<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
DEEPTECH INTERNATIONAL INC.
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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was determined.
<PAGE> 2
DEEPTECH INTERNATIONAL INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 19, 1997
TO THE STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
of DeepTech International Inc. ("DeepTech") to be held at The Luxury
Collection Hotel Houston, 1919 Briar Oaks Lane, Houston, Texas at 9:00 a.m.,
Houston time, on Friday, December 19, 1997, for the following purposes:
1. To elect ten 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, 1998;
3. To ratify the Board of Directors' approval of a Restructuring
Option Agreement with Tatham Offshore, Inc.; and
4. 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 November 19, 1997 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,
THOMAS P. TATHAM
Chairman of the Board
Houston, Texas
November 25, 1997
<PAGE> 3
DEEPTECH INTERNATIONAL INC.
7500 TEXAS COMMERCE TOWER
600 TRAVIS STREET
HOUSTON, TEXAS 77002
PROXY STATEMENT
1997 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 1997 Annual Meeting
of Stockholders (the "Annual Meeting") to be held at The Luxury Collection
Hotel Houston, 1919 Briar Oaks Lane, Houston, Texas at 9:00 a.m., Houston time,
on Friday, December 19, 1997. This Proxy Statement and the related proxy are to
be first sent or given to the stockholders of DeepTech on or about November 25,
1997. 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 November 19, 1997 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 November 19, 1997, the record date,
there were outstanding 20,574,103 shares of Common Stock.
DeepTech's Annual Report for the fiscal year ended June 30, 1997,
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.
<PAGE> 4
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 consolidated subsidiaries, including Leviathan Gas Pipeline
Company (indirectly 85%-owned) ("Leviathan"), DeepFlex Production Services,
Inc. (100%-owned) ("DeepFlex"), Offshore Gas Marketing, Inc. (80%-owned)
("Offshore Marketing") and Offshore Gas Processors, Inc. (85%-owned) ("Offshore
Processors"), and their respective consolidated subsidiaries and operations and
Tatham Offshore, Inc. and its consolidated subsidiaries (36%-owned) ("Tatham
Offshore") and 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, ten 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. All 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 ten 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 52, has served as Chairman of the Board, Chief
Executive Officer and a Director of DeepTech since October 1989 and as Chairman
of the Board and a Director of Leviathan since February 1989. Mr. Tatham
served as Chief Executive Officer of Leviathan from February 1989 through June
1995 and has served as Chairman of the Board and Director of Tatham Offshore
since its inception in 1988 and as Chief Executive Officer of Tatham Offshore
since November 1995. Mr. Tatham has over 27 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.
CONRAD P. ALBERT, age 51, 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. Mr. Albert is also a Director
of Anadarko Petroleum Corporation. Mr. Albert holds a B.A. from the University
of North Carolina at Chapel Hill.
LANEY CHOUEST, age 43, has served as a Director of DeepTech since
October 1995. Dr. Chouest 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 family
business in 1983. He currently serves as
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<PAGE> 5
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 49, has served as President and General
Counsel of DeepTech since May 1997 and as a Director of Leviathan and DeepTech
since October 1989 and February 1989, respectively. Prior to joining DeepTech,
Mr. Darling was a partner in the law firm of Baker & Botts, L.L.P. since 1980,
originally joining the firm in 1974. Mr. Darling represented companies in the
oil and gas industry for over 20 years and has been involved in vanguard
projects in the natural gas industry from a regulatory and business
perspective.
ROBERT E. FOX, age 68, has served as a Director of DeepTech since
October 1995. Mr. Fox 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 Directors 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 52, has served as a Director of DeepTech since
August 1992. Since September 1992, Mr. Gerard has served as Chairman of the
Board of Directors 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.
NANCY K. QUINN, age 44, has served as a Director of DeepTech since
October 1995. Ms. Quinn 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 43, 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.
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<PAGE> 6
GRANT E. SIMS, age 42, 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 DeepTech, Mr. Sims served as an independent consultant with clients
ranging from United Gas Pipe Line Company to Donaldson, Lufkin & Jenrette
Securities Corporation ("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 56, 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. ("Dover"), 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 DeepTech, 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 four meetings during the
fiscal year ended June 30, 1997. During the fiscal year ended June 30, 1997,
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 except
for Mr. Michael H. Lam. Mr. Lam attended 25% of the meetings of the Board of
Directors.
Committees of the Board of Directors. DeepTech had the following
committees of the Board of Directors during the fiscal year ended June 30,
1997:
Compensation Committee. The Compensation Committee of the Board of
Directors, which was comprised of Messrs. Gerard (Chairman), Albert and Ben T.
Morris, met three times during the fiscal year ended June 30, 1997. 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. Mr. Morris resigned from the Board of Directors effective September
30, 1997.
Executive Committee. The Executive Committee did not meet during the
fiscal year ended June 30, 1997. 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 is subject to approval by an outside Director. The Executive
Committee is currently comprised of Messrs. Tatham (Chairman), Weir and Sims.
Conflicts and Audit Committee. 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. The Conflicts and Audit Committee,
comprised of Messrs. Morris (Chairman), Gerard and Albert, met one time during
the fiscal year ended June 30, 1997. The Conflicts and Audit Committee also met
once during September 1997.
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<PAGE> 7
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. In addition to standard
director compensation, each director of DeepTech who is not an officer or
affiliate of DeepTech has been granted options to purchase 150,000 shares of
Common Stock. The options were issued at the fair market value at the date of
grant and are exercisable until one year from cessation of service. See "--
Non-Employee Director Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Ralph Eads, a current Director of DeepTech, is a Managing Director
of DLJ and an officer 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. DLJ and its affiliates also own interests in DeepTech and
overriding royalty interests in certain other oil and gas leases held by Tatham
Offshore. Mr. Eads is not standing for re-election as a Director of DeepTech.
See "-- Voting Securities and Principal Stockholders."
Mr. Morris, a Director of DeepTech through September 30, 1997, is an
officer and shareholder of Sanders Morris Mundy Inc. ("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 addition, Mr. Morris receives quarterly cash dividends from
Leviathan Holdings Company ("Leviathan Holdings") common stock held by him.
Leviathan Holdings, an 85%-owned subsidiary of DeepTech, owns 100% of
Leviathan.
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<PAGE> 8
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, 1997 (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, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------------------------------ COMPENSATION
MARKET VALUE OTHER ANNUAL AWARDS ALL OTHER
NAME/PRINCIPAL FISCAL SALARY BONUS OF STOCK COMPENSATION(1) OPTIONS COMPENSATION
POSITION YEAR ($) ($) ISSUED(2) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas P. Tatham......... 1997 $1,000,000 -- -- $1,400,000(3) -- --
Chief Executive Officer 1996 --(4) --(4) $3,331,750(4) $ 39,178(5) 300,000(6)(9) --
DeepTech 1995 $ 600,000 --(7) $ 600,000(7) $ 107,714(8) 100,000(9) --
James H. Lytal........... 1997 $ 200,000 $113,166 -- -- 175,000(10) --
President 1996 $ 120,000(11) -- $ 66,100(11) -- 90,000(12) --
Leviathan 1995 $ 125,301 $ 32,067(13) -- -- 50,000(14) --
John H. Gray............. 1997 $ 225,000 -- -- -- 125,000(12) --
Chief Operating Officer 1996 $ 175,000 -- -- -- 190,000(15) --
Leviathan 1995 $ 165,700 -- -- -- -- --
Grant E. Sims............ 1997 $ 350,000 $239,499 -- -- 125,000(12) --
Chief Executive Officer 1996 $ 315,000 -- -- -- 190,000(15) --
Leviathan 1995 $ 193,750 $ 54,547(16) -- $ 25,722(17) 350,000(18) --
Donald V. Weir........... 1997 $ 250,000 -- -- -- -- --
Chief Financial Officer 1996 $ 200,000 -- -- -- 125,000(9) --
DeepTech 1995 $ 179,162 -- -- $ 86,899(19) 50,000(9) --
</TABLE>
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(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 (as defined
herein) for salary and bonuses. The aggregate market value is
calculated based on the last reported sales prices of the common stock
on the dates of exercise of the options.
(3) Effective July 1, 1996, the Compensation Committee of DeepTech's Board
of Directors established a compensation plan for Mr. Tatham for the
years ended June 30, 1997 and 1998. Under this compensation plan, Mr.
Tatham is to receive a base salary of $1,000,000 per annum plus
$1,400,000 per annum to be credited against incentive bonuses as they
are earned. The base salary and bonus are payable at the rate of
$200,000 per month. The Compensation Committee detailed certain
performance goals for the Company and Mr. Tatham which would allow him
to earn the incentive bonus payments over the two year period. The
performance goals are structured to reward Mr. Tatham for enhancing
shareholder value through increased earnings per share and the
financing of key projects.
(4) 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 Amended Equity Incentive
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."
(5) Represents dues for club memberships.
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<PAGE> 9
(6) Excludes options to acquire 1,666,666 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.
(7) 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 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."
(8) Includes $85,400 to pay the initial membership fees at two country
clubs.
(9) Options granted pursuant to the Amended Equity Incentive Plan.
(10) Includes 125,000 stock appreciation rights ("SARs") granted pursuant
to the Partnership's Unit Appreciation Rights Plan and 50,000 shares
of restricted Common Stock.
(11) 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 Amended Equity Incentive 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.
(12) SARs granted pursuant to the Partnership's Unit Appreciation Rights
Plan.
(13) Includes $22,067 of bonus payable pursuant to Mr. Lytal's employment
agreement. See "-- Employment Agreements."
(14) Options were issued pursuant to Mr. Lytal's employment agreement. See
"-- Employment Agreements" and "-- Ten Year Options Repricings."
(15) Includes 100,000 options granted pursuant to the Amended Equity
Incentive Plan and 90,000 SARs granted pursuant to the Partnership's
Unit Appreciation Rights Plan.
(16) Bonuses payable pursuant to Mr. Sims' employment agreement. See "--
Employment Agreements."
(17) Includes $20,400 to pay the initial membership fee at a country club.
(18) Includes options to purchase 50,000 shares of Common Stock granted
pursuant to the Amended Equity Incentive Plan which were canceled
during the fiscal year ended June 30, 1996 in connection with the
grant of 100,000 options pursuant to the Amended Equity Incentive Plan
and options to purchase 300,000 shares of Common Stock issued in
connection with Mr. Sims' continued employment. See "-- Employment
Agreements."
(19) Includes $8,136 related to the use of an automobile provided by
DeepTech and $74,025 to pay the initial membership fees at two country
clubs.
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OPTION GRANTS
The following table sets forth certain information with respect to
option grants made to the Named Officers under the Amended Equity Incentive
Plan and otherwise during the fiscal year ended June 30, 1997:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OPTIONS
GRANTED
NUMBER OF TO EXERCISE POTENTIAL REALIZABLE VALUE AT
SHARES OF COMMON EMPLOYEES OR ASSUMED ANNUAL RATES OF
STOCK UNDERLYING IN FISCAL BASE PRICE EXPIRATION STOCK PRICE APPRECIATION FOR
NAME OPTIONS GRANTED YEAR ($/SH) DATE OPTION TERM
5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
James H. Lytal 250,000 33.3% $ 5.75 3/19/2007 $ 1,021,000 $ 2,664,000
125,000(1) 15.6% $21.50 2/17/2003 $ 1,094,000 $ 2,312,000
Grant E. Sims 125,000(1) 15.6% $21.50 2/17/2003 $ 1,094,000 $ 2,312,000
John H. Gray 125,000(1) 15.6% $21.50 2/17/2003 $ 1,094,000 $ 2,312,000
</TABLE>
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(1) Issued under the Partnership's Unit Rights Appreciation Plan.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth certain information regarding the
outstanding options and warrants to purchase Common Stock held by the Named
Officers at June 30, 1997:
<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 (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE(3) EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Tatham ........... 722,91(1) --(2) 2,568,749(4)/ -- $5,603,121(4)/ $ --
James H. Lytal ............. -- -- 12,500 / 287,500 $50,000 / $712,500
John H. Gray ............... -- -- 75,000 / 75,000 $100,000 / $300,000
Grant E. Sims .............. -- -- 300,000 / 75,000 $943,750 / $300,000
Donald V. Weir ............. -- -- 81,250 / 93,750 $125,000 / $375,000
</TABLE>
- ---------
(1) Options exercised to purchase Common Stock were acquired by Mr. Tatham
related to matters other than executive compensation and unrelated to the
operations of DeepTech.
(2) On May 21, 1997, Mr. Tatham exercised 447,917 warrants to purchase a like
amount of shares of Common Stock at $4.50 per share. In addition, Mr.
Tatham exercised 275,000 warrants to purchase a like amount of shares of
Common Stock at $10.00 per share. On May 21, 1997, Common Stock closed
at $6.44 per share on The Nasdaq National Market.
(3) All unexercisable options in this column relate to options which were
issued pursuant to DeepTech's Amended Equity Incentive Plan.
(4) Excludes options to acquire 125,000 shares of Common Stock at $4.50 per
share purchased by Mr. Tatham in August 1996.
-8-
<PAGE> 11
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
The duty of members of the Compensation Committee is to administer the
executive compensation program for DeepTech. The Compensation Committee is
responsible for establishing appropriate compensation goals for the executive
officers of DeepTech 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
revenue 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 Compensation
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 DeepTech.
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
OPTIONS MARKET PRICE OF EXERCISE PRICE ORIGINAL OPTION
REPRICED OR STOCK AT TIME OF AT TIME OF TERM REMAINING
AMENDED REPRICING OR REPRICING OR NEW EXERCISE AT REPRICING OF
NAME DATE (#) AMENDMENT AMENDMENT PRICE AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
James H. 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 Amended Equity Incentive
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 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
-9-
<PAGE> 12
Options for 75,000 shares 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
EQUITY INCENTIVE PLAN
General. In 1993, the Board of Directors 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 DeepTech's fiscal year ending June 30, 1996, DeepTech
issued stock options under the Plan to certain employees of DeepTech who agreed
to defer certain cash salary and bonus otherwise due.
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 Compensation
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 Code,
or any successor thereto.
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. Each
member of the Compensation Committee is a disinterested person within the
meaning of Rule 16b-3 of the Exchange Act and qualifies as an "outside
-10-
<PAGE> 13
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 Compensation 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 Compensation 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, 1997, there were 2,625,625 Nonqualified Stock Options
and 150,000 shares of restricted common stock of DeepTech outstanding that were
issued pursuant to the Plan.
EMPLOYMENT AGREEMENTS
In December 1992, DeepTech 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 in January 1994. As of June 30, 1997, Mr. Sims held 145,000 shares of
Common Stock purchased pursuant to such options. DeepTech 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, $54,547 and $39,499 for the fiscal
years ended June 30, 1994, 1995 and 1997, 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 providing that 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.
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 bonuses of $22,067 and $13,166 for
the fiscal years ended June 30, 1995 and 1997.
-11-
<PAGE> 14
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
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.
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 Director 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.
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, 1997 are 1,230,000
Nonqualified Stock Options issued pursuant to the Director Plan.
-12-
<PAGE> 15
UNIT RIGHTS APPRECIATION PLAN
In 1995, the Partnership adopted the Unit Rights Appreciation Plan
(the "Unit Rights Plan") to provide the Partnership with the ability of making
awards of Unit Rights, as hereinafter defined, to certain officers and key
employees of the Partnership or its affiliates as an incentive for these
individuals to continue in the service of the Partnership or its affiliates.
Under the Unit Rights Plan, the Partnership may grant to senior
officers of the Partnership or its affiliates, excluding the Chairman of the
Board of Leviathan, currently Mr. Tatham, the right to purchase, or realize the
appreciation in, a Preference Unit (a "Unit Right"), pursuant to the provisions
of the Unit Rights Plan.
The Unit Rights Plan is administered by a committee of the Board of
Directors of the General Partner (the "Leviathan Board") comprised of two or
more non-employee directors as defined by Rule 16 b-3 of the Exchange Act (the
"Committee") provided that during the periods in which no such committee is
appointed and empowered under the Unit Rights Plan, the Leviathan Board shall
be the Committee for all purposes under the Unit Rights Plan.
The aggregate number of Preference Units as to which Unit Rights may
be issued pursuant to Unit Rights Plan shall not exceed 400,000 Preference
Units per calendar year and 4,000,000 Preference Units over the term of the
Unit Rights Plan, subject to adjustment as to both limitations under certain
circumstances. No participant may be granted more than 400,000 Unit Rights in
any calendar year. The exercise price of the Preference Units covered by the
Unit Rights granted pursuant to the Unit Rights Plan shall be the closing price
of the Preference Units as reported on the NYSE or, if the Preference Units are
not traded on such exchange, as reported on any other national securities
exchange on which the Preference Units are traded, on the date on which Unit
Rights are granted pursuant to the Unit Rights Plan.
As of September 2, 1997, a total of 1,200,000 Unit Rights have been
granted under the Unit Rights Plan representing 400,000 Unit Rights for each of
the calendar years 1995, 1996 and 1997. Each of Messrs. Sims, Lytal and Gray
have been granted a total of 215,000 Unit Rights under the Unit Rights Plan.
-13-
<PAGE> 16
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 15, 1997, the beneficial
ownership of the outstanding Common Stock of DeepTech by (i) each person who is
known to DeepTech to beneficially own more than 5% of the outstanding Common
Stock, (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, 1997, 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)............. 1,047,524 (8) 5.3% 1,048,227 3.9% -- --
Laney Chouest...................... 155,000 (9) * 35,727 (10) * -- --
Phillip G. Clarke.................. 172,260 (11) * 63,786 * -- --
Charles M. Darling, IV(12)......... 525,981 (13) 2.6% 70,018 (14) * 50.0 5.0%
Donaldson, Lufkin & Jenrette
Securities Corporation........... 1,830,706 (15) 8.6% -- -- -- --
Ralph Eads......................... 150,000 (9) * -- -- -- --
The Equitable Companies
Incorporated..................... 2,156,450 (16) 10.0% -- -- -- --
Robert E. Fox...................... 151,688 (11) * 35,727 (17) * -- --
Steven L. Gerard(18)............... 164,260 (19) * 10,718 (20) * -- --
John H. Gray....................... 85,290 (45) * -- -- 50.0 5.0%
Michael H. Lam..................... 173,508 (11) * 15,363 (21) * -- --
Lehman Commercial
Paper Inc. ...................... 1,333,333 (22) 6.5% -- -- -- --
James H. Lytal(23)................. 22,721 (46) * -- -- -- --
Ben T. Morris...................... 632,970 (24) 3.2% 8,407 (25) * 2.5 *
Edward L. Moses, Jr. (26).......... 98,116 (27) * 920,307 (28) 3.3% -- --
Nancy Quinn(29). .................. 159,756 (11) * 17,864 (30) * -- --
Janet E. Sikes..................... 276,069 (31) 1.4% 5,359 (32) * -- --
Grant E. Sims(33).................. 745,000 (34) 3.7% -- -- -- --
Thomas P. Tatham(35)............... 9,926,431 (36) 44.1% 5,755,848 (37) 18.4% 30.0 3.0%
Donald V. Weir(38)................. 309,090 (39) 1.5% -- -- 12.5 1.25%
Robert H. Williams(6)(40).......... 1,011,524 (8) 5.2% 1,026,771 (41) 3.7% -- --
Executive officers and directors
as a group (18 persons)(42)...... 13,910,861 (43) 57.0% 6,951,625 (44) 21.7% 95.0 9.5%
</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
above date 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"), Series B 8% Convertible
Exchangeable Preferred Stock ("Series B Preferred Stock") and Series C 4%
Convertible Exchangeable Preferred Stock ("Series C 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.
Alternatively, each share of Series A, B and C 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
-14-
<PAGE> 17
per share. See "Certain Relationships and Related Transactions --
Convertible Exchangeable Preferred Stock."
(3) Excludes each named person's indirect ownership interest, if any, in the
28,811,214 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 Mr.
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 689,086 shares held of record by Dover Energy, Inc. Each of Mr.
Briscoe and Dr. Williams is a Director and officer of Dover Energy, Inc.
and disclaims beneficial ownership of 459,391 shares held by Dover
Energy, Inc.
(9) Includes options to purchase 150,000 shares of Common Stock.
(10) Includes 25,727 shares assumed acquired as a result of conversion of
10,000 shares of Tatham Offshore's Series A Preferred Stock into Tatham
Offshore common stock.
(11) Includes options to purchase 150,000 shares of Common Stock.
(12) 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.
(13) 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.
(14) Includes 18,009 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
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.
(15) Consists of 385,209 shares and warrants to purchase 1,445,497 shares.
DLJ's address is 277 Park Avenue, New York, New York 10172.
(16) Includes 270,103 shares and warrants to purchase 55,641 shares. Also
includes 385,209 shares and warrants to purchase 1,445,497 shares held by
The Equitable Companies Incorporated's subsidiary, DLJ. The address of
Equitable is 1290 Avenue of the Americas, New York, New York, 10104.
(17) Includes 25,727 shares assumed acquired as a result of conversion of
10,000 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(18) In addition to the share ownership set forth in the table, Mr. Gerard
owns 1,200 Preference Units of the Partnership, representing less than 1%
of the outstanding Preference Units.
(19) Includes 150,000 shares which may be acquired pursuant to an option
agreement among Mr. Gerard, Mr. Tatham and DeepTech.
(20) Includes 7,718 shares assumed acquired as a result of conversion of 3,000
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(21) Includes 11,603 shares assumed acquired as a result of conversion of
4,300 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(22) Includes warrants to purchase 666,667 shares. Lehman Commercial Paper
Inc.'s address is 3 World Financial Center, 9th Floor, New York, New York
10285.
(23) In addition to the share ownership set forth in the table, Mr. Lytal also
owns 1,016 Preference Units of the Partnership, representing less than 1%
of the outstanding Preference Units.
(24) 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
-15-
<PAGE> 18
trusts also own 33,000 preference Units in the Partnership, representing
less than 1% of the outstanding Preference Units. In addition, Mr.
Morris owns 1,400 Preference Units in the Partnership, representing less
than 1% of the outstanding Preference Units.
(25) Includes 6,054 shares assumed acquired as a result of conversion of 2,353
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(26) In addition to the ownership set forth in the table, Mr. Moses owns
36,164 Preference Units in the Partnership, representing less than 1% of
the outstanding Preference Units.
(27) Includes options to purchase 18,750 shares.
(28) Includes 656,306 shares assumed acquired as a result of conversion of
255,100 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(29) In addition to the share ownership set forth in the table, Ms. Quinn owns
2,000 Preference Units in the Partnership, representing less than 1% of
the outstanding Preference Units.
(30) Includes 12,864 shares assumed acquired as a result of conversion of
5,000 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(31) Includes options to purchase 18,750 shares. In addition to the ownership
set forth in the table, Ms. Sikes owns 1,269 Preference Units in the
Partnership, representing less than 1% of the outstanding Preference
Units.
(32) Includes 3,859 shares assumed acquired as a result of conversion of 1,500
shares of Tatham Offshore Series A Preferred Stock into Tatham Offshore
common stock.
(33) 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 24,000 Preference Units
in the Partnership, representing less than 1% of the outstanding
Preference Units.
(34) Includes options to purchase 300,000 shares of Common Stock.
(35) 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.
(36) Includes options to purchase 2,568,749 shares of Common Stock.
(37) Includes 3,972,248 shares assumed acquired as a result of conversion of
1,537,600 shares of Tatham Offshore Series A Preferred Stock and 21,000
shares of Tatham Offshore Series C Preferred Stock into Tatham Offshore
common stock.
(38) In addition to the share ownership set forth in the table, Mr. Weir also
owns 20,000 Preference Units in the Partnership, representing less than
1% of the outstanding Preference Units.
(39) Includes options to purchase 81,250 shares of Common Stock.
(40) Dr. William's address is 14511 Westway Lane, Houston, Texas 77077.
(41) Includes 12,864 shares assumed acquired as a result of conversion of
5,000 shares of Tatham Offshore Series A Preferred Stock into Tatham
Offshore common stock.
(42) 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) 125,049 Preference Units in the
Partnership, representing less than 1% of the outstanding Preference
Units.
(43) Includes options to purchase 4,432,499 shares of Common Stock.
(44) Includes 4,757,585 shares assumed acquired as a result of conversion of
1,863,853 shares of Tatham Offshore Series A and Series C Preferred Stock
into Tatham Offshore common stock.
(45) Includes options to purchase 75,000 shares of Common Stock.
(46) Includes options to purchase 12,500 shares of Common Stock.
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<PAGE> 19
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.
Management Agreements
DeepTech provides management, operational, financial, accounting and
administrative services to each of its subsidiaries pursuant to management
agreements. The management fees charged to each of its subsidiaries are
intended to approximate the amount of resources allocated by DeepTech to each
such subsidiary. Leviathan, as general partner of the Partnership, is entitled
to reimbursement of all reasonable expenses incurred by it or its affiliates
for or on behalf of the Partnership by Leviathan to DeepTech under a management
agreement. Each of the management agreements has a term expiring on June 30,
2002, and may be terminated thereafter upon 90 days' notice by either party
thereto.
For the year ended June 30, 1997, DeepTech determined the level of
services it provided to Leviathan, Tatham Offshore, DeepFlex and Offshore
Marketing and charged each of these subsidiaries an annual management fee of
54%, 24%, 18% and 4%, respectively, of DeepTech's overhead. During the year
ended June 30, 1997 Leviathan charged the Partnership $7,377,000 of fees
payable to DeepTech pursuant to the terms of the management agreement. During
the year ended June 30, 1997, Tatham Offshore, DeepFlex and Offshore Marketing
were charged $3,279,000, $2,459,000 and $546,000, respectively, under their
respective management agreements. Only Leviathan, Tatham Offshore and Offshore
Marketing paid their management fees to DeepTech during the year ended June 30,
1997.
Tatham Offshore Subordinated Notes
As of June 30, 1997, Tatham Offshore had issued to DeepTech
$60,000,000 aggregate principal amount of Subordinated Convertible Promissory
Notes (the "Subordinated Notes") for funds received. The Subordinated Notes
bore 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 began
accruing at a rate of 13% per annum. Interest income related to these
Subordinated Notes totaled $7,040,000 for the year ended June 30, 1997. The
principal amount of the 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 Subordinated Notes, without penalty or premium,
upon 90 days prior written notice to the holder thereof. The holders of the
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 Subordinated Notes and common stock into which
Subordinated Notes have been converted have the right to demand the
registration of the 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 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.
Tatham Offshore has agreed not to incur additional subordinated indebtedness
without the consent of the holders of the Subordinated Notes.
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<PAGE> 20
In September 1997, DeepTech and Tatham Offshore entered into an option
agreement to restructure the Subordinated Notes (the "Restructuring Option
Agreement"). Under the Restructuring Option Agreement, DeepTech agreed to
forgive the next two scheduled interest payments under the Subordinated Notes,
a total of $3,900,000. In exchange, DeepTech received options from Tatham
Offshore and agreed to restructure the Subordinated Notes by consummating one
of the following transactions: (i) to convert all of the principal amount
outstanding under the Subordinated Notes into shares of Tatham Offshore common
stock at the market price at the time the option is exercised; (ii) to purchase
shares of Tatham Offshore 6% Senior Preferred Stock with a liquidation value of
$60 million, the proceeds from which would be used to prepay the outstanding
balance of the Subordinated Notes; or (iii) to purchase all of the outstanding
capital stock of Tatham Offshore Development Company, Inc. ("Tatham Offshore
Development"), a wholly-owned subsidiary of Tatham Offshore, for $60 million,
the proceeds from which would be used to prepay the outstanding balance of the
Subordinated Notes. DeepTech is required to select one of the above
restructuring transactions on or before December 31, 1997.
Tatham Offshore Development holds the leasehold interests in Ewing
Bank Blocks 958, 959, 1002 and 1003, the Sunday Silence Project. Under the
Restructuring Option Agreement, Tatham Offshore has the right to pursue the
sale, farmout or other disposition of the Sunday Silence Project during the
option period. In the event that Tatham Offshore enters into a sales agreement
for 100% of Tatham Offshore Development or the Sunday Silence Project prior to
the expiration of the option period, DeepTech has the further option to receive
50% of the cash proceeds from such transaction as a prepayment of the
Subordinated Notes. If DeepTech elects this option, DeepTech has agreed to
convert the remaining principal amount of the Subordinated Notes into common
stock of Tatham Offshore at the market price. For purposes of determining the
market price of Tatham Offshore common stock under this agreement, the parties
have agreed the market price shall be the average of the closing prices for the
ten trading days immediately preceding the exercise of the option. DeepTech's
option to acquire Tatham Offshore Development also includes all of Tatham
Offshore's interest in a drilling arrangement with Sedco Forex Division of
Schlumberger Technology Corporation ("Sedco Forex") for the use of a
semisubmersible drilling rig in the Gulf of Mexico. Tatham Offshore has agreed
not to sell less than 100% of its interest in Tatham Offshore Development
pending the exercise by DeepTech of one of its options.
Loans from Officers, Directors and Affiliates
As of July 1, 1996, DeepTech had issued a total of $6,640,000 of
subordinated unsecured notes to Mr. Tatham and other affiliates (the "DeepTech
Subordinated Notes") which bore interest at 15% per annum, payable quarterly
and were guaranteed by DeepFlex on a subordinated basis to the Term Loan as
defined below. On January 15, 1997, DeepTech issued $6,000,000 of renewal
subordinated promissory notes (the "Renewal Notes") to Mr. Tatham and paid
$640,000 to other affiliates in settlement of $6,640,000 of DeepTech
Subordinated Notes. Interest expense and amortization of debt issue costs
related to the DeepTech Subordinated Notes totaled $691,000 for the year ended
June 30, 1997 of which $507,000 was related to indebtedness due Mr. Tatham.
On January 23, 1997, DeepTech paid $1,650,000 principal amount of
other company indebtedness and issued $15,350,000 aggregate principal amount of
Senior Subordinated Notes to an investment banking firm in exchange for
$9,350,000 principal amount of other company indebtedness, 1,100,000 DeepTech
Warrants and $6,000,000 of Renewal Notes, all of which were concurrently
purchased by the investment banking firm from the respective holders thereof.
Mr. Tatham agreed to waive certain prepayment provisions in the Renewal Notes.
In addition, in conjunction with Mr. Tatham's agreement to sell the Renewal
Notes to the investment banking firm, DeepTech agreed to assign 1,100,000 of
DeepTech's Warrants to Mr. Tatham and further agreed to provide Mr. Tatham and
members of his immediate family the right, until June 1, 1997, to accept an
offer made to certain warrantholders to exercise 25%, 37.5% or 50% of their
Warrants in exchange for an extension of one, two or three years, respectively,
in the expiration date of the remaining Warrants.
In May 1997, DeepTech issued 722,917 shares of Common Stock to Mr.
Tatham pursuant to the exercise of Warrants under this offer. Mr. Tatham
exercised 447,917 Warrants at $4.50 per share and 275,000 Warrants at $10.00
per share. As a result, the expiration of 2,168,749 Warrants currently held by
Mr. Tatham was extended by one year.
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<PAGE> 21
Guarantees
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 bore interest at 12% per annum, payable monthly, was due on July
15, 1997 and was secured by substantially all tangible and intangible assets
owned by DeepFlex. In addition, the lenders required an assignment by DeepFlex
of the first preferred ship mortgage on the FPS Laffit Pincay. 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. DeepFlex retired the Term
Loan on September 30, 1996.
Leviathan Dividends and Tax Sharing Payments
During the year ended June 30, 1997, Leviathan Holdings paid
$9,687,000 in cash dividends to its stockholders, which include DeepTech (85%),
Mr. Darling (5%), Mr. Tatham (3%), Mr. Weir (1.25%) and Mr. Morris (0.25%). In
addition, Leviathan paid DeepTech $3,222,000 during the year ended June 30,
1997 pursuant to a tax sharing agreement for estimated taxes for the year then
ended.
Marketing Agreements
The Partnership and Tatham Offshore have agreed to sell all of their
oil and gas production to Offshore Marketing on a month to month basis.
Offshore Marketing has agreed to purchase such production at the platforms to
which it is delivered. The agreements with the Partnership and Tatham Offshore
currently provide Offshore Marketing fees equal to 2% of the sales value of
crude oil and condensate and $0.015 per dekatherm of natural gas. Sales to
Offshore Marketing by the Partnership and Tatham Offshore totaled $113,412,000
for the year ended June 30, 1997.
PIK Notes
As of June 30, 1996, DeepFlex Production Partners, L.P. ("DeepFlex
Partners"), which is 50%-owned by DeepFlex and 50%-owned by wholly-owned
subsidiaries of Coflexip Stena Offshore, Inc., owed DeepFlex $40,490,000
aggregate principal amount of subordinated payment-in-kind indebtedness ("PIK
Notes"). Any additional advances from DeepFlex to DeepFlex Partners were
evidenced by PIK Notes. PIK Notes bore interest at 12% per annum, payable
quarterly, and were due on March 31, 2002. Interest was paid under certain
circumstances by the issuance of additional PIK Notes. On September 30, 1996,
an indirect wholly-owned subsidiary of DeepFlex acquired the FPS Laffit Pincay
from DeepFlex Partners for the assumption of the then outstanding PIK Notes
payable to DeepFlex of $40,056,000. Interest income related to the PIK Notes
totaled $1,195,000 for the year ended June 30, 1997.
Convertible Exchangeable Preferred Stock
As of July 1, 1996, DeepFlex owned 4,670,957 shares of Tatham
Offshore's Series A 12% Convertible Exchangeable Preferred Stock and 5,329,043
warrants of Tatham Offshore. In December 1996, DeepFlex exercised 1,016,957 of
its Tatham Offshore warrants to acquire an equal number of shares of Tatham
Offshore's Series C 4% Convertible Exchangeable Preferred Stock at $1.00 per
share. The remaining 4,312,086 warrants of Tatham Offshore held by DeepFlex
were automatically converted into an equal number of shares of Tatham
Offshore's Mandatory Redeemable Preferred Stock on January 1, 1997. At any
time until December 31, 1998, each share of Tatham Offshore's Series A and C
Convertible Exchangeable Preferred Stock held by DeepFlex may be exchanged for
four warrants (the "Exchange Warrants") each of which entitles DeepFlex to
purchase one share of Tatham Offshore common stock at a price equal to $0.653
per share. The Exchange Warrants expire July 1, 1999. Alternatively, at any
time, DeepFlex may convert the liquidation value of its Tatham Offshore Series
A and C Convertible Exchangeable Preferred Stock and accrued and unpaid
dividends into shares of Tatham Offshore common stock at $0.653 per share.
Tatham Offshore is required to redeem its Mandatory Redeemable Preferred Stock
at a redemption price of $0.50 per share if it redeems any shares of its Series
A, B or C Convertible Exchangeable Preferred Stock. Tatham Offshore is also
required to redeem its Mandatory Redeemable Preferred Stock at a redemption
price of $0.50 per share from net proceeds from the sale of Tatham
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<PAGE> 22
Offshore common stock pursuant to the exercise of Exchange Warrants, subject to
certain conditions. After July 1, 1997, Tatham Offshore's Series A and C
Convertible Exchangeable Preferred Stock and its Mandatory Redeemable Preferred
Stock held by DeepFlex is redeemable at the option of Tatham Offshore.
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 which 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. Flextrend Development is entitled to retain all of the revenue
attributable to the Assigned Properties until it has received net revenue 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 increased the amount recoverable from the Payout
Amount by $7,500,000 plus interest.
Effective December 10, 1996, Flextrend Development exercised its
option to permanently retain 50% of the acquired working interest in the
Assigned Properties in exchange for forgiving 50% of the then-existing Payout
Amount exclusive of the $7,500,000 plus interest added to the Payout Amount in
connection with the restructuring of certain transportation agreements
discussed above. Flextrend Development remains 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. Flextrend
Development's election to retain 50% of the acquired working interest in the
Assigned Properties reduced the Payout Amount from $94,020,000 to $50,760,000.
Subsequent to December 10, 1996, only 50% of the development and operating
costs attributable to the Assigned Properties are added to the Payout Amount
and 50% of the net revenue from the Assigned Properties will reduce the Payout
Amount. As of June 30, 1997, the Payout Amount totaled $45,918,000.
Transportation, Processing and Platform Access Agreements
General. 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 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 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 agreed to pay certain fees for transportation
services and facilities access provided under the Master Gas Dedication
Agreement. Pursuant to the terms of the Purchase and Sale Agreement, Flextrend
Development assumed all of Tatham Offshore's obligations under the Master Gas
Dedication Agreement and certain ancillary agreements with respect to the
Assigned Properties.
Viosca Knoll. The Partnership charged Tatham Offshore $1,995,000 for
the year ended June 30, 1997 for commodity and platform access fees associated
with the Viosca Knoll 817 lease in accordance with certain agreements under the
Master Gas Dedication Agreement. Commodity charges are based on the volume of
oil and gas transported or processed.
Ewing Bank. The transportation agreements with respect to the Ewing
Bank properties provided for a monthly demand charge and a commodity charge
equal to 4% of the market price for production actually transported. For the
year ended June 30, 1997, charges under these agreements with the Partnership
totaled $1,493,000. In May 1997, Tatham Offshore shut-in the Ewing Bank 914 #2
well as a result of a downhole mechanical problem.
Ship Shoal. The transportation agreements related to the Ship Shoal
Block 331 also provided for demand and commodity charges which totaled $638,000
for the year ended June 30, 1997. Completion
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<PAGE> 23
problems related to three wellbores at Ship Shoal Block 331 resulted in minimal
production from the property and as a result, Tatham Offshore has decided not
to pursue further recompletion operations at this time.
Dover Services Agreements
Effective November 1, 1995, Dover entered into Technology Services
Agreements with each of Tatham Offshore and the Partnership (the "Dover
Services Agreements") which expired on October 31, 1996. Under the Dover
Services Agreements, Dover provided development and exploration services to
Tatham Offshore and the Partnership, which services included, 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 DeepTech's equipment. For the year ended June 30, 1997,
charges for technical services by Dover to Tatham Offshore and the Partnership
under the Dover Services Agreements totaled $160,000 and $96,000, 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. Mr. Taylor, a Director of Tatham Offshore, owns one-third
interest in Dover Energy, Inc. which owns 50% 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"). The Affiliate Note bore interest at 14.5% per annum,
payable quarterly, and the principal was payable to DeepTech in six monthly
installments which began on January 31, 1997. Interest expense related to the
Affiliate Note totaled $202,000 for the year ended June 30, 1997.
Other
In September 1995, Tatham Offshore reacquired an aggregate 25% working
interest in Viosca Knoll Block 817 and an approximate 12.5% working interest in
the remainder of the Viosca Knoll Block 772/773, 774, 818 and 861
(collectively, the "Viosca Knoll Properties") 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 Viosca Knoll Properties 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 require DeepTech to purchase the
convertible production payments for an amount equal to 50% of the unrecovered
portion thereof. At June 30, 1997, the unpaid portion of the production payment
obligation totaled $12,535,000.
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.
As of July 1, 1997, Elliott Associates, L.P., Westgate International,
L.P. ("Westgate") and Martley International, Inc., which are entities under
common control with Highwood Partners, L.P. ("Highwood Partners"), owned a
total of 472,973 shares of Common Stock and 6,037,784 shares of Tatham
Offshore's Series A Convertible Exchangeable Preferred Stock. In connection
with the acquisition and financing of a semisubmersible drilling rig, DeepTech,
DeepFlex and certain other subsidiaries of DeepTech and DeepFlex entered into
certain transactions with Highwood Partners and its affiliates. Through July
1996, the DeepTech entities had borrowed a total of $18,250,000 from Highwood
Partners and its related entities. In connection with the issuance of this
debt, DeepTech granted Highwood Partners warrants, which were to expire on
December 5, 1997, to acquire 472,973 shares of common stock at $5.00 per share.
Highwood Partners assigned these
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<PAGE> 24
warrants to Westgate. On September 30, 1996, DeepTech retired the indebtedness
to Highwood Partners and its affiliates and Westgate exercised the warrants to
acquire 472,973 shares of Common Stock. Interest related to this debt totaled
$522,000 for the year ended June 30, 1997.
From February 1996 through May 1997, the FPS Laffit Pincay provided
contract drilling services to Flextrend Development. During this period,
DeepFlex Partners and an indirect wholly-owned subsidiary of DeepFlex reported
operating revenue totaling $9,116,000 and $10,779,000, respectively, related to
these services. Net proceeds from the contract drilling services paid to
DeepFlex Partners were used to pay interest and principal to DeepFlex on the
PIK Notes.
Mr. Tatham served as a Director of J. Ray McDermott, S.A.
("McDermott") from February 1995 through August 1997. 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, 1996,
the Partnership had incurred $30,627,000 pursuant to such contractual
arrangements.
Mr. Darling was a partner in Baker & Botts, L.L.P. During the year
ended June 30, 1997, DeepTech and certain of its subsidiaries have paid legal
fees and expenses to Baker & Botts, L.L.P.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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
Securities and Exchange Commission (the "Commission").
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto,
and certain written representations furnished to DeepTech, DeepTech believes
that during the fiscal year ended June 30, 1997 its executive officers,
directors and greater than 10% beneficial owners complied with all applicable
filing requirements, except that Messrs. Fox, Clarke, Eads, Michael H. Lam and
Weir and Ms. Sikes, detected certain possible deficiencies in their reporting
to the Commission. In order to correct such possible deficiencies, each of the
above named persons filed a Statement of Changes in Beneficial Ownership of
Securities on Form 4 covering a single transaction.
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<PAGE> 25
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, 1997)
[CHART]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
16-MAY-94 30-JUN-94 30-JUN-95 30-JUN-96 30-JUN-97
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEEPTECH 100.00 140.00 40.00 50.00 80.00
- --------------------------------------------------------------------------------
S&P 500 INDEX 100.00 100.18 126.30 159.14 214.36
- --------------------------------------------------------------------------------
PEER GROUP 100.00 98.43 101.28 117.40 126.79
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE> 26
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,
1998. 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.
RATIFICATION OF RESTRUCTURING OPTION AGREEMENT
(ITEM 3)
Restructuring of Subordinated Notes. DeepTech currently holds Tatham
Offshore's Subordinated Notes with an aggregate principal amount of $60.0
million. Through June 30, 1997, the Subordinated Notes bore interest at a rate
of 11 3/4% per annum, payable quarterly. During the year ended June 30, 1997,
Tatham Offshore paid $7.1 million in interest to DeepTech under the notes.
Effective July 1, 1997, the interest rate under the Subordinated Notes
increased to 13% per annum. Under the terms of the Subordinated Notes, the
principal amount of the notes was payable in seven equal annual installments
beginning August 1, 1999.
In September 1997, DeepTech and Tatham Offshore entered into the
Restructuring Option Agreement. Under the Restructuring Option Agreement,
DeepTech agreed to forgive the next two scheduled interest payments under the
Subordinated Notes, a total of $3.9 million. In exchange, DeepTech received
several options from Tatham Offshore and has agreed to restructure the
Subordinated Notes by consummating one of the following transactions: (i) to
convert all of the principal amount outstanding under the Subordinated Notes
into shares of Tatham Offshore common stock at the market price at the time the
option is exercised; (ii) to purchase shares of 6% Senior Preferred Stock of
Tatham Offshore with a liquidation preference value of $60 million, the
proceeds from which would be used to prepay the outstanding balance of the
Subordinated Notes; or (iii) to purchase all of the outstanding capital stock
of Tatham Offshore Development for $60 million, the proceeds from which would
be used to prepay the outstanding balance of the Subordinated Notes. DeepTech
is required to select one of the above restructuring transactions on or before
December 31, 1997. As a result, Tatham Offshore will no longer be obligated to
make interest or principal payments under the Subordinated Notes.
Tatham Offshore Development holds the leasehold interests in the
Sunday Silence Project. Under the Restructuring Option Agreement, Tatham
Offshore has the right to pursue the sale, farmout or other disposition of the
Sunday Silence Project during the option period. In the event that Tatham
Offshore enters into a sales agreement for 100% of Tatham Offshore Development
or the Sunday Silence Project prior to the expiration of the option period,
DeepTech has the further option to receive 50% of the cash proceeds from such
transaction as a prepayment of the Subordinated Notes. If DeepTech elects this
option, DeepTech has agreed to convert the remaining principal amount of the
Subordinated Notes into Tatham Offshore common stock at the market price. For
purposes of determining the market price of Common Stock under this agreement,
the parties have agreed the market price shall be the average of the closing
prices for the ten trading days immediately preceding the exercise date of the
option. DeepTech's option to acquire Tatham Offshore Development also includes
all of Tatham Offshore's interest in a drilling arrangement with Sedco Forex
for the use of a semisubmersible drilling
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<PAGE> 27
rig in the Gulf of Mexico. Tatham Offshore has agreed not to sell less than
100% of its interest in Tatham Offshore Development pending the exercise by
DeepTech of one of its options.
Ratification of this agreement shall be effective upon receiving the
affirmative vote of the holders of a majority of 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 agreement.
STOCKHOLDER PROPOSALS
PROPOSALS FOR 1998 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 1998 must be received by
DeepTech addressed to the Secretary, 7500 Texas Commerce Tower, 600 Travis
Street, Houston, Texas 77002, by June 15, 1998 in order to be included in
DeepTech's proxy statement and form of proxy relating to that meeting.
PROPOSALS FOR 1997 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> 28
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,
THOMAS P. TATHAM
Chairman of the Board
Houston, Texas
November 25, 1997
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<PAGE> 29
[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 December 19, 1997, or
any adjournment thereof, all the shares of Common Stock of DeepTech
International Inc. held of record by the undersigned on November 15, 1997, as
designated below.
1. Election of directors - director nominees:
Thomas P. Tatham, Conrad P. Albert, Laney Chouest, Charles M. Darling, IV,
Robert E. Fox, Steven L. Gerard, 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.
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2. To ratify the selection of Price Waterhouse LLP as independent
accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the Board of Directors' approval of a Restructuring
Option Agreement with Tatham Offshore, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. 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 , 1997
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Signature
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
