,875 shares held by such company.
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<PAGE> 22
(33) Includes 3,446 shares assumed acquired as a result of conversion of 1,500
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(34) In addition to the share ownership set forth in the table, Mr. Sims owns
50 shares of the common stock of Offshore Marketing, representing 5.0% of
such subsidiary's outstanding common stock, and 2,000 Preference Units in
the Partnership, representing less than 1% of the outstanding Preference
Units. Mr. Sims also beneficially owns 20,000 Preference Units in the
Partnership, representing less than 1% of the outstanding Preference
Units, which are held in partnership with Mr. Tatham.
(35) Includes options to purchase 200,000 shares of Common Stock.
(36) In addition to the share ownership set forth in the table, Mr. Tatham
owns 35 shares of Offshore Processors common stock, representing 3.5% of
such subsidiary's outstanding common stock, and 35 shares of Offshore
Marketing common stock, representing 3.5% of such subsidiary's
outstanding common stock. Mr. Tatham's address is 7500 Texas Commerce
Tower, Houston, Texas 77002. Mr. Tatham also owns 10,000 Preference
Units in the Partnership, representing less than 1% of the outstanding
Preference Units. In addition, Mr. Tatham beneficially owns 20,000
Preference Units in the Partnership, representing less than 1% of the
outstanding Preference Units, which are held in partnership with Mr.
Sims.
(37) Includes options to purchase 2,191,666 shares of Common Stock.
(38) Includes 3,072,588 shares assumed acquired as a result of conversion of
1,337,600 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock. Also includes 2,800,000 shares assumed acquired
as a result of exercise of Tatham Offshore Warrants to acquire 700,000
shares of Tatham Offshore Series C Preferred Stock and exchange of those
shares for exchange warrants which are exercised to purchase shares of
Tatham Offshore common stock.
(39) Mr. Taylor's address is 3803 Pleasant Valley Drive, Missouri City, Texas
77459.
(40) Includes 1,982,240 shares assumed acquired as a result of exercise of an
option to purchase 862,935 shares of Tatham Offshore Series A Preferred
Stock and conversion of those shares into Tatham Offshore common stock.
(41) In addition to the share ownership set forth in the table, Mr. Thompson
owns 1,000 Preference Units in the Partnership, representing less than 1%
of the outstanding Preference Units.
(42) Includes (i) 26,510 shares owned directly and (ii) 14,902 shares and
warrants to purchase 37,500 shares allocated to the account of Mr.
Thompson pursuant to the employee benefit plans described in footnote
(18) to this table. Mr. Thompson, a Director of the Company, is a
Managing Director of DLJ. Also includes options to purchase 150,000
shares.
(43) Includes 27,023 shares assumed acquired as a result of conversion of
11,764 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(44) In addition to the share ownership set forth in the table, Mr. Weir also
owns 10,000 Preference Units in the Partnership, representing less than
1% of the outstanding Preference Units.
(45) Includes options to purchase 50,000 shares of Common Stock. Also
includes 58,500 shares held of record by a Texas limited liability
company. Mr. Weir is a manager of such company. Mr. Weir disclaims
beneficial ownership of 43,875 of the shares held by such company.
(46) Includes 5,743 shares assumed acquired as a result of conversion of 2,500
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(47) Dr. William's address is 14511 Westway Lane, Houston, Texas 77077.
(48) Includes 1,821,593 shares assumed acquired as a result of exercise of an
option to purchase 793,000 shares of Tatham Offshore Series A Preferred
Stock and conversion of those shares into Tatham Offshore common stock.
Also includes 11,485 shares assumed acquired as a result of conversion of
5,000 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(49) In addition to the share ownership set forth in the table, the executive
officers and Directors of DeepTech as a group beneficially own (i) 85
shares of the common stock of Offshore Processors, representing 8.5% of
such subsidiary's outstanding common stock, (ii) 135 shares of the common
stock of Offshore Marketing, representing 13.5% of such subsidiary's
outstanding common stock, and (iii) 71,300 Preference Units in the
Partnership, representing less than 1% of the outstanding Preference
Units.
(50) Includes options to purchase 3,829,166 shares of Common Stock.
(51) Includes 3,755,552 shares assumed acquired as a result of conversion of
1,634,917 shares of Tatham Offshore Series a Preferred Stock into Tatham
Offshore common stock. Also includes 4,024,400 shares assumed acquired
as a result of exercise of Tatham Offshore Warrants to acquire 1,006,100
shares of
-20-
<PAGE> 23
Tatham Offshore Series C Preferred Stock and exchange of those shares for
exchange warrants which are exercised to purchase shares of Tatham
Offshore common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain agreements, arrangements and
transactions between or among DeepTech, its subsidiaries and/or certain related
parties. It is DeepTech's policy to enter into transactions with related
parties on terms that, on the whole, are no less favorable than those that
would be available from unaffiliated parties. Based on DeepTech's experience
in the industry and the terms of its transactions with unaffiliated parties, it
is DeepTech's belief that all of the transactions described below involving
DeepTech met that standard at the time such transactions were effected. In
March 1994, DeepTech issued 12% Senior Secured Notes pursuant to an indenture
which provides that DeepTech may not enter into any transaction or series of
related transactions with an affiliate unless such transaction or series of
transactions are on terms, on the whole, no less favorable to DeepTech than
could be obtained in a comparable arm's-length transaction with a
non-affiliate.
Purchase and Sale Agreement
On June 30, 1995, Flextrend Development entered into a purchase and
sale agreement (the "Purchase and Sale Agreement") with Tatham Offshore.
Pursuant to the Purchase and Sale Agreement, Flextrend Development acquired,
subject to certain reversionary interests, a 75% working interest in Viosca
Knoll Block 817, a 50% working interest in Garden Banks Block 72 and a 50%
working interest in Garden Banks Block 117 (the "Assigned Properties") from
Tatham Offshore for $30,000,000. Tatham Offshore received $15,000,000 at closing
and an additional $15,000,000 on August 15, 1995. Flextrend Development is
entitled to retain all of the revenues attributable to the Assigned Properties
until it has received net revenues equal to the Payout Amount (as defined
below), whereupon Tatham Offshore is entitled to receive a reassignment of the
Assigned Properties, subject to reduction and conditions as discussed below.
"Payout Amount" is defined as an amount equal to all costs incurred by Flextrend
Development with respect to the Assigned Properties (including the $30,000,000
paid to Tatham Offshore) plus interest thereon at a rate of 15% per annum.
Effective February 1, 1996, the Partnership entered into an agreement with
Tatham Offshore regarding certain transportation agreements that increases the
amount recoverable from the Payout Amount by $7,500,000 plus interest. As of
June 30, 1996, the Payout Amount was $77,698,000 comprised of (i) initial
acquisition and transaction costs of $32,089,000, (ii) development and operating
costs of $49,301,000, (iii) prepaid demand charges of $7,500,000 and (iv)
interest of $7,084,000 reduced by net revenue of $18,276,000. Tatham Offshore
and the Partnership have agreed that in the event Tatham Offshore furnishes the
Partnership with a financing commitment from a lender with a credit rating of
BBB- or better covering 100% of the then outstanding Payout Amount, the interest
rate utilized to compute the Payout Amount shall be adjusted from and after the
date of such commitment to the interest rate specified in such commitment,
whether utilized or not. At any time prior to December 10, 1996, Flextrend
Development may exercise either of the following options: (i) to permanently
retain 50% of the assigned working interest in either the Viosca Knoll Block 817
property or the Garden Banks Block 72/Garden Banks Block 117 properties or (ii)
to permanently retain 50% of the assigned working interest in all Assigned
Properties in exchange for forgiving 25% or 50%, respectively, of the
then-existing Payout Amount, exclusive of the $7,500,000 plus interest added to
the Payout Amount in connection with certain transportation agreements as
discussed below. In the event Flextrend Development elects to reduce the Payout
Amount, it will become obligated to fund any further development costs
attributable to Tatham Offshore's portion of the working interests, such costs
to be added to the Payout Amount. Otherwise, any further development costs will
be funded by Flextrend Development on a discretionary basis, such costs to be
added to the Payout Amount. Further, in the event Flextrend Development forgoes
its right to permanently retain a working interest in all or a portion of the
Assigned Properties, it will be entitled to recover from working interest
revenues in respect of the Assigned Properties all future demand charges payable
for platform access and processing, in their inverse order of maturity, prior to
any reassignment to the Company. If however, Tatham Offshore (i) satisfies in
full the future demand charges payable for platform access and processing, (ii)
delivers evidence that it has received a rating of BBB-, or better, from at
least two reputable rating agencies or (iii) delivers evidence that an entity
with a rating of BBB-, or better, has agreed to guarantee, assume or, to the
reasonable satisfaction of the Partnership, otherwise become responsible for
such future demand charges
-21-
<PAGE> 24
payable, then Tatham Offshore would receive a reassignment of the Assigned
Properties upon satisfaction of the Payout Amount. In the event the Payout
Amount has been satisfied but none of the above conditions have been met,
Tatham Offshore is entitled to receive one-third (1/3) of the revenues, net of
operating expenses and platform access and processing fees, until such time as
one of the above conditions is met.
Rights Offering, Sale of Warrants and Convertible Exchangeable Preferred Stock
Tatham Offshore filed a registration statement (the "Offering") with
the Securities and Exchange Commission (the "Commission"), which was declared
effective on December 26, 1995, relating to the granting to all holders of
Tatham Offshore's common stock, on the record date, December 26, 1995, rights
(the "Rights") to purchase up to 25,120,948 warrants (the "Warrants"). As a
result of DeepTech's ownership of 10,000,000 shares of common stock, DeepTech
was granted 10,000,000 Rights which were assigned to DeepFlex. Each Right
entitled the holder to subscribe to purchase one Warrant at the purchase price
of $.50 per Warrant. Each Warrant entitles the holder thereof to purchase one
share of any of (i) Series A Preferred Stock, which has a liquidation
preference of $1.50 per share and a dividend rate of 12% per year, at any time
prior to 5:00 p.m., New York time on July 1, 1996, (ii) Series B Preferred
Stock, which has a liquidation preference of $1.00 per share and a dividend
rate of 8% per year, at any time prior to 5:00 p.m., New York time on October
1, 1996 or (iii) Series C Preferred Stock, which has a liquidation preference
of $0.50 per share and a dividend rate of 4% per year, (together with the
Series A Preferred Stock and Series B Preferred Stock, the "Convertible
Exchangeable Preferred Stock") at any time prior to 5:00 p.m., New York time on
January 1, 1997 at the purchase price of $1.00 per share. Each Warrant
remaining unexercised at 5:00 p.m., New York time on January 1, 1997 shall be
automatically converted, without any action on the part of the holder thereof,
into one share of Mandatory Redeemable Preferred Stock, which shall have a
liquidation preference of $0.50 per share and shall be mandatorily redeemable
by Tatham Offshore under certain circumstances. At any time from July 1, 1996
until December 31, 1998, each share of Convertible Exchangeable Preferred Stock
may be exchanged for four warrants (the "Exchange Warrants" and together with
the Rights, the Warrants, the Convertible Exchangeable Preferred Stock and the
Mandatory Redeemable Preferred Stock, the "Securities") entitling the holder
thereof to purchase one share of Tatham Offshore common stock at a price equal
to $0.653 per share which was based on the lowest average of consecutive five
day closing prices of Tatham Offshore's common stock between December 26, 1995
and July 1, 1996. The Exchange Warrants will expire July 1, 1999.
Alternatively, at any time after July 1, 1996, the holder of any shares of
Convertible Exchangeable Preferred Stock will have the right, at the holder's
option, to convert the liquidation value of such stock and accrued and unpaid
dividends into shares of Tatham Offshore common stock at $0.653 per share. On
and after July 1, 1997, the Convertible Exchangeable Preferred Stock will be
redeemable at the option of Tatham Offshore. In February 1996, DeepFlex
subscribed to purchase 10,000,000 Warrants. See "-- Bridge Loan." As of June
30, 1996, DeepFlex had exercised 4,670,957 of these Warrants to acquire
4,670,957 shares of Series A Preferred Stock. See "-- Management Agreements."
Bridge Loan
In October 1995, DeepFlex entered into a bridge loan agreement (the
"Bridge Loan") with Tatham Offshore whereby DeepFlex agreed to make up to
$12,500,000 of interim bridge financing available to fund a portion of Tatham
Offshore's working capital and capital requirements. Tatham Offshore borrowed
a total of $8,000,000 under the Bridge Loan. All indebtedness outstanding under
the Bridge Loan accrued interest at a rate of 15% per annum. Interest expense
related to borrowings under the Bridge Loan totaled $210,000 for the year ended
June 30, 1996. The terms of the Bridge Loan required Tatham Offshore to
undertake the Offering or to implement another refinancing or asset disposition
sufficient to repay the outstanding indebtedness under the Bridge Loan. On
January 31, 1996, DeepFlex subscribed for the purchase of 10,000,000 Warrants,
pursuant to the exercise of Rights which had been assigned from DeepTech, at a
cost of $5,000,000, which was paid through the forgiveness of $5,000,000 of
principal and interest due under the Bridge Loan. In February 1996, Tatham
Offshore used $3,100,000 of Offering proceeds to repay in full the remaining
principal and accrued interest outstanding under the Bridge Loan.
Dover Services Agreements
Effective as of November 1, 1995, Dover entered into Technology
Services Agreements with each of Tatham Offshore and the Partnership (the "Dover
Services Agreements") which terminated similar prior
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agreements among the parties. The Dover Services Agreements have an initial
term expiring on October 31, 1996, and may be extended by Tatham Offshore and
the Partnership for two one year periods by providing 30 days notice prior to
each anniversary date. Under the Dover Services Agreement, Dover provides
development and exploration services to Tatham Offshore and the Partnership,
which services include, without limitation, 2-D and 3-D seismic interpretation,
reserve quantification and evaluation, prospect generation, log analyses,
mapping and technical presentations, and structural modeling utilizing CAEX
technology with reasonable access to the Company's equipment. For the fiscal
year ended June 30, 1996, charges for technical services by Dover to Tatham
Offshore and the Partnership under the Dover Services Agreements totaled
$601,000 and $288,000, respectively. Tatham Offshore's payable to Dover for
these services in the amount of $1,734,000 at November 1, 1995 was converted
into the Affiliate Note as described below. Messrs. Taylor and Briscoe and Dr.
Williams, all of whom are Directors of Tatham Offshore, are shareholders of
Dover Energy, Inc., each holding a one-third interest. Dover Energy, Inc. owns
50% of Dover. In addition, Dr. Williams serves as Chairman of the Board and
Chief Executive Officer and Mr. Briscoe serves as President of Dover. Tatham
Offshore and the Partnership each have the right to terminate these Dover
Services Agreements at any time upon at least five (5) days prior written
notice upon the occurrence and during the continuation of either of the
following events: (i) Dr. Williams and Mr. Briscoe, collectively, own less
than 20% of the issued and outstanding common stock of Dover or (ii) Dr.
Williams ceases to be an executive officer and actively involved in the
day-to-day operations of Dover.
Affiliate Note
On November 1, 1995, Tatham Offshore converted $1,734,000 of its
accounts payable to Dover into an unsecured promissory note payable to DeepTech
(the "Affiliate Note") which bears interest at 14.5% per annum. Interest on the
Affiliate Note is payable quarterly, beginning March 31, 1996. The principal is
due and payable in six monthly installments, beginning on a date which is the
earlier of (i) November 1, 1997 or (ii) the last day of the calendar month in
which Tatham Offshore receives proceeds from the issuance of any preferred stock
pursuant to the Offering in an amount equal to or greater than $20,000,000.
Interest expense related to the Affiliate Note totaled $170,000 for the year
ended June 30, 1996.
Transportation, Processing and Platform Access Agreements
Tatham Offshore has entered into transportation, processing and
platform access agreements with the Partnership pursuant to a Master Gas
Dedication Agreement in which Tatham Offshore has dedicated all production from
its Garden Banks, Viosca Knoll, Ewing Bank and Ship Shoal properties as well as
certain adjoining areas of mutual interest to the Partnership for
transportation. In exchange, the Partnership has agreed to install the
pipeline facilities necessary to transport production from the areas and
certain related facilities and to provide transportation services with respect
to such production. These agreements are generally in effect for the
productive life of the reserves. Tatham Offshore (i) was obligated to pay
demand charge payments for such services, (ii) is obligated to pay commodity
charges, based on the volume of oil and gas transported or processed and (iii)
effective July 1995, is obligated to pay platform access fees under these
agreements. Pursuant to the terms of the Purchase and Sale Agreement,
Flextrend Development has assumed all of Tatham Offshore's obligations under
the Master Gas Dedication Agreement and certain ancillary agreements with
respect to the Assigned Properties. For the year ended June 30, 1996, the
Partnership charged Tatham Offshore the following pursuant to these agreements:
<TABLE>
<S> <C>
Demand charges:
Ewing Bank property $ 4,644
Ship Shoal property 997
Commodity charges:
Viosca Knoll property 430
Ewing Bank property 446
Ship Shoal property -
Platform access fees 1,580
--------
$ 8,097
========
</TABLE>
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<PAGE> 26
Production problems at Ship Shoal Block 331 and reduced oil production
from the Ewing Bank 914 #2 well affected Tatham Offshore's ability to pay the
demand charge obligations under agreements relative to these properties. As a
result, effective February 1, 1996, Tatham Offshore entered into an agreement
with the Partnership to prepay its remaining demand charge obligations under
the transportation agreements covering its Ewing Bank and Ship Shoal
properties. Under the agreement, Tatham Offshore's demand charge obligations
relative to the Ewing Bank Gathering System and the pipeline facilities
constructed by the Partnership for its Ship Shoal property have been prepaid in
full. In exchange, effective February 1, 1996, Tatham Offshore has (i) issued
to the Partnership 7,500 shares of 9% senior preferred stock (the "Senior
Preferred Stock") with a liquidation preference of $1,000 per share, (ii) added
the sum of $7,500,000 to the Payout Amount under the Purchase and Sale
Agreement with Flextrend Development and (iii) granted to the Partnership
certain rights to use and acquire the Ship Shoal Block 331 platform. The
Senior Preferred Stock accrues dividends at 9% per annum as of February 1,
1996, which are payable quarterly and shall cumulate to the extent not paid.
Each share of the Senior Preferred Stock has a liquidation preference value of
$1,000 and is senior to all other classes of Tatham Offshore preferred and
common stock in the case of liquidation, dissolution or winding up of Tatham
Offshore. The Partnership has made an irrevocable offer to Tatham Offshore to
sell all or any portion of the Senior Preferred Stock to Tatham Offshore or its
designee at a price equal to $1,000 per share, plus interest thereon at 9% per
annum less the sum of any dividends paid thereon. In the event Tatham Offshore
does not purchase the Senior Preferred Stock on or before September 30, 1998,
then for a period of 90 days thereafter it shall be convertible into Series A
Preferred Stock. The conversion ratio shall be equal to (i) the liquidation
preference amount plus accumulated but unpaid dividends divided by (ii) the
arithmetic average of closing prices for the 20 trading days following October
1, 1998 of the Series A Preferred Stock. The Partnership has the right to
utilize the Ship Shoal Block 331 platform and related facilities at a rental
rate of $1.00 per annum for such period as the platform is owned by Tatham
Offshore and located on the Ship Shoal Block 331, provided such use does not
interfere with lease operations or other activities of Tatham Offshore. In
addition, the Partnership has a right of first refusal relative to a sale of
the platform. The agreement with the Partnership resulted in a reduction in
demand charge payments of $4,100,000 for the fiscal year ended June 30, 1996,
and will result in a reduction of demand charge payments of $7,800,000 for the
fiscal year ended June 30, 1997 and $5,900,000 for fiscal years thereafter. At
June 30, 1996, the total present value of the prepaid demand charge obligations
was $13,507,000. As of June 30, 1996, dividends in arrears on the Senior
Preferred Stock totaled $281,000 and accrued interest on the $7,500,000
addition to the Payout Amount totaled $469,000.
Tatham Offshore remains obligated to pay the commodity charges under
these agreements as well as all platform access and processing fees associated
with the Viosca Knoll Block 817 lease. Commodity charges under these
agreements include a processing or transportation fee for all production from
Ship Shoal Block 331 equal to $0.15 per thousand cubic feet of gas, $0.80 per
barrel of oil and $0.375 per barrel of condensate. In addition, Tatham
Offshore is required to pay $0.10 per barrel for each barrel of water produced
that exceeds 100 barrels per day. Currently, each of the three wells Tatham
Offshore has drilled at Ship Shoal Block 331 are shut-in due to production and
completion problems. The transportation agreements with respect to the Ewing
Bank properties provide for a commodity charge equal to 4% of the market price
for production actually transported. During the year ended June 30, 1996, the
commodity charges paid averaged $0.16 per thousand cubic feet of gas and $0.91
per barrel of oil for production from the Ewing Bank 914 #2 well. Platform
access and processing fees associated with Tatham Offshore's current 25%
working interest in the Viosca Knoll Block 817 lease consist of a platform
access fee of $131,667 per month for a period of eighty-four months beginning
July 1995 and a processing fee equal to $.05 per thousand cubic feet of gas
produced.
Management Agreements
DeepTech has entered into management agreements with each of Leviathan,
Tatham Offshore, Offshore Marketing, DeepFlex, Offshore Processors and Deepwater
Systems (collectively "the Subsidiaries", individually a "Subsidiary"). The
management fees charged to the Subsidiaries are intended to approximate the
amount of resources allocated by DeepTech to each such Subsidiary. Each of the
management agreements has an initial term expiring on June 30, 1997, and may be
terminated thereafter upon 90 days' notice by either party thereto.
Historically, management fees payable by each Subsidiary during its
developmental stage have been funded through advances by DeepTech to each such
Subsidiary. With respect to the management agreements with Leviathan, Tatham
Offshore, DeepFlex, Offshore Marketing and Dover, DeepTech charged each such
company,
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<PAGE> 27
prior to November 1, 1995, an annual management fee of $2.0 million, $2.0
million, $375,000, $375,000 and $250,000, respectively, plus 40%, 40%, 7.5%,
7.5% and 5%, respectively, of DeepTech's unreimbursed selling, general and
administrative expenses in exchange for operational, financial, accounting and
administrative services. As a result of a reallocation of the level of
services provided to each of DeepTech's Subsidiaries, DeepTech amended its
existing management agreements with each of its Subsidiaries, effective
November 1, 1995, to reflect the revised level of management fees payable by
each Subsidiary. Effective November 1, 1995, DeepTech charges Leviathan,
Tatham Offshore, DeepFlex and Offshore Marketing 45.3%, 27.4%, 18.8% and 8.5%,
respectively, of DeepTech's overhead expenses. Also, effective November 1,
1995, Dover began functioning as a stand alone business unit with its own
management and employees and therefore terminated its management agreement with
DeepTech. For the year ended June 30, 1996, Leviathan and Offshore Marketing
made their required cash payments to DeepTech for their management fees.
Leviathan was reimbursed by the Partnership for management fees relating to the
conduct and business of the Partnership. For the year ended June 30, 1996,
DeepTech charged Tatham Offshore $4.4 million under its management agreement.
These costs were effectively paid when DeepFlex exercised 4,670,957 Tatham
Offshore Warrants to purchase an equal number of shares of Tatham Offshore
Series A Preferred Stock at $1.00 per share by offsetting the then outstanding
DeepTech receivable from Tatham Offshore by $4.7 million. DeepFlex, which is
currently charged 18.8% of DeepTech's general and administrative overhead
costs, did not make payments of management fees to DeepTech during such period.
Marketing Agreements
Tatham Offshore and Offshore Marketing have entered into purchase
agreements whereby Offshore Marketing has agreed to purchase all of the gas,
oil and condensate production produced by Tatham Offshore from its West Delta
35, Ship Shoal 331 and Ewing Bank properties (substantially all the oil and gas
production of Tatham Offshore). During the year ended June 30, 1996, Tatham
Offshore sold 99% of its production to Offshore Marketing. Through October
1995, the sales prices were based upon contractually agreed upon posted prices.
In November 1995, Tatham Offshore renegotiated its agreement with Offshore
Marketing to provide Offshore Marketing fees equal to 2% of the sales value of
crude oil and condensate and $0.015 per dekatherm of natural gas for selling
Tatham Offshore's production. Tatham Offshore's sales to Offshore Marketing
totaled $19.2 million for the fiscal year ended June 30, 1996. In July 1994,
Offshore Marketing began purchasing substantially all of the oil and gas
production of the Partnership on the same terms as the agreements with Tatham
Offshore. The Partnership's sales to Offshore Marketing totaled $24.4 million
for the year ended June 30, 1996.
PIK Notes
As of June 30, 1996, DeepFlex Production Partners, L.P. ("DeepFlex
Partners"), which is 50% owned by the Company and 50% owned by wholly-owned
subsidiaries of Coflexip Stena Offshore, owed DeepFlex $40,490,000 aggregate
principal amount of subordinated payment in kind indebtedness ("PIK Notes").
Any additional advances from DeepFlex to DeepFlex Partners are to be evidenced
by PIK Notes. PIK Notes bear interest at 12% per annum, payable quarterly, and
are due on March 31, 2002. Interest is required to be paid under certain
circumstances by the issuance of additional PIK Notes. The PIK Notes are
subordinate to all indebtedness incurred by DeepFlex Partners for the
acquisition, conversion or maintenance of any floating production system and
are secured by a first mortgage on the FPS Laffit Pincay. Interest income
related to the PIK Notes totaled $5,884,000 for the year ended June 30, 1996.
Effective March 31, 1995, the Company transferred the FPS Eddie
Delahoussaye, a semisubmersible drilling rig, to DeepFlex Partners for
$14,763,000 of PIK Notes. In September 1995, the Company sold the FPS Eddie
Delahoussaye (on behalf of DeepFlex Partners) to a third party. The net sales
proceeds were transferred to the Company as repayment of a portion of the PIK
Notes issued by DeepFlex Partners.
Leviathan Dividends and Tax Sharing Payments
During the year ended June 30, 1996, Leviathan Holdings paid
$7,707,000 in cash dividends to its stockholders, which include DeepTech (85%),
Mr. Darling (5%), Mr. Tatham (3%), Mr. Weir (0.25%) and Mr.
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<PAGE> 28
Morris (0.25%). In addition, Leviathan paid DeepTech $1,220,000 during the
year ended June 30, 1996 pursuant to a tax sharing agreement for estimated
taxes for the year then ended. At June 30, 1996, Leviathan owed DeepTech
$459,000 under this tax sharing agreement.
Tatham Offshore Subordinated Notes
As of June 30, 1996, Tatham Offshore had issued to DeepTech
$60,000,000 aggregate principal amount of Subordinated Convertible Promissory
Notes (the "Tatham Offshore Subordinated Notes") for funds received. The
Tatham Offshore Subordinated Notes bear interest from the date of issuance at a
rate of 11 3/4% per annum, payable quarterly in arrears; provided, however,
effective July 1, 1997, interest shall accrue at a rate of 13% per annum.
Interest income related to these Tatham Offshore Subordinated Notes totaled
$7,060,000 for the year ended June 30, 1996. The principal amount of the
Tatham Offshore Subordinated Notes is payable in seven equal annual
installments of approximately $8,571,000 commencing August 1, 1999. At any
time after August 1, 1999, Tatham Offshore may redeem in full or may from time
to time redeem in part, the Tatham Offshore Subordinated Notes, without penalty
or premium, upon 90 days prior written notice to the holder thereof. The
holders of the Tatham Offshore Subordinated Notes have the option, at any time
and from time to time, to convert all or any portion of the principal and
accrued interest outstanding thereunder into common stock of Tatham Offshore at
$10.00 per share, subject to adjustment under certain circumstances. The
holders of 20% or more of the principal amount of the Tatham Offshore
Subordinated Notes and common stock into which Subordinated Notes have been
converted have the right to demand the registration of the Tatham Offshore
Subordinated Notes (or any shares of common stock issued upon conversion
thereof) under the Securities Act; provided, however, that Tatham Offshore
shall only be obligated to file and cause to become effective three
registration statements with respect thereto. In addition, such holders have
certain piggyback registration rights. The holders of a majority of the
aggregate principal amount of the Tatham Offshore Subordinated Notes may
accelerate the payment of the principal and interest thereon upon the
occurrence of certain events of default which include the failure to pay
principal or interest when due, the voluntary or involuntary bankruptcy of
Tatham Offshore, an unpaid judgment against Tatham Offshore in excess of $5
million and the acceleration of other indebtedness of Tatham Offshore in excess
of $5 million in the aggregate. The Tatham Offshore Subordinated Notes are
subordinate to all senior indebtedness of Tatham Offshore which includes the
Affiliate Note. Tatham Offshore has agreed not to incur additional
subordinated indebtedness without the consent of the holders of the Tatham
Offshore Subordinated Notes. Further, DeepTech may only transfer the Tatham
Offshore Subordinated Notes after certain conditions are satisfied.
Loans from Officers, Directors and Affiliates
In November 1989, Mr. Tatham entered into a line of credit facility to
extend up to $10 million to DeepTech (the "Senior Subordinated Master Credit
Facility"). Borrowings under the Senior Subordinated Master Credit Facility
matured on January 1, 1996, bore interest at 12% per annum which was due at
maturity and were subordinate to all senior indebtedness of DeepTech.
Subsequently, Mr. Tatham transferred a portion of his rights and obligations
under the Senior Subordinated Master Credit Facility to third parties. At
January 1, 1996, aggregate borrowings outstanding under the Senior Subordinated
Master Credit Facility totaled approximately $3.4 million, of which amount $2.8
million was payable to Mr. Tatham and accrued interest payable on outstanding
borrowings under the Senior Subordinated Master Credit Facility totaled
approximately $2.8 million, of which $2.4 million was payable to Mr. Tatham.
DeepTech's ability to borrow additional funds pursuant to the Senior
Subordinated Master Credit Facility has terminated.
DeepTech has also issued other subordinated notes payable to certain
of the directors and stockholders of DeepTech. Approximately $1.6 million
principal amount of such notes matured on January 1, 1996 and bore interest at
10% per annum, which was due at maturity, and approximately $1.9 million of
such notes matured on January 1, 1996 and bore interest at 7% per annum, which
was due at maturity. At January 1, 1996, approximately $3.3 million aggregate
principal amount under such notes was payable to Mr. Tatham, and approximately
$1.7 million of accrued interest under such notes was payable to Mr. Tatham.
In December 1995 and January 1996, DeepTech paid $300,000 in principal
of the notes payable to affiliates due on January 1, 1996. In January 1996,
the Company issued $10,087,000 in unsecured notes payable
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(the "Short-Term Notes"), of which amount $9.0 million was payable to Mr.
Tatham, bearing interest at 18% per annum and due on February 15, 1996 to
affiliates in settlement of the remaining $6,672,000 of principal and
$3,415,000 of interest which was due on January 1, 1996.
In February 1996, DeepTech refinanced a total of $6,640,000 of
Short-Term Notes in the form of subordinated unsecured notes issued by DeepTech
to Mr. Tatham and other affiliates (the "DeepTech Subordinated Notes") and
guaranteed by DeepFlex on a subordinated basis to the Term Loan as defined
below. At June 30, 1996, the amount of such DeepTech Subordinated Notes due to
Mr. Tatham was $6,000,000. The DeepTech Subordinated Notes are due January 15,
1997 and bear interest at 15% per annum, payable quarterly. In connection with
this refinancing, these affiliates received a 4% refinancing fee of $266,000
and warrants to purchase 1,475,555 shares of Common Stock at $4.50 per share.
Interest expense and amortization of debt issue costs related to the DeepTech
Subordinated Notes totaled $370,000 and $133,000, respectively, for the year
ended June 30, 1996. Total interest expense for the year ended June 30, 1996
related to indebtedness due to Mr. Tatham was $840,000.
Guarantees
In December 1994, Offshore Marketing entered into a credit facility
which provides for a general purpose revolving credit line and the issuance of
letters of credit, on a case-by-case basis, not to exceed $3 million to cover
certain of Offshore Marketing's gas purchase commitments. Interest on advances
under this credit facility accrued at the prime rate plus 2% per annum.
DeepTech guaranteed Offshore Marketing's obligations under this credit
facility. The facility terminated on October 31, 1995.
In February 1996, DeepFlex entered into a term loan agreement to
borrow $12,000,000 (the "Term Loan") from a syndicate of commercial lenders.
The Term Loan bears interest at 12% per annum, payable monthly, is due on July
15, 1997 and is secured by substantially all tangible and intangible assets
currently owned by DeepFlex, including the 10,000,000 Warrants purchased from
Tatham Offshore and all PIK Notes issued by DeepFlex Partners, except the
$3,000,000 of PIK Notes pledged to Highwood Partners, L.P. (discussed below).
In addition, the lenders required an assignment by DeepFlex of the first
preferred ship mortgage on the FPS Laffit Pincay which is securing the PIK
Notes. In connection with the Term Loan, DeepTech issued to the lenders
warrants to purchase an aggregate of up to 2,666,667 shares of Common Stock at
$4.50 per share. One of the lenders, Citibank, N.A., required that Mr. Tatham
guarantee $6,000,000 of the Term Loan. In exchange for Mr. Tatham agreeing to
guarantee a portion of the Term Loan, Mr. Tatham received from Citibank, N.A.
warrants to purchase 333,333 shares of Common Stock, twenty-five percent of the
loan fees payable by the Company to Citibank, N.A. and a quarterly fee equal to
50 basis points per annum for the period the guaranty is outstanding.
Prior to June 30, 1995, Tatham Offshore converted approximately
$12,813,000 of its accounts payable into short-term promissory notes (the
"Creditor Notes") of which $10,468,000 remained outstanding at June 30, 1995.
Substantially all of the Creditor Notes were guaranteed by DeepTech pursuant to
a performance guarantee commitment issued to Tatham Offshore by DeepTech. In
August 1995, Tatham Offshore paid all outstanding principal and interest due
under the Creditor Notes.
Other
As of June 30, 1995, Tatham Offshore had made a non-interest bearing
advance of $89,775 to Mr. Moses who is also a stockholder of Tatham Offshore.
During the year ended June 30, 1996, Tatham Offshore forgave this advance in
exchange for consulting fees rendered by Mr. Moses to Tatham Offshore.
In September 1995, Tatham Offshore acquired an aggregate 25% working
interest in Phar Lap (Viosca Knoll Block 817) and an approximate 12.5% working
interest in the remainder of the Phar Lap Unit (collectively, the "Phar Lap
Working Interest") from two industry partners for a total of $16,000,000 in
convertible production payments payable from 25% of the net cash flow from the
Phar Lap Working Interest so acquired. The unpaid portion of the production
payments is convertible into Tatham Offshore common stock at any time during
the first five years at $8.00 per share. Under certain circumstances, the
industry partners may
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require DeepTech to purchase the convertible production payments for an amount
equal to 50% of the unrecovered portion thereof.
In January 1995, DeepTech loaned Mr. Tatham $600,000 evidenced by an
unsecured demand note bearing interest at 15% per annum. In settlement of an
obligation to Mr. Tatham, DeepTech canceled this demand note in September 1995
as discussed below. In October 1995, Mr. Tatham executed an unsecured demand
note in favor of DeepTech for $250,000 bearing interest at 15% per annum. This
demand note was paid in full in January 1996.
In November 1994, the Board of Directors authorized DeepTech to agree
to reimburse Mr. Tatham for costs he incurred in connection with agreements
with Messrs. Gerard and Albert pursuant to which Mr. Tatham granted each of
them options to purchase 150,000 shares of Common Stock from him at his cost
with respect thereto. See "Compensation of Directors." In September 1995 the
Board authorized DeepTech to grant Mr. Tatham options to purchase 300,000
shares of Common Stock at $5.00 per share, the estimated fair market value at
the date of grant and to pay Mr. Tatham $705,000 which was settled in part by
canceling Mr. Tatham's obligations under the unsecured demand note dated
January 2, 1995 in the original principal amount of $600,000.
In January and April 1995, DeepTech loaned Mr. Sims $100,000 and
$300,000 respectively, evidenced by unsecured non-interest bearing demand
notes. In June 1995, DeepTech granted stock options to purchase 300,000 shares
of its Common Stock to Mr. Sims at an exercise price of $4.00 per share, the
market price on the date of issuance. The options were exercised on June 12,
1995 in exchange for a note payable to DeepTech in the aggregate amount of $1.2
million. The note accrues interest at 8% per annum and if Mr. Sims continues
to be employed by DeepTech for three years from the date of grant, DeepTech
will forgive the note. If Mr. Sims voluntarily terminates employment with
DeepTech prior to the end of the three year period from the date of grant, he
must repay the note by either (i) paying principal and interest or (ii)
returning the Common Stock to DeepTech to satisfy repayment of principal and
interest.
In December 1994, the Company agreed to charter a multi-purpose
service vessel for use in the Gulf from Alpha Marine Services (the "Edison
Chouest Agreement") for a two-year period commencing in May 1995 with an option
to extend the charter for up to an additional 13 years. In return, the Company
agreed to pay an initial base day rate of $6,980 as a charter fee for use of
the vessel. The Company executed an agreement with Alpha Marine Services
effective October 1, 1995 to terminate the Edison Chouest Agreement in exchange
for the issuance by DeepTech of 100,000 shares of its Common Stock to Alpha
Marine Services. Alpha Marine Services is 30% owned by Dr. Chouest.
As of July 1, 1996, Elliott Associates, L.P., Westgate International,
L.P. and Martley International, Inc., which are entities under common control
with Highwood Partners, L.P. ("Highwood Partners"), had acquired a total of
6,037,784 shares of Tatham Offshore's Series A Preferred Stock. In December
1995, DeepFlex entered into an agreement with Highwood Partners to form
Deepwater Drillers, L.L.C. ("Deepwater Drillers") to exercise an option
assigned from the Company to acquire the FPS Bill Shoemaker (formerly named the
Treasure Searcher), a second generation semisubmersible drilling rig. At
inception, Deepwater Drillers was owned 50% by a wholly-owned subsidiary of
DeepFlex and 50% by Highwood Partners. In December 1995, the Company issued
promissory notes to Highwood Partners (the "Highwood Notes") for an aggregate
principal amount of $13,500,000 for the purchase of the FPS Bill Shoemaker. In
connection with the caretakership and refurbishment of the FPS Bill Shoemaker
and FPS V's purchase of Highwood Partners' 50% interest on June 30, 1996 for
$14,500,000, the Company issued an additional $3,758,000 of Highwood Notes.
The Highwood Notes are secured by a mortgage on the FPS Bill Shoemaker and
approximately $3,000,000 of PIK Notes, bear interest at 12%, payable quarterly
and are due March 31, 1997. The Company capitalized interest related to the
Highwood Notes of $1,021,000 for the year ended June 30, 1996. In July 1996,
the Company borrowed an additional $992,000 for refurbishment costs bringing
the total amount of outstanding Highwood Notes to $18,250,000. In connection
with the issuance of the Highwood Notes, the Company granted Highwood Partners
warrants, which expire on December 5, 1997, to acquire 472,973 shares of Common
Stock at $5.00 per share.
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In February 1996, DeepFlex Partners' FPS Laffit Pincay began providing
contract drilling services to Flextrend Development, which will extend until
Flextrend Development completes its drilling program at Garden Banks Block 117.
During the year ended June 30, 1996, DeepFlex Partners provided services
totaling $1,081,000 under this agreement. Net proceeds from the contract
drilling services have been used to pay interest and principal to DeepFlex on
the PIK Notes.
Mr. Tatham also serves as a Director of J. Ray McDermott, S.A.
("McDermott"). Certain of the subsidiaries of the Partnership have contracted
with certain subsidiaries of McDermott for construction and installation of
pipelines and related facilities in the ordinary course of business. During
the year ended December 31, 1995, the Partnership had incurred $56,821,000
pursuant to such contractual arrangements.
Mr. Darling is a partner in Baker & Botts, L.L.P. During the fiscal
year ended June 30, 1996, DeepTech and certain of its subsidiaries have paid
legal fees and expenses to Baker & Botts, L.L.P.
SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires DeepTech's officers and directors, and persons who
beneficially own more than 10% of Common Stock ("10% Stockholders"), to file
reports of ownership and changes in ownership with the Commission. All of
these filing requirements were satisfied by DeepTech's directors and officers
and, to the knowledge of DeepTech, the 10% Stockholders.
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<PAGE> 32
COMPARATIVE STOCK PERFORMANCE
As required by applicable rules of the Commission, the performance
graph was prepared based upon the following assumptions:
1. $100 was invested in Common Stock, the Standard & Poor's 500
Stock Index (the "S&P 500 Index") and the Dow Jones Oil -
Secondary Index (the "Peer Group") on May 16, 1994 (the date
the Common Stock commenced trading on the Nasdaq National
Market).
2. Dividends are reinvested on the ex-dividend dates.
COMPARATIVE TOTAL RETURNS
DEEPTECH INTERNATIONAL INC., S&P 500 INDEX, PEER GROUP
(PERFORMANCE RESULTS MAY 16, 1994 TO JUNE 30, 1996)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
16-MAY-94 30-JUN-94 30-JUN-95 30-JUN-96
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEEPTECH 100.00 140.00 40.00 50.00
---------------------------------------------------------------------------
S&P 500 INDEX 100.00 100.18 126.30 159.14
---------------------------------------------------------------------------
PEER GROUP 100.00 98.43 101.28 117.40
---------------------------------------------------------------------------
</TABLE>
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<PAGE> 33
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM 2)
Pursuant to the recommendation of the Conflicts and Audit Committee,
the Board has appointed Price Waterhouse LLP, independent accountants, to audit
the consolidated financial statements of DeepTech for the year ending June 30,
1997. DeepTech is advised that no member of Price Waterhouse LLP has any
direct financial interest or material indirect financial interest in DeepTech
or any of its subsidiaries or, during the past three years, has had any
connection with DeepTech or any of its subsidiaries in the capacity of
promoter, underwriter, voting trustee, director, officer or employee.
Ratification of this appointment shall be effective upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting. Under
Delaware law, an abstention would have the same legal effect as a vote against
this proposal, but a broker non-vote would not be counted for purposes of
determining whether a majority had been achieved. The Board of Directors
recommends voting "FOR" ratification by the stockholders of this appointment.
A representative of Price Waterhouse is expected to be present at the
Annual Meeting and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
PROPOSALS FOR 1997 ANNUAL MEETING
Pursuant to various rules promulgated by the Commission, any proposals
of holders of Common Stock of DeepTech intended to be presented at the Annual
Meeting of Stockholders of DeepTech to be held in 1997 must be received by
DeepTech addressed to the Secretary, 7500 Texas Commerce Tower, 600 Travis
Street, Houston, Texas 77002, by June 13, 1997 in order to be included in
DeepTech's proxy statement and form of proxy relating to that meeting.
PROPOSALS FOR 1996 ANNUAL MEETING
With respect to business to be brought before the Annual Meeting,
DeepTech has not received any notices from stockholders that it is required to
include in this Proxy Statement.
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<PAGE> 34
GENERAL
As of the date of this Proxy Statement, the management of DeepTech has
no knowledge of any business to be presented for consideration at the Annual
Meeting other than that described above. If any other business should properly
come before the Annual Meeting, it is intended that the shares represented by
proxies will be voted with respect thereto in accordance with the judgment of
the persons named in such proxies.
The cost of any solicitation of proxies by mail will be borne by
DeepTech. Arrangements may be made with brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of material to and solicitation of
proxies from the beneficial owners of Common Stock held of record by such
persons, and DeepTech will reimburse such brokerage firms, custodians, nominees
and fiduciaries for reasonable out of pocket expenses incurred by them in
connection therewith. In addition, DeepTech has retained ChaseMellon
Shareholder Services, L.L.C. to perform a proxy search to determine the
beneficial owners of the Common Stock as of the record date and will pay a fee
to such firm of approximately $225 plus reimbursement of expenses.
The information contained in this Proxy Statement in the sections
entitled "Report From the Compensation Committee Regarding Executive
Compensation" and "Comparative Stock Performance" shall not be deemed
incorporated by reference by any general statement incorporating by reference
any information contained in this Proxy Statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
except to the extent that DeepTech specifically incorporates by reference the
information contained in such sections, and shall not otherwise be deemed filed
under the Securities Act or the Exchange Act.
By Order of the Board of Directors,
/s/ THOMAS P. TATHAM
THOMAS P. TATHAM
Chairman of the Board
Houston, Texas
September 30, 1996
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<PAGE> 35
[FRONT SIDE OF PROXY]
PROXY
DEEPTECH INTERNATIONAL INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Thomas P. Tatham and Donald V. Weir as
Proxies, with the power of substitution, and authorizes them to represent and
to vote at the Annual Meeting of Stockholders to be held October 22, 1996, or
any adjournment thereof, all the shares of Common Stock of DeepTech
International Inc. held of record by the undersigned on September 27, 1996, as
designated below.
1. Election of directors - director nominees:
Thomas P. Tatham, Conrad P. Albert, Laney Chouest, Charles M. Darling,
IV, Ralph Eads, Robert E. Fox, Steven L. Gerard, Michael H. Lam, Ben T.
Morris, Nancy K. Quinn, Janet E. Sikes, Grant E. Sims, Donald V. Weir
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as indicated below) to vote for all nominees
Instruction: to withhold authority to vote for any of the above
nominees, write the nominee's name(s) on this line.
---------------------------------------------------------------------
2. To ratify the selection of Price Waterhouse LLP as independent
accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Proxies are authorized to vote in their best judgment upon such other
business as may properly come before the Annual Meeting.
[REVERSE SIDE OF PROXY]
This Proxy, when properly executed, will be voted in the manner
directed by the undersigned stockholder. Please refer to the Proxy Statement
for a discussion of each of these matters. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS. As to any other matter, said Proxies
shall vote in accordance with their best judgment.
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. If acting as attorney, executor, trustee, or
in any other representative capacity, sign name and title.
Dated________________________________ , 1996
--------------------------------------------
Signature
--------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
