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As filed with the Securities and Exchange Commission on October 29, 1996
Registration No. 33-99388
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
ON FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TATHAM OFFSHORE, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 1311 76-0289338
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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<TABLE>
<S> <C>
7400 TEXAS COMMERCE TOWER DIANA J. WALTERS
600 TRAVIS STREET 7400 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002 600 TRAVIS STREET
TELEPHONE: (713) 224-7400 HOUSTON, TEXAS 77002
(Address, including zip code and telephone TELEPHONE: (713) 224-7400
number, including area code, of registrant's (Name, address, including zip code and telephone
principal executive offices) number, including area code,
of agent for service)
</TABLE>
With Copies to:
RICK L. BURDICK, P.C.
SETH R. MOLAY, P.C.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1900 PENNZOIL PLACE-SOUTH TOWER
711 LOUISIANA STREET
HOUSTON, TEXAS 77002
(713) 220-5800
Approximate date of commencement of proposed sale to the public: from time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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SUBJECT TO COMPLETION, DATED OCTOBER 29, 1996
6,329,539 SHARES OF
SERIES C 4% CONVERTIBLE EXCHANGEABLE PREFERRED
STOCK AND/OR MANDATORY REDEEMABLE PREFERRED STOCK
99,200,336 EXCHANGE WARRANTS
99,200,336 SHARES OF COMMON STOCK
TATHAM OFFSHORE, INC.
Pursuant to an underwritten offering of rights (the "Rights")
completed in January 1996 (the "Rights Offering"), Tatham Offshore, Inc., a
Delaware corporation (the "Company" or "Tatham Offshore"), issued an aggregate
of 25,120,948 warrants (the "Warrants") to the holders of record on December
26, 1995 (the "Record Date") of the Company's common stock, par value $0.01 per
share (the "Common Stock").
Each Warrant initially entitled the holder thereof to purchase, for
$1.00 per share, one share of any of the following:
(i) Series A 12% Convertible Exchangeable Preferred Stock, with a
liquidation preference of $1.50 per share and accruing dividends at
the annual rate of $0.18 per share (the "Series A Preferred Stock"),
which must have been purchased by exercise of the Warrant at any time
on or before July 1, 1996;
(ii) Series B 8% Convertible Exchangeable Preferred Stock, with a
liquidation preference of $1.00 per share and accruing dividends at
the annual rate of $0.08 per share (the "Series B Preferred Stock"),
which must have been purchased by exercise of the Warrant at any time
on or before October 1, 1996; or
(iii) Series C 4% Convertible Exchangeable Preferred Stock, with a
liquidation preference of $0.50 per share and accruing dividends at
the annual rate of $0.02 per share (the "Series C Preferred Stock" and
together with the Series A Preferred Stock and the Series B Preferred
Stock, the "Convertible Exchangeable Preferred Stock"), which may be
purchased by exercise of the Warrant at any time on or before January
1, 1997, subject to extension under certain circumstances as described
under the caption "Description of the Securities -- The Warrants --
Method of Exercise."
As of October 15, 1996, 18,717,030 Warrants had been exercised to
acquire shares of Series A Preferred Stock and 74,379 Warrants had been
exercised to acquire shares of Series B Preferred Stock. Consequently, as of
October 15, 1996, there were outstanding 6,329,539 Warrants, which may be
exercised at any time on or before January 1, 1997 (subject to extension under
certain circumstances) to purchase shares of Series C Preferred Stock.
Each Warrant remaining unexercised at 5:00 p.m., New York time, on
January 1, 1997, subject to extension under certain circumstances (as extended,
the "Warrant Expiration Date"), will be automatically converted, without any
action on the part of the holder thereof, into one share of Mandatory
Redeemable Preferred Stock (the "Mandatory Redeemable Preferred Stock"), which
will have a liquidation preference of $0.50 per share and which the Company
will be required to redeem under certain circumstances.
At any time until December 31, 1998, each share of Convertible
Exchangeable Preferred Stock (including any accrued and unpaid dividends
thereon) may be exchanged for four warrants (the "Exchange Warrants"), each
entitling the holder thereof to purchase one share of Common Stock at a price
equal to $0.653, subject to adjustment as provided herein (the "Trading
Reference Price"). The Exchange Warrants will expire on July 1, 1999, subject
to extension under certain circumstances (as extended, the "Exchange Warrant
Expiration Date"). Alternatively, each holder of shares of Convertible
Exchangeable Preferred Stock has the right, at the holder's option, to convert
the liquidation preference thereof, plus any accrued and unpaid dividends
thereon, into shares of Common Stock at the Trading Reference Price. On and
after July 1, 1997, each share of Convertible Exchangeable Preferred Stock will
be redeemable at the option of the Company, in whole or in part, by payment in
cash of the liquidation preference thereof, plus any accrued and unpaid
dividends thereon, subject to the right of the holder thereof to convert such
share into share(s) of Common Stock and/or exchange each such share for four
Exchange Warrants.
(Continued on Inside Front Cover)
SEE "RISK FACTORS," BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMPANY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER ___, 1996.
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The Common Stock is quoted on the Nasdaq National Market under the
trading symbol "TOFF." The last reported sales price for the Common Stock on
October 15, 1996, was $0.8125 per share. The Warrants and the Series A and
Series B Preferred Stock are quoted on the over-the-counter market under the
symbols "TOFFW," "TOFFL," and "TOFFO," respectively, and it is expected that
the Series C Preferred Stock will also be quoted on the over-the-counter
market. There is not an active trading market, however, and the Company does
not expect one to develop, for the Warrants, any series of the Convertible
Exchangeable Preferred Stock, the Mandatory Redeemable Preferred Stock or the
Exchange Warrants (the "Securities").
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the SEC pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated herein by reference and made a part of this Prospectus: (i) the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996,
and (ii) description of the Company's common stock contained in the Company's
Form 8-A filed with the SEC on November 16, 1995 (File No. 0-22892), and (iii)
the prospectus of the Company filed with the SEC pursuant to Rule 424(b) of the
Securities Act of 1933 on December 26, 1995.
All reports and other documents filed by the Company with the SEC
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus shall be deemed incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference in this Prospectus shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in this Prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference herein, other than the exhibits to such documents, unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates. Written or oral requests for such copies should
be directed to Tatham Offshore, Inc., 7400 Texas Commerce Tower, 600 Travis
Street, Houston, Texas 77002, Attention: Investor Relations, telephone number
(713) 224-7400.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including any documents that are incorporated by
reference as set forth in "Incorporation of Certain Information by Reference",
contains forward looking statements. Such statements are typically punctuated
by words or phrases such as "anticipate," "estimate," "projects," "management
believes," "the Company believes" and words or phrases of similar import. Such
statements are subject to certain risks, uncertainties or assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. Among the key factors that may have a
direct bearing on the Company's results and financial condition are: (i)
competitive practices in the industries in which the Company will compete,
(ii) the impact of current and future laws and governmental regulations
affecting the energy industry in general and the Company's operations in
particular, (iii) the success of the Company's application for royalty relief on
the Sunday Silence field, (iv) the Company's ability to develop and initiate
production from the Sunday Silence field under a farmout or financing
arrangement with an industry partner or financial institution, (v) quantity of
economically recoverable oil and gas reserves attributable to the Company's
interests, (vi) environmental liabilities to which the Company may become
subject in the future that are not covered by an indemnity or insurance, (vii)
the level of future Warrant exercises, and (viii) the payout of certain
interests in oil and gas properties assigned by the Company. For additional
discussion of such risks, see "Risk Factors" beginning on page 14 of this
Prospectus.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements (including the notes
thereto) appearing elsewhere in this Prospectus or incorporated by reference
herein. Investors should carefully consider the information set forth under
the caption "Risk Factors." For a description of certain terms contained
herein, see the "Glossary" included in this Prospectus.
THE COMPANY
The Company is an independent energy company engaged in the
exploration for, and development and production of, oil and gas reserves
located primarily offshore the United States in the Gulf of Mexico (the
"Gulf"), principally in the Flextrend (water depths of 600 to 1,500 feet) and
Deepwater (water depths greater than 1,500 feet) areas. The Company currently
has a portfolio of mineral leaseholds which includes producing properties and
undeveloped leases. The Company owns interests in 15 oil and gas leases in the
Gulf covering approximately 83,200 gross (72,500 net) acres and a reversionary
interest in 17,300 gross (10,100 net) acres in three offshore leases in the
Gulf. Although a substantial portion of the Company's acreage is undeveloped,
limited drilling results have established estimated proved reserves
attributable to the Company's interests in its leases of approximately 11.9
MMbbls of oil and 62.3 Bcf of gas as of June 30, 1996, based on a reserve
report prepared by Ryder Scott Company Petroleum Engineers, an independent
engineering consulting firm ("Ryder Scott").
As of June 30, 1996, approximately 39% of the issued and outstanding
shares of Common Stock was owned by DeepTech International Inc. ("DeepTech"), a
diversified energy company which, through its affiliates, is engaged in
providing offshore contract drilling services, oil and gas gathering and
transmission, production technology and engineering services, geological and
geophysical technology services, gas processing and liquids marketing, oil and
gas marketing and, through the Company and another affiliate, oil and gas
exploration, development and production. As of June 30, 1996, DeepTech also
owned (i) $60.0 million principal amount of Subordinated Convertible Promissory
Notes of the Company (the "Subordinated Notes"), which are convertible into
shares of Common Stock at $10.00 per share, subject to adjustment under certain
circumstances and (ii) through DeepFlex Production Services, Inc. ("DeepFlex"),
a 100%-owned subsidiary of DeepTech, 4.7 million shares of the Series A
Preferred Stock and 5.3 million Warrants. In addition to being the largest
stockholder of the Company, DeepTech also provides the Company with management,
operational, financial, accounting and administrative services for a fee under
the terms of a management agreement (the "Management Agreement"). Leviathan
Gas Pipeline Partners, L.P. ("Leviathan"), which is an effective 23.2% owned
affiliate of DeepTech, owns 7,500 shares of the Company's 9% Senior Convertible
Preferred Stock (the "Senior Preferred Stock") which are convertible into
shares of Series A Preferred Stock under certain circumstances.
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TERMS OF THE SECURITIES
The following is a summary description of the terms of the Securities
including (i) the Warrants, which may be exercised to purchase shares of Series
C Preferred Stock or, if unexercised at 5:00 p.m., New York time, on the
Warrant Expiration Date, will automatically be converted into Mandatory
Redeemable Preferred Stock, (ii) the Mandatory Redeemable Preferred Stock,
which is mandatorily redeemable by the Company under certain circumstances,
(iii) the Convertible Exchangeable Preferred Stock, which may be exchanged for
Exchange Warrants or, alternatively, converted into shares of Common Stock and
(iv) the Exchange Warrants, which may be exercised to purchase shares of Common
Stock. For a more complete description of the terms of the Securities, see
"Description of the Securities."
THE WARRANTS
Issuance of Warrants 25,120,948 Warrants were issued in connection
with the Rights Offering. Each Warrant is
transferable and evidenced by a certificate
(each, a "Warrant Certificate").
Exercise of Warrants;
Exercise Period Each Warrant initially entitled the record
holder thereof to purchase from the Company
one share of any of the following: (i) Series
A Preferred Stock which must have been
purchased by exercise of the Warrant at any
time on or before July 1, 1996; (ii) Series B
Preferred Stock which must have been purchased
by exercise of the Warrant at any time on or
before October 1, 1996, or (iii) Series C
Preferred Stock which may be purchased by
exercise of the Warrant at any time until 5:00
p.m., New York time, on the Warrant Expiration
Date (January 1, 1997, subject to extension
under certain circumstances as described under
the caption "Description of the Securities --
The Warrants -- Method of Exercise"). As of
October 15, 1996, 18,717,030 Warrants had been
exercised to acquire shares of Series A
Preferred Stock and 74,379 Warrants had been
exercised to acquire shares of Series B
Preferred Stock. Consequently, as of October
15, 1996, there were outstanding 6,329,539
Warrants, which are exercisable to purchase
shares of Series C Preferred Stock.
Exercise Price $1.00 per share of Series C Preferred Stock,
subject to adjustment.
Warrant Expiration Date After 5:00 p.m., New York time, on the
Warrant Expiration Date (January 1, 1997,
subject to extension under certain
circumstances as described under the caption
"Description of the Securities -- The Warrants
-- Method of Exercise"), each unexercised
Warrant will no longer be exercisable to
purchase Series C Preferred Stock and shall be
automatically converted, without any action on
the part of the holder thereof, into one share
of Mandatory Redeemable Preferred Stock. See
"-- Mandatory Redeemable Preferred Stock."
Use of Proceeds As of October 15, 1996, the Company had
received $31.4 million in gross proceeds from
the exercise of Rights and Warrants. These
funds have been and will be used by the
Company to meet short term debt obligations,
interest expense and capital expenditure
requirements and for working capital. If all
of the remaining outstanding Warrants are
exercised to acquire shares of Series C
Preferred Stock, the Company will receive an
additional $6.3 million in gross proceeds,
which will be used by the Company for general
corporate purposes including interest
expense, management fees and capital
expenditures as required. See "Use of
Proceeds" and "Risk Factors -- History of
Operating Losses;
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Substantial Future Capital Requirements;
Uncertainty of Future Financings."
Method of Exercise Each holder of a Warrant may exercise such
Warrant by surrendering the Warrant
Certificate evidencing such Warrant to the
Agent (as defined herein). In exercising a
Warrant, the form of election to purchase
(found on the reverse side of the Warrant
Certificate) must be properly completed and
payment in full of the exercise price must be
submitted to the Agent prior to 5:00 p.m., New
York time, on January 1, 1997 (subject to
extension under certain circumstances as
described under the caption "Description of
the Securities -- The Warrants -- Method of
Exercise"). No Warrants may be exercised
unless at the time of exercise there is
available a current prospectus covering the
shares of Series C Preferred Stock issuable
upon the exercise of such Warrants under an
effective registration statement.
Redemption The Warrants are not redeemable by the
Company.
Tax Consequences See "Certain Federal Income Tax Consideration
s" for a summary of certain tax consequences
relating to the Warrants.
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
As of October 15, 1996, 18,717,030 Warrants had been exercised to
acquire an aggregate of 18,717,030 shares of Series A Preferred Stock, 74,379
Warrants had been exercised to acquire an aggregate of 74,379 shares of Series
B Preferred Stock, and there remained outstanding 6,329,539 Warrants to acquire
shares of Series C Preferred Stock. In addition, as of October 15, 1996,
320,864 shares of Series A Preferred Stock have been converted into 737,986
shares of Common Stock. The Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock have substantially the same terms, except with
respect to their respective liquidation preferences; ranking upon liquidation,
dissolution, merger or sale of the Company; dividend rates; and the expiration
date before which a Warrant must be exercised to purchase a share of a
particular series.
SERIES A PREFERRED STOCK
Shares Outstanding 18,396,166 shares of Series A Preferred Stock.
Dividends Each share of Series A Preferred Stock
accrues dividends commencing on July 1, 1996
(regardless of when issued) at an annual rate
of 12% on the liquidation preference of $1.50
($0.18 per annum per share, subject to
adjustment under certain circumstances),
payable quarterly on March 31, June 30,
September 30 and December 31 of each year
commencing on September 30, 1996. Dividends
shall be cumulative and payable in arrears out
of funds legally available therefor, when, as
and if declared by the Board of Directors of
the Company. The Company did not pay any
dividends on the Series A Preferred Stock on
September 30, 1996, the initial Series A
Preferred Stock dividend payment date.
Latest Purchase Date July 1, 1996. The Warrants may no longer be
exercised to purchase shares of Series A
Preferred Stock.
Liquidation Preference $1.50 per share.
Ranking With
Respect to Liquidation
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or Dissolution Upon liquidation, dissolution or winding up,
the Series A Preferred Stock will rank
(i) senior to the Series B Preferred Stock,
the Series C Preferred Stock, the Mandatory
Redeemable Preferred Stock, the Common Stock
and each other class of capital stock or
series of preferred stock that may be issued
that ranks junior to the Series A Preferred
Stock with respect to liquidation,
dissolution or winding up, (ii) on a parity
with each other class of capital stock or
series of preferred stock that may be issued
that ranks on a parity with the Series A
Preferred Stock with respect to liquidation,
dissolution or winding up and (iii) junior to
the Senior Preferred Stock and to each other
class of capital stock or series of preferred
stock that may be issued that ranks senior to
the Series A Preferred Stock with respect to
liquidation, dissolution or winding up.
SERIES B PREFERRED STOCK
Shares Outstanding 74,379 shares of Series B Preferred
Dividends Each share of Series B Preferred Stock
accrues dividends commencing on October 1,
1996 (regardless of when issued) at an annual
rate of 8% on the liquidation preference of
$1.00 ($0.08 per annum per share, subject to
adjustment under certain circumstances),
payable quarterly on March 31, June 30,
September 30 and December 31 of each year
commencing on December 31, 1996. Dividends
shall be cumulative and payable in arrears
out of funds legally available therefor,
when, as and if declared by the Board of
Directors of the Company.
Latest Purchase Date October 1, 1996. The Warrants may no longer
be exercised to purchase shares of Series B
Preferred Stock.
Liquidation Preference $1.00 per share.
Ranking With
Respect to Liquidation
or Dissolution Upon liquidation, dissolution or winding up,
the Series B Preferred Stock will rank (i)
senior to the Series C Preferred Stock, the
Mandatory Redeemable Preferred Stock, the
Common Stock and to each other class of
capital stock or series of preferred stock
that may be issued that ranks junior to the
Series B Preferred Stock with respect to
liquidation, dissolution or winding up, (ii)
on a parity with each other class of capital
stock or series of preferred stock that may
be issued that ranks on a parity with the
Series B Preferred Stock with respect to
liquidation, dissolution or winding up, and
(iii) junior to the Senior Preferred Stock,
the Series A Preferred Stock and to each
other class of capital stock or series of
preferred stock that may be issued that ranks
senior to the Series B Preferred Stock with
respect to liquidation, dissolution or
winding up.
SERIES C PREFERRED STOCK
Shares Offered 6,329,539 shares of Series C Preferred Stock
may be issued upon exercise of the remaining
outstanding Warrants (assuming that all of
the remaining outstanding Warrants are
exercised).
Dividends Each share of Series C Preferred Stock shall
accrue dividends commencing on January 1,
1997 (regardless of when issued) at an annual
rate of 4% on the liquidation preference of
$0.50 ($0.02 per annum per share, subject to
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adjustment under certain circumstances),
payable quarterly on March 31, June 30,
September 30 and December 31 of each year
commencing on March 31, 1997. Dividends
shall be cumulative and payable in arrears
out of funds legally available therefor,
when, as and if declared by the Board of
Directors of the Company.
Latest Purchase Date January 1, 1997, subject to extension under
certain circumstances as described under
the caption "Description of the Securities
-- The Warrants -- Method of Exercise."
Liquidation Preference $0.50 per share.
Ranking With
Respect to Liquidation
or Dissolution Upon liquidation, dissolution or winding up,
the Series C Preferred Stock will rank (i)
senior to the Mandatory Redeemable Preferred
Stock, the Common Stock and each other class
of capital stock or series of preferred stock
that may be issued that ranks junior to the
Series C Preferred Stock with respect to
liquidation, dissolution or winding up, (ii)
on a parity with each other class of capital
stock or series of preferred stock that may
be issued that ranks on a parity with the
Series C Preferred Stock with respect to
liquidation, dissolution or winding up, and
(iii) junior to the Senior Preferred Stock,
the Series A Preferred Stock, the Series B
Preferred Stock and each other class of
capital stock or series of preferred stock
that may be issued that ranks senior to the
Series C Preferred Stock with respect to
liquidation, dissolution or winding up.
ADDITIONAL TERMS OF THE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
The following provides a summary description of certain additional
terms of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock.
Exchange Rights Each share of Series A Preferred Stock and
Series B Preferred Stock (including accrued
and unpaid dividends) is, and each share of
Series C Preferred Stock (including accrued
and unpaid dividends thereon) will be,
exchangeable at the option of the holder
thereof for four Exchange Warrants at any
time until 5:00 p.m., New York time, on
December 31, 1998. No adjustment will be
made for any accrued and unpaid dividends.
Each Exchange Warrant may be exercised to
purchase one share of Common Stock at the
Trading Reference Price, subject to certain
adjustments. See " -- Exchange Warrants."
Trading Reference Price The Trading Reference Price is $0.653, which
is equal to the lowest average of the closing
prices of the Common Stock on the Nasdaq
National Market for any five consecutive
trading days during the period commencing on
December 26, 1995 (the "Record Date") and
continuing through and including June 30,
1996. The Trading Reference Price is subject
to adjustment under certain circumstances.
See "Description of the Securities --
Convertible Exchangeable Preferred Stock --
Conversion of Convertible Exchangeable
Preferred Stock."
Conversion Rights Each share of Series A Preferred Stock and
Series B Preferred Stock is convertible, and
each share of Series C Preferred Stock, if
and when issued, will be convertible, by the
holder thereof, at any time and from time to
time, into such number of whole shares of
Common Stock as is equal to the
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liquidation preference thereof ($1.50 per
share for the Series A Preferred Stock, $1.00
per share for the Series B Preferred Stock
and $0.50 per share for the Series C
Preferred Stock) plus any accrued and unpaid
dividends thereon, divided by the Trading
Reference Price. As of October 15, 1996,
320,864 shares of Series A Preferred Stock
had been converted into 737,986 shares of
Common Stock and no shares of Series B
Preferred Stock had been converted.
Optional Redemption On and after July 1, 1997, any outstanding
shares of Convertible Exchangeable Preferred
Stock may be redeemed at the option of the
Company, in whole or in part, at any time and
from time to time, at the applicable
liquidation preference plus any accrued and
unpaid dividends thereon, if any, up to but
excluding the date fixed for redemption,
subject to certain conditions (including the
right of the holder thereof to convert shares
of Convertible Exchangeable Preferred Stock
into shares of Common Stock and/or exchange
such shares for Exchange Warrants).
Mandatory Redemption The Company will be required to redeem all of
the issued and outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock at the respective
liquidation preference thereof plus any
accrued and unpaid dividends thereon upon the
occurrence of a Business Combination (as
defined herein). In the event that shares of
Convertible Exchangeable Preferred Stock are
being mandatorily redeemed and there are
insufficient funds to redeem all of such
shares and any other class of capital stock
that is required to be redeemed upon the
occurrence of such an event, the Series A
Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and all such other
stock shall be redeemed in accordance with
their relative rankings as set forth under
the caption "Description of the Securities --
Convertible Exchangeable Preferred Stock --
Ranking Upon Liquidation, Dissolution or
Winding Up."
Ranking with
Respect to Dividends With respect to dividends, the Series A
Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock will rank (i) on a
parity with one another and each other class
of capital stock or series of preferred stock
that may be issued that ranks on a parity
with the Convertible Exchangeable Preferred
Stock with respect to dividends, (ii) senior
to the Common Stock and each other class of
capital stock or series of preferred stock
that may be issued that ranks junior to the
Convertible Exchangeable Preferred Stock with
respect to dividends, and (iii) junior to the
Senior Preferred Stock and to each other
class of capital stock or series of preferred
stock that may hereafter be created that
ranks senior to the Convertible Exchangeable
Preferred Stock with respect to dividends.
Voting Rights The holders of the Convertible Exchangeable
Preferred Stock will have no voting rights
except as described below or as expressly
required by applicable law. Whenever
dividends on any series of Convertible
Exchangeable Preferred Stock are in arrears
in an aggregate amount equal to at least six
quarterly dividends on such shares, the
number of directors of the Company will be
increased by two and the holders of such
series of Convertible Exchangeable Preferred
Stock, voting together as a class with the
holders of shares of any other series of
Convertible Exchangeable Preferred Stock
having the then present right to elect
directors as a result of dividend arrearages,
will be entitled to elect such two additional
directors to the Board of Directors on the
basis of one vote per $0.50 amount of
8
<PAGE> 10
liquidation preference (exclusive of
accumulated dividends). Such voting rights
will terminate as to each series of
Convertible Exchangeable Preferred Stock when
all such dividends in arrears with respect to
that series have been paid in full or
declared and set apart for payment.
Tax Consequences See "Certain Federal Income Tax
Considerations" for a summary of certain tax
consequences relating to the Convertible
Exchangeable Preferred Stock.
Use of Proceeds The Company will not receive any proceeds
upon the conversion of shares of Convertible
Exchangeable Preferred Stock into Common
Stock or the exchange of any such shares for
Exchange Warrants.
EXCHANGE WARRANTS
Issuance of Exchange
Warrants 99,200,336 Exchange Warrants will be issued
in the event that all outstanding shares of
Series A Preferred Stock and Series B
Preferred Stock are subsequently exchanged
for Exchange Warrants and all outstanding
Warrants are subsequently exercised to
purchase Series C Preferred Stock which is
then also exchanged for Exchange Warrants. At
any time on or before December 31, 1998, each
outstanding share of Convertible Exchangeable
Preferred Stock (including all accrued and
unpaid dividends thereon) may be exchanged
for four Exchange Warrants, subject to
adjustment. No adjustment will be made for
any accrued and unpaid dividends.
Exercise of Exchange
Warrants Each Exchange Warrant will entitle the record
holder thereof to purchase from the Company
one share of Common Stock.
Exchange Warrant
Exercise Price The Trading Reference Price per share of
Common Stock. See "-- Convertible
Exchangeable Preferred Stock -- Additional
Terms of the Convertible Exchangeable
Preferred Stock -- Trading Reference Price."
Exchange Warrant
Exercise Period The Exchange Warrants may be exercised at any
time before 5:00 p.m., New York time, on the
Exchange Warrant Expiration Date (July 1,
1999, unless extended by the Board of
Directors), at which time the Exchange
Warrants will expire and will no longer be
exercisable.
Method of Exercise Each holder of an Exchange Warrant may
exercise such Exchange Warrant by
surrendering the certificate evidencing such
Exchange Warrant (the "Exchange Warrant
Certificate"), with the form of election to
purchase on the reverse side of such
certificate properly completed and executed,
together with payment of the exercise price,
to the Agent. No Exchange Warrants may be
exercised unless at the time of exercise
there is available a current prospectus
covering the shares of Common Stock issuable
upon the exercise of such Exchange Warrants
under an effective registration statement.
There can be no assurance that such a
prospectus and registration statement will be
available and effective, respectively, at
that time.
Redemption The Exchange Warrants are not redeemable by
the Company.
9
<PAGE> 11
Tax Consequences See "Certain Federal Income Tax
Considerations" for a summary of certain tax
consequences relating to the Exchange
Warrants.
MANDATORY REDEEMABLE PREFERRED STOCK
Shares Offered Up to 6,329,539 shares of Mandatory
Redeemable Preferred Stock may be issued
(assuming all of the 6,329,539 Warrants
outstanding as of October 15, 1996 remain
unexercised at 5:00 p.m., New York time, on
the Warrant Expiration Date).
Dividends No dividends will accrue or be payable with
respect to the Mandatory Redeemable Preferred
Stock.
Liquidation Preference $0.50 per share.
Mandatory Redemption The Company will be required to redeem shares
of Mandatory Redeemable Preferred Stock at a
redemption price of $0.50 per share (the
"Mandatory Redemption Price") (i) if the
Company redeems any shares of Convertible
Exchangeable Preferred Stock, including upon
the occurrence of a Business Combination, and
(ii) from the net proceeds from the sale of
Common Stock pursuant to the exercise of
Exchange Warrants, subject to certain
conditions. Except with respect to mandatory
redemption from the proceeds from the
exercise of the Exchange Warrants, in the
event any other class of capital stock or
series of preferred stock is being redeemed
or is entitled to receive a liquidation
preference upon the occurrence of any of the
mandatory redemption events set forth above
and adequate funds are not legally available
therefor, the Mandatory Redeemable Preferred
Stock and such other stock shall be redeemed
in accordance with their relative rankings
upon liquidation, dissolution or winding up
of the Company. See Description of the
Securities -- Mandatory Redeemable Preferred
Stock -- Ranking."
Mechanics of Redemption Notice of mandatory redemption shall be
addressed to a holder of Mandatory Redeemable
Preferred Stock at his address as its appears
on the stock register of the Company. Each
such notice shall specify (i) the date fixed
for redemption (the "Mandatory Redemption
Date"), (ii) the Mandatory Redemption Price
and (iii) such other information as the
Company deems necessary and appropriate to
inform the holders of Mandatory Redeemable
Preferred Stock about the redemption. Notice
of mandatory redemption will be mailed at
least ten days but not more than 60 days
before the Mandatory Redemption Date. Any
notice given in such manner shall be
conclusively deemed to have been duly given
whether or not such notice is in fact
received.
The holder of shares of Mandatory Redeemable
Preferred Stock redeemed upon any exercise of
the Company's redemption right shall not be
entitled to receive payment of the Mandatory
Redemption Price for such Mandatory
Redeemable Preferred Stock until the holder
shall cause to be delivered to the place
specified in the Mandatory Redemption Notice
given with respect to such redemption (i) the
certificate(s) representing share(s) of
Mandatory Redeemable Preferred Stock subject
to such redemption and (ii) transfer
instruments satisfactory to the Company.
Rank Upon liquidation, dissolution or winding up,
the Mandatory Redeemable Preferred Stock will
rank (i) senior to the Common Stock and each
other
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<PAGE> 12
class of capital stock or series of preferred
stock that may be issued that ranks junior to
the Mandatory Redeemable Preferred Stock with
respect to liquidation, dissolution or
winding up, (ii) on a parity with each other
class of capital stock or series of preferred
stock that may be issued that ranks on a
parity with the Mandatory Redeemable
Preferred Stock with respect to liquidation,
dissolution or winding up, and (iii) junior
to the Preferred Stock, each series of the
Convertible Exchangeable Preferred Stock and
each other class of capital stock or series
of preferred stock that may be issued that
ranks senior to the Mandatory Redeemable
Preferred Stock with respect to liquidation,
dissolution or winding up.
Voting Rights Except as expressly required by law, the
holders of the Mandatory Redeemable Preferred
Stock will not be entitled to any voting
rights.
Tax Consequences See "Certain Federal Income Tax
Considerations" for a summary of certain tax
consequences relating to the Mandatory
Redeemable Preferred Stock.
Use of Proceeds The Company will not receive any proceeds
upon the automatic conversion of unexercised
Warrants into Mandatory Redeemable Preferred
Stock.
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<PAGE> 13
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
SIGNIFICANT EVENT DATE
----------------- ----
<S> <C>
Date by which a Warrant Must be Exercised
to Purchase Series C Preferred Stock(1) . . . . . . January 1, 1997
Warrant Expiration Date(2) . . . . . . . . . . . . . January 1, 1997
Optional Conversion of Convertible Exchangeable
Preferred Stock into Common Stock . . . . . . . . . At any time
Optional Exchange of Convertible Exchangeable
Preferred Stock for Exchange Warrants . . . . . . . Until December 31, 1998
Optional Redemption of Convertible Exchangeable
Preferred Stock by Company . . . . . . . . . . . . On or after July 1, 1997
Exchange Warrant Expiration Date . . . . . . . . . . July 1, 1999(1)
</TABLE>
- --------------------------
(1) Such date is subject to extension by up to 100 calendar days under certain
circumstances. See "Description of the Securities."
(2) At 5:00 p.m., New York time, on the Warrant Expiration Date, each
unexercised Warrant will automatically be converted, without any action on
the part of the holder thereof, into one share of Mandatory Redeemable
Preferred Stock.
RISK FACTORS
Each person considering whether or when to convert or exercise any of the
Securities should carefully examine all of the information contained or
incorporated in this Prospectus and should give particular consideration to the
risk factors and investment considerations under the caption "Risk Factors."
12
<PAGE> 14
STRUCTURE OF THE OFFERING
The following chart provides certain information regarding the
Offering and the Securities.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
__________________________________________
Eligible Stockholders are determined
on December 26, 1995 (the Record Date).
__________________________________________
|
|
__________________|_______________________
Eligible Stockholders are issued one
Right per share of Common Stock.
__________________________________________
|
|
__________________|_______________________
Each Right may be exercised to
purchase one Warrant at $0.50 on or
before the Rights Expiration Date
(January 31, 1996).
__________________________________________
|
|
__________________|_______________________
Each Warrant may be exercised to
purchase one share of either Series A
Preferred Stock, Series B Preferred Stock_________________
or Series C Preferred Stock for |
$1.00 per share. |
__________________________________________ |
| |
_________________________________________________|_____________ |
| | | |
_____________|_____________ _______________|___________ _____________|_____________ __________|_________________
Series A Convertible Series B Convertible Series C Convertible
Exchangeable Preferred Exchangeable Preferred Exchangeable Preferred
Stock will accrue dividends Stock will accrue dividends Stock will accrue dividends Any Warrant unexercised
at 12% per annum on the at 8% per annum on the at 4% per annum on the on or before January 1,
liquidation preference of liquidation preference of liquidation preference of 1997 will automatically be
$1.50 per share. Warrants $1.00 per share. Warrants $0.50 per share. Warrants converted into one share of
may be exercised to may be exercised to may be exercised to Mandatory Redeemable
purchase such stock on or purchase such stock on or purchase such stock on or Preferred Stock.
before July 1, 1996. before October 1, 1996. before January 1, 1997.
___________________________ ___________________________ ___________________________ ___________________________
| | |
|_________________________________|___________________________|
|
__________________________________|___________________________________________________________
| | | |
_____________|_____________ ________________|___________ _____________|______________ _____________|_____________
Convertible Each share of Convertible Convertible Exchangeable
Exchangeable Preferred Exchangeable Preferred Preferred Stock may be If Convertible Exchangeable
Stock may be converted, Stock may be exchanged, at redeemed by the Company Preferred Stock is not
at the option of the the option of the holder, for at the Liquidation Preference converted, exchanged or
holder, into Common four Exchange Warrants plus accrued and unpaid redeemed, it will remain
Stock at the Trading from July 1, 1996 until dividends at any time on or outstanding.
Reference Price at any December 31, 1998. after July 1, 1997.
time after July 1, 1996.
___________________________ ____________________________ ____________________________ ___________________________
|
________________|___________
Each Exchange Warrant may
be exercised to purchase one
share of Common Stock at
the Trading Reference Price
at any time on or before
July 1, 1999.
___________________________
</TABLE>
13
<PAGE> 15
RISK FACTORS
EACH PERSON CONSIDERING WHETHER OR WHEN TO CONVERT OR EXERCISE ANY OF THE
SECURITIES SHOULD CAREFULLY EXAMINE ALL OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS AND SHOULD GIVE PARTICULAR CONSIDERATION TO THE FOLLOWING RISK
FACTORS AND INVESTMENT CONSIDERATIONS.
HISTORY OF OPERATING LOSSES; SUBSTANTIAL FUTURE CAPITAL REQUIREMENTS;
UNCERTAINTY OF FUTURE FINANCINGS
The Company has reported net losses and has had negative operating cash
flow in each of its fiscal years since its inception in 1988 through June 30,
1995.
During the year ended June 30, 1995 and the first six months of fiscal
1996, the Company experienced liquidity problems resulting primarily from
substantial negative cash flow from operations. In order to improve liquidity
and partially address its capital requirements, the Company (i) sold, subject
to certain reversionary rights, all of its working interests in certain of its
properties (the "Assigned Properties") for $30 million to Flextrend Development
Company ("Flextrend Development"), a subsidiary of Leviathan which is an
effective 23.2% owned affiliate of DeepTech, (ii) raised additional equity
through the sale of Warrants and Series A Preferred Stock, (iii) prepaid
certain of its demand charge obligations through the assignment of certain
assets pursuant to an agreement with Leviathan and (iv) reduced its overhead by
lowering the level of services required under its management agreement with
DeepTech.
The Company currently intends to fund its operations for the period of July
1, 1996 through at least June 30, 1997 with cash on hand and cash from
continuing operations. Although the restructuring of the Company's existing
demand charge obligations with Leviathan, the reduction of its overhead and the
initiation of production from the Viosca Knoll Block 817 field have
significantly reduced the Company's cash flow deficit, the Company does not
anticipate generating positive cash flow prior to the first to occur of (i)
obtaining a refinancing commitment which could allow the Company to reacquire
all or a portion of the Assigned Properties from Flextrend Development, (ii)
actual payout of the payout amount and the resulting reversion of all or a
portion of the Assigned Properties which the Company anticipates will occur no
sooner than the end of fiscal 1998 or (iii) the initial production from the
Company's Sunday Silence field. In order to initiate production from the
Sunday Silence field, the Company will require substantial additional capital
to install a production facility and drill additional development wells. There
can be no assurance, however, that the Company will be able to obtain
additional financing on terms that are acceptable to the Company.
To meet these additional capital needs, the Company will continue to pursue
the implementation of its business strategy which will focus primarily on (i)
attempting to develop and initiate production from the Company's Sunday Silence
field under a farmout or financing arrangement with an industry partner or
financial institution, (ii) analyzing the results of operations on the Assigned
Properties in an effort to maximize the value of its reversionary interest and
attempting to obtain a financing commitment to reacquire the properties or to
cause a reduction in the interest rate utilized in the calculation of the
properties, (iii) attempting to sell or farmout interests in its other
properties, (iv) attempting to reinitiate production at Genuine Risk (Ship
Shoal Block 331) under a farmout arrangement with an industry partner or,
alternatively, selling the property or salvaging the platform and equipment
located at Genuine Risk for sale to a third party or redeployment on another
property, (v) seeking to acquire interests in producing properties on a carried
or financed basis and (vi) pursuing the possible merger of the Company with an
industry partner with sufficient capital resources available to meet the
capital requirements for the development of the combined entity's properties.
The ability of the Company to satisfy its capital needs beyond those funded
with the proceeds from the sale of the Securities offered pursuant to the
Offering will depend upon its success in implementing its business strategy,
particularly its ability to develop and initiate production from the Sunday
Silence field. Although
14
<PAGE> 16
the Company has pursued farmout and outside financing arrangements for its
Sunday Silence project, as of this date, the Company has not been able to
obtain an acceptable farmout arrangement with an industry partner or develop a
financing arrangement under the current economic conditions. On November 28,
1995, a federal law was enacted that offers deepwater royalty relief for
certain federal leases located in 200 meters or greater of water depth in the
Gulf. For federal leases acquired prior to November 28, 1995, an applicant
must demonstrate that the proposed new production for which the royalty relief
is sought would not be economic to develop absent the royalty relief. Proposed
interim regulations regarding application procedures were published by the MMS
in May 1996. The Company submitted an application under the published interim
regulations in October 1996 and such application is currently being considered.
Under federal law, the MMS has up to 180 days to respond to such application.
Under the new legislation, a minimum of the first 52.5 million equivalent
barrels of oil production from the Sunday Silence project would be exempt from
federal royalties if such relief is granted. The Company believes that if the
requested royalty abatement is granted, the resulting improved economics for the
project will be sufficient to obtain development financing or an industry
farmout arrangement. However, there can be no assurance that the Company will
be able to obtain the requested royalty abatement, enter into a farmout or
financing arrangement on favorable terms, that the Sunday Silence field will be
successfully developed or that production will be initiated therefrom on a
timely basis, if at all.
UNCERTAIN MARKET FOR THE SECURITIES
The Warrants, the Series A Preferred Stock and the Series B Preferred Stock
are quoted on the over-the-counter market under the symbols "TOFFW," "TOFFL,"
and "TOFFO," respectively. The Series C Preferred Stock, the Mandatory
Redeemable Preferred Stock and the Exchange Warrants, if and when issued, are
also expected to be quoted on the over-the-counter market. There is no active
trading market in any of the Securities, and the Company does not expect an
active trading market to develop. Accordingly, no assurance can be given that
holders will be able to sell their Securities if and when they desire to sell
them or that the prices they may obtain for their Securities upon any sale will
be acceptable to them.
DETERMINATION OF SUBSCRIPTION AND EXERCISE PRICES; POSSIBLE VOLATILITY OF
SECURITY PRICE
The subscription price of the Warrants (the "Subscription Price") and the
net proceeds from the exercise of the Warrants to purchase Convertible
Exchangeable Preferred Stock (assuming all of the Warrants are exercised) were
calculated before the Rights Offering to provide the Company with aggregate net
proceeds in an amount believed at that time to be sufficient to fund its
anticipated cash flow shortfall and estimated capital requirements through at
least June 30, 1997. The Subscription Price and purchase price of the
Convertible Exchangeable Preferred Stock ($1.00 per share for each of the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock) do not necessarily bear any relationship to the Company's book
value of assets, past operations, financial condition or any other established
criteria for value and should not be considered an indication of the actual
value of the Company or the Warrants or the Convertible Exchangeable Preferred
Stock.
Further, the market price of the Warrants, the Series A Preferred Stock and the
Series B Preferred Stock and, when, as and if issued, the Series C Preferred
Stock, the Mandatory Redeemable Preferred Stock, the Exchange Warrants and the
Common Stock issued upon conversion of shares of Convertible Exchangeable
Preferred Stock and/or exercise of the Exchange Warrants may be highly volatile.
There have been periods of extreme fluctuation in the stock market that, in many
cases, are unrelated to the operating performance of, or announcements
concerning, the issuers of the affected securities. Securities of issuers
having relatively limited capitalization or securities recently issued in a
public offering are particularly susceptible to change based on short-term
trading strategies of certain investors.
15
<PAGE> 17
LACK OF FUNDS TO PAY DIVIDENDS
Holders of shares of Convertible Exchangeable Preferred Stock will be
entitled to receive cumulative cash dividends in the amount specified on the
cover page of this Prospectus when, as and if declared by the Board of
Directors of the Company out of funds at the time legally available therefor.
The Company has no obligation to pay dividends on the Convertible Exchangeable
Preferred Stock and may at times be subject to legal limits or contractual
provisions prohibiting the payment of dividends. The Company does not
currently pay cash dividends on its Common Stock, and does not anticipate
paying dividends in the foreseeable future. The ability of the Company to
generate sufficient cash flow to pay dividends on the Convertible Exchangeable
Preferred Stock will be dependent on numerous factors, most of which are beyond
the control of the Company. However, the Company did not pay dividends on the
Series A Preferred Stock on September 30, 1996 (the initial dividend payment
date) and does not anticipate generating sufficient cash flow at any time in
the foreseeable future to pay dividends on its Convertible Exchangeable
Preferred Stock. Furthermore, even if the Company was successful in generating
sufficient cash flow from operations to pay dividends, the Company may issue
additional series of preferred stock in the future that are senior to the
Convertible Exchangeable Preferred Stock in the payment of dividends or decide
to invest such cash flow to promote the development and growth of the Company.
See "-- Certain Provisions Relating to Changes in Control; Issuance of
Preferred Stock" and "Price Range of Common Stock and Dividend Policy." The
Company currently has one outstanding series of preferred stock which ranks
senior to the Convertible Exchangeable Preferred Stock in terms of dividend
preference. Further, the Company may enter into other contractual obligations
in the future that limit or prohibit the payment of dividends on the Company's
capital stock, including the Convertible Exchangeable Preferred Stock.
Therefore, there can be no assurance that the holders of shares of Convertible
Exchangeable Preferred Stock will receive cash payment of dividends on such
shares.
RISKS OF CONVERTING OR EXCHANGING SHARES OF CONVERTIBLE EXCHANGEABLE PREFERRED
STOCK
Holders of shares of Convertible Exchangeable Preferred Stock may convert
such shares into shares of Common Stock or, alternatively, exchange such shares
for Exchange Warrants, each of which entitles the holder thereof to acquire one
share of Common Stock at the Trading Preference Price, as the same may be
adjusted from time to time. In the event that a holder of shares of
Convertible Exchangeable Preferred Stock converts such shares into shares of
Common Stock and/or exchanges such shares for Exchange Warrants, the holder
thereof will no longer have priority over the holders of Common Stock (i) to
receive the liquidation preference ($1.50 per share for the Series A Preferred
Stock, $1.00 per share for the Series B Preferred Stock and $0.50 per share for
the Series C Preferred Stock) upon the liquidation, dissolution or winding up
of the Company's operations or (ii) in the payment of dividends.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES WITH RESPECT TO THE RIGHTS OFFERING AND
THE SECURITIES
Because the Company does not currently anticipate paying dividends on the
Convertible Exchangeable Preferred Stock, the Internal Revenue Service could
assert that the holders of Convertible Exchangeable Preferred Stock are
required to report all accrued and unpaid dividends on such stock as taxable
income. In such case, a holder of Convertible Exchangeable Preferred Stock may
have to report income for all dividends on shares of Convertible Exchangeable
Preferred Stock that accrue during the holding period of such stock, regardless
of whether such holder ever receives cash dividends. See "Certain Federal
Income Tax Considerations -- Convertible Exchangeable Preferred Stock --
Dividends on Convertible Exchangeable Preferred Stock" for further discussion.
16
<PAGE> 18
INABILITY TO EXERCISE, CONVERT OR EXCHANGE THE SECURITIES UNDER STATE AND
FEDERAL LAWS
The Warrants may not be exercised to purchase shares of Series C Preferred
Stock and Exchange Warrants may not be exercised to purchase shares of Common
Stock unless at the time of exercise the Company has an effective registration
statement on file with the Securities and Exchange Commission (the
"Commission") and an available prospectus covering the applicable Security or
Securities. The Company has agreed to use its best efforts to have all such
Securities so registered on or before the expiration of the applicable exercise
period and to make available a current prospectus relating thereto. Further,
the last date on which the Warrants must be exercised to purchase Series C
Preferred Stock (January 1, 1997) and the Exchange Warrant Expiration Date may
be extended by up to 100 days in the event that the Company does not have an
effective registration statement or make available a current prospectus
relating to the Series C Preferred Stock on such date. See "Description of the
Securities." However, there can be no assurance that the Company will be able
to maintain an effective registration statement or make available a current
prospectus relating to such Security or Securities prior to the expiration of
the 100 day extension period. If an effective registration statement or
current prospectus is not available on the applicable expiration dates, the
Warrants and/or the Exchange Warrants would expire worthless. In addition, no
Warrants or Exchange Warrants shall be exercisable in any state where such
exercise would be unlawful.
RISKS ASSOCIATED WITH EXPLORATION AND DEVELOPMENT ACTIVITIES IN DEEPER WATERS
Almost all of the Company's oil and gas properties are undeveloped and are
located in water depths of greater than 600 feet. Accordingly, the success of
the Company will be dependent upon the success of developmental and exploratory
activities conducted on these properties. Exploration and development
activities involve numerous risks, including the risk that no commercially
productive gas or oil reservoirs will be encountered. The cost of drilling,
completing and operating wells is often uncertain, and drilling operations may
be curtailed, delayed or cancelled as a result of a variety of factors,
including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions and shortages
or delays in the delivery of equipment.
Risks associated with exploration and development activities are increased
when such activities are conducted in deeper waters. In particular, drilling
operations conducted in deeper waters generally have lower success rates and
are more costly than drilling operations conducted in shallower waters because
drilling operations conducted in deeper water depths typically require the
application of more advanced drilling technologies and encounter greater
hazards. Operations in deeper water also involve a higher risk of encountering
mechanical difficulties and equipment failures which, if encountered, could
result in significant cost overruns. The Company has encountered certain
production problems with respect to its Ewing Bank 914 #2 well and its Genuine
Risk project which have materially adversely affected production from these
properties. There can be no assurance as to the success of the exploration
and development operations conducted on the Company's properties or that the
Company will not continue to experience production problems or related problems
in the future resulting in additional cost overruns or reduced operating
revenues.
OPERATING RISKS AND HAZARDS; ENVIRONMENTAL RISKS
The Company's oil and gas operations are subject to all of the risks and
hazards typically associated with the exploration for, and the development and
production of, oil and gas in the Gulf and any other areas in which the Company
may, in the future, conduct such activities. Risks in drilling operations
include blowouts, oil spills, fires and offshore risks such as capsizing,
collision, hurricanes and other adverse weather and sea conditions. Such risks
can result in personal injury and loss of life and substantial damage to or
destruction of oil and gas wells, platforms, production facilities or other
property, suspension of operations and liabilities to third parties, any and
all of which could adversely affect the Company.
17
<PAGE> 19
The Company's operations also could result in liability for oil spills,
discharge of hazardous materials and other environmental damages. In
accordance with customary industry practices, the Company maintains insurance
against some, but not all of such risks and some, but not all, of such losses.
There can be no assurance, however, that such insurance will continue to be
available to or carried by the Company or, if available and carried, will be
adequate to cover the Company's liability in all circumstances. The occurrence
of an event not fully covered by insurance could have a material adverse effect
on the financial condition and results of operations of the Company. In
addition, the Company may be liable for environmental damages caused by
previous owners of property purchased by the Company, which liabilities would
not be covered by insurance.
CONCENTRATION OF OWNERSHIP; INFLUENCE OF DEEPTECH
DeepTech currently owns approximately 38% of the outstanding Common Stock of
the Company and persons currently serving as directors and executive officers of
DeepTech own approximately 8% of the outstanding Common Stock in addition to
DeepTech's ownership. Accordingly, DeepTech and such directors and executive
officers, if they voted together, would be able to exercise substantial
influence over corporate actions, including the election of the Company's
directors and to influence the outcome of all other matters submitted to a vote
of the Company's stockholders. In addition, so long as DeepTech and persons
serving as directors and executive officers of DeepTech own collectively more
than one-third of the Company's outstanding Common Stock, DeepTech and such
persons, if they voted together, would be able to prevent certain actions that
require the alternative vote of at least two-thirds of the Company's outstanding
voting Common Stock. See "Description of Capital Stock -- Provisions Having
Possible Anti-Takeover Effects." DeepTech also has the right to acquire
additional shares of Common Stock upon conversion of the Subordinated Notes, and
through DeepFlex, owns 4.7 million shares of Series A Preferred Stock and 5.3
million Warrants, all of which are directly or indirectly convertible into
Common Stock. Leviathan also owns 7,500 shares of the Company's 9% Senior
Preferred Stock with a liquidation preference of $1.000 per share (the "Senior
Preferred Stock"). See "-- Certain Provisions Relating to Change in Control,
Issuance of Preferred Stock."
DEPENDENCE ON MANAGEMENT SERVICES PROVIDED BY DEEPTECH
The Company depends upon management services provided solely by DeepTech
pursuant to the Management Agreement to implement the Company's business
strategy and manage its operations. Although the Management Agreement has a
primary term expiring on June 30, 1997, thereafter it may be terminated on 90
days' written notice by either party. After the expiration of the primary
term, there can be no assurance that DeepTech will continue to provide
management services to the Company pursuant to the Management Agreement or
otherwise. Furthermore, the Management Agreement does not assure the Company
access to any of the executive officers or any of the operating personnel
currently responsible for conducting the Company's operations. In addition,
there will be competition between the Company, on the one hand, and DeepTech
and its affiliates, on the other hand, for the time and effort of employees of
DeepTech who provide services to the Company. If the Company were deprived of
access to certain key members of its management team, or other personnel or
lost access to such services altogether, the Company's results of operations
could be materially adversely affected.
CONFLICTS OF INTEREST
DeepTech is a diversified energy company which, through its affiliates, is
engaged in providing offshore contract drilling services, oil and gas gathering
and transmission, production technology and engineering services, geological and
geophysical technology services, gas processing and liquids marketing, oil and
gas marketing and, through the Company and other affiliates, oil and gas
exploration, development and production. In addition to the Management
Agreement, the Company is currently a party to other material contracts with
DeepTech and its affiliates.
18
<PAGE> 20
In addition, the Company will likely enter into additional material
transactions and agreements with DeepTech and its affiliates after the date of
this Prospectus.
Accordingly, certain conflicts may also arise as a result of similar
businesses conducted by the Company and its affiliates and these conflicts may
be resolved in favor of such affiliates. It is the Company's policy to enter
into any transaction with a related party on terms that, on the whole, are no
less favorable than those that would be available from unaffiliated parties.
Based on the Company's experience in the industry and the terms of its
transactions with unaffiliated parties, it is the Company's belief that all of
its transactions with related parties met that standard at the time such
transactions were effected. However, because the Company has not and does not
intend to actually seek competitive bids, it is possible that the terms of
certain affiliate transactions may be more or less favorable than those
resulting from transactions among wholly unrelated parties. In addition,
certain officers and directors of the Company are also officers, directors
and/or stockholders of DeepTech and/or its affiliates and it is possible that
conflicts of interest could arise as a result thereof. It is possible that
such conflicts of interest may be resolved in a manner that is not favorable to
the Company.
POSSIBLE ADVERSE EFFECT OF FUTURE SALES OF COMMON STOCK ON MARKET PRICE
Assuming (i) all of the Warrants are exercised to purchase Convertible
Exchangeable Preferred Stock, (ii) all of the Convertible Exchangeable
Preferred Stock is exchanged for Exchange Warrants, (iii) all of the Exchange
Warrants are exercised to purchase shares of Common Stock and (iv) no other
issuances of Common Stock, the Company would have approximately 125,439,000
shares of Common Stock issued and outstanding, approximately 104,938,000 of
which would be eligible for immediate resale in the public market without
restriction unless purchased by an affiliate of the Company. As of October 15,
1996, approximately 15.2 million shares of the outstanding Common Stock were
"restricted securities" within the meaning of Rule 144 ("Rule 144") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). Such
shares may be resold publicly only if registered under the Securities Act or
sold in accordance with an applicable exemption from registration, such as Rule
144. Approximately 13.0 million shares of these restricted securities are
held by officers and directors of the Company and DeepTech and are currently
eligible for resale under Rule 144. In addition, the $60.0 million aggregate
principal amount of Subordinated Notes plus accrued interest thereon is
convertible, at any time and from time to time, at the option of the holder
thereof, into Common Stock at a conversion price of $10.00 per share. All of
the Common Stock owned by DeepTech, including shares issuable upon conversion
of the Subordinated Notes, are subject to certain rights to require the Company
to register such shares under the Securities Act. Unless the shares of Common
Stock issued upon any such conversion are registered under the Securities Act,
such shares will not be freely tradeable but will be eligible for sale under
Rule 144. All of the Common Stock owned by DeepTech and the Subordinated Notes
are pledged to secure DeepTech's 12% Senior Secured Notes. In the event of a
default on such borrowings, the lender would be entitled to foreclose on such
shares of Common Stock and the Subordinated Notes and thereafter sell such
shares and Subordinated Notes pursuant to Rule 144 or another available
exemption from registration under the Securities Act or cause the Company to
register such securities under the Securities Act pursuant to the terms of
certain registration rights. In addition, certain other parties have the right
to convert the unrecovered portion of a convertible production payment into up
to 2 million shares of Common Stock. Such parties have the right to require
the Company to register such shares, subject to certain terms and conditions.
Sales of a substantial amount of Common Stock, or a perception that such sales
could occur, could adversely affect the prevailing market price of the Common
Stock.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL; ISSUANCE OF PREFERRED STOCK
The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-laws contain provisions which may have the effect of
delaying, deferring or preventing a change in control of the Company. For
example, the Company's Certificate of Incorporation and By-laws provide for,
among other things, the prohibition of stockholder action by written consent in
certain circumstances and the affirmative
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vote of at least 66 2/3% of all outstanding shares of Common Stock to approve
the removal of directors from office. Also, the Company's Certificate of
Incorporation requires super majority voting thresholds to approve "business
combinations" (other than "business combinations" involving Thomas P. Tatham,
DeepTech and their respective heirs, successors, assigns and certain
assignees), which may render more difficult or tend to discourage attempts to
acquire the Company.
In addition, the Company's Board of Directors has the authority to issue
shares of preferred stock in one or more series and to fix the rights and
preferences of the shares of any such series without stockholder approval. Any
series of preferred stock is likely to be senior to the Common Stock and may be
senior to the Convertible Exchangeable Preferred Stock and/or the Mandatory
Redeemable Preferred Stock with respect to dividends in the case of the
Convertible Exchangeable Preferred Stock, liquidation rights and, possibly,
voting. The ability to issue preferred stock could have the effect of
discouraging unsolicited acquisition proposals. In partial exchange for the
prepayment by the Company of certain demand charge obligations under
transportation agreements, the Company issued Leviathan 7,500 shares of Senior
Preferred Stock. Each share of the Senior Preferred Stock has a liquidation
preference of $1,000 per share, is senior in liquidation preference to all
other classes of Company stock and has a 9% cumulative dividend, payable
quarterly. Leviathan has made an irrevocable offer to the Company to sell all
or any portion of the Senior Preferred Stock to the Company or its designee at
a price equal to $1,000 per share, plus interest thereon at 9% per annum less
the sum of all dividends paid thereon. In the event the Company does not
purchase the Senior Preferred Stock on or before September 30, 1998, then for a
period of 90 days thereafter it shall be convertible into Series A Preferred
Stock. The conversion ratio shall be equal to (i) the liquidation preference
amount plus accumulated but unpaid dividends divided by (ii) the arithmetic
average of closing prices for the 20 trading days following October 1, 1998 of
the Series A Preferred Stock. See "Description of The Securities -- General
Provisions."
UNCERTAINTY OF ESTIMATES OF RESERVES AND RELATED DATA
Numerous uncertainties are inherent in estimating quantities of proved oil
and gas reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. For example, the reserve data set forth herein reflects certain
development, operating, transportation and abandonment costs to be incurred in
connection with the properties to which proved reserves have been assigned.
Such estimated costs could be substantially less than actual costs incurred
since costs to develop, operate and abandon Flextrend and Deepwater wells are
subject to numerous uncertainties, many of which are beyond the control of the
operator. See "-- Risks Associated with Exploration and Development Activities
in Deeper Waters" and "-- Operating Risks and Hazards; Environmental Risks."
In addition, the reserve data set forth or incorporated in this Prospectus
represents only estimates based on available geological, geophysical,
production and engineering data, the extent, quality and reliability of which
vary. Oil and gas reserve engineering is a subjective process of estimating
accumulations of oil and gas that cannot be measured in an exact way, and
estimates of other engineers might differ materially from those shown herein.
The accuracy of any reserve estimate is a function of the quality and quantity
of available data, engineering and geological interpretation and judgment. The
Company's oil and gas properties have limited or no production histories.
Results of drilling, testing and production after the date of the estimate may
require revisions. Accordingly, reserve estimates are often materially
different from the quantities of oil and gas that are ultimately recovered. In
addition, the estimates of future net cash flow from proved reserves of the
Company and the present value thereof are based upon certain assumptions about
future production levels, prices and costs that may not prove correct over
time.
OIL AND GAS INDUSTRY CONDITIONS; VOLATILITY OF PRICES FOR OIL AND GAS
The Company's future financial condition and results of operations are
dependent on prevailing prices of oil and gas. Historically, the markets for
oil and gas have been volatile and are likely to continue to be volatile in the
future. Prices for oil and gas are subject to fluctuations in response to
relatively minor changes
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in supply, market uncertainty and a variety of additional factors that are
beyond the control of the Company. These factors include political stability
in the Middle East and elsewhere, the foreign supply of oil and gas, the price
of foreign imports, the level of consumer product demand, government
regulations and taxes, the price and availability of alternative fuels and the
overall economic environment. In addition, various factors, including the
availability and capacity of gas gathering systems and pipelines, the effect of
federal regulations on production and transportation, general economic
conditions and changes in supply and demand, may adversely affect the Company's
ability to market its oil and gas production. Accordingly, it is impossible to
predict future oil and gas price movements with any certainty. A decrease in
oil and gas prices could adversely affect the Company's financial condition and
results of operations.
REGULATION
The Company's business is regulated by certain federal state and local laws
and regulations relating to the development, production, marketing and
transmission of oil and gas, as well as environmental and safety matters.
There is no assurance that laws and regulations currently enacted or to be
enacted in the future will not adversely affect the Company's exploration for,
and production and marketing of, oil and gas.
COMPETITIVE INDUSTRY
The Company operates in a highly competitive industry. In both seeking to
acquire desirable producing properties or new leases for future exploration and
seeking to market its oil and gas production, the Company faces intense
competition from both major and independent oil and gas companies, as well as
from numerous individuals, drilling programs and marketers. Many of these
competitors have substantially greater financial and other resources than the
Company.
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THE COMPANY
The Company was incorporated in Delaware on October 5, 1993, as a
wholly-owned subsidiary of Tatham Offshore, Inc., a Texas corporation (the
"Predecessor Company"). The Predecessor Company was incorporated in Texas on
December 21, 1988, and was reincorporated in Delaware on February 2, 1994, by
means of a merger with and into the Company. Management believes that such
transaction had no impact on the operations or business of the Company.
The Company is approximately 38%-owned by DeepTech, a diversified energy
company which, through its affiliates is engaged in providing offshore contract
drilling services, oil and gas gathering and transmission, production
technology and engineering services, geological and geophysical technology
services, gas processing and liquids marketing, oil and gas marketing and,
through the Company and another affiliate, oil and gas exploration, development
and production. As of June 30, 1996, DeepTech also owned (i) $60.0 million
principal amount of Subordinated Convertible Promissory Notes of the Company
(the "Subordinated Notes"), which are convertible into shares of Common Stock
at $10.00 per share, subject to adjustment under certain circumstances and (ii)
through DeepFlex, a 100%-owned subsidiary of DeepTech, 4.7 million shares of
the Series A Preferred Stock and 5.3 million Warrants. Leviathan, an effective
23.2% owned affiliate of DeepTech owns 7,500 shares of Senior Preferred Stock.
The Company's principal executive offices are located at 7400 Texas
Commerce Tower, 600 Travis Street, Houston, Texas 77002, and its telephone
number is (713) 224-7400.
USE OF PROCEEDS
As of October 15, 1996, the Company had received $31.4 million in gross
proceeds from the Rights Offering. Those funds, net of offering expenses, have
been and will be used by the Company to meet short term debt obligations,
interest expense and capital expenditure requirements and for working capital.
If all of the remaining outstanding Warrants are exercised to acquire shares of
Series C Preferred Stock, the Company will receive an additional $6.3 million
in gross proceeds, which will be used for general corporate purposes including
interest expense, management fees and capital expenditures as required. See
"The Offering -- Purpose of the Offering" and "Risk Factors -- History of
Operating Losses; Substantial Future Capital Requirements; Uncertainty of
Future Financings."
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<PAGE> 24
DESCRIPTION OF THE SECURITIES
The following discussion is not intended to be complete and is subject to,
and is qualified in its entirety by reference to, (i) the Company's Certificate
of Incorporation, (ii) the Certificates of Designations of Preferences and
Rights of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Mandatory Redeemable Preferred Stock
(collectively, the "Certificate of Designation"), (iii) the warrant agreement
relating to the Warrants (the "Warrant Agreement") and (iv) the warrant
agreement relating to the Exchange Warrants (the "Exchange Warrant Agreement"),
each of which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
THE WARRANTS
GENERAL
The Warrants are issued in registered form pursuant to the terms of the
Warrant Agreement dated as of February 8, 1996 between the Company and the
Agent, as warrant agent. Warrant Certificates representing an aggregate of
25,120,948 Warrants have been issued pursuant to the Warrant Agreement. The
Warrants are quoted in the over-the-counter market under the Symbol "TOFFW."
However, there can be no assurance that a trading market for the Warrants will
be sustained or will reflect historical market prices for the Warrants. See
"Risk Factors -- Uncertain Market for the Securities" and "-- Determination of
Exercise Prices; Possible Volatility of Security Price."
RIGHTS TO PURCHASE SHARES OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Each Warrant initially entitled the registered holder thereof to purchase
from the Company, at an exercise price of $1.00 per share, one share of any of
the following: (i) Series A Preferred Stock at any time on or before July 1,
1996, (ii) Series B Preferred Stock at any time on or before October 1, 1996,
or (iii) Series C Preferred Stock at any time on or before the Warrant
Expiration Date (January 1, 1997, subject to extension under certain
circumstances as described under the caption "-- Method of Exercise").
WARRANT EXPIRATION DATE
After 5:00 p.m., New York time, on the Warrant Expiration Date (January 1,
1997, subject to extension under certain circumstances as described under the
caption "-- Method of Exercise"), each unexercised Warrant will no longer be
exercisable to purchase Series C Preferred Stock and shall be automatically
converted, without any action on the part of the holder thereof, into one share
of Mandatory Redeemable Preferred Stock. See "-- Mandatory Redeemable
Preferred Stock."
CALCULATION OF EXERCISE PRICE
The Subscription Price and the exercise price of the Warrants were
calculated to provide the Company with net proceeds in an amount believed by
management at that time to be sufficient to fund the Company's anticipated
operating cash flow shortfall and estimated capital expenditures through at
least June 30, 1997 (assuming the exercise of all of the Warrants to purchase
shares of Convertible Exchangeable Preferred Stock at the times and in the
amounts necessary to fund the Company's capital needs). The exercise price of
the Warrants does not necessarily bear any relationship to the Company's book
value of assets, past operations, financial condition or any other established
criteria for value and should not be considered an indication of the actual
value of the Company or the Series A Preferred Stock, the Series B Preferred
Stock or the Series C Preferred Stock (when, as and if issued). The market
value of the Series A Preferred Stock, the Series B Preferred Stock or the
Series C Preferred Stock may be significantly higher or lower than the exercise
price
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of the Warrants. See "Risk Factors -- Determination of Subscription and
Exercise Prices; Possible Volatility of Security Price" and "-- Uncertain
Market for the Securities."
METHOD OF EXERCISE
Each holder of a Warrant may exercise such Warrant by surrendering the
Warrant Certificate evidencing such Warrant to the Agent. In exercising a
Warrant to purchase Series C Preferred Stock, the form of election to purchase
(found on the reverse side of the Warrant Certificate) must be properly
completed and payment in full of the exercise price must be submitted to the
Agent prior to 5:00 p.m., New York time, on January 1, 1997 (subject to
extension under certain circumstances as described below).
No Warrants may be exercised unless at the time of exercise there is a
current prospectus covering the shares of Series C Preferred Stock issuable
upon the exercise of such Warrants under an effective registration statement.
The Company has agreed to use its best efforts to have the Series C Preferred
Stock so registered on or before January 1, 1997, and to make a current
prospectus relating thereto available. In the event that a registration
statement is not effective and a current prospectus is not available on such
expiration date, the Company has agreed to extend the applicable date, for a
period not to exceed the earlier to occur of (i) the expiration of a ten
business day period following the date on which the Company announces that a
registration statement covering the Series C Exchangeable Preferred Stock has
become effective and a prospectus covering such shares is made available and
(ii) the expiration of a 100 calendar day period following such date
(regardless of whether a registration statement has been declared effective and
a current prospectus is available). There can be no assurance that such a
prospectus will be available and such a registration statement will be
effective within the prescribed time, in which event a Warrant holder may not
be able to exercise his Warrants for the Series C Preferred Stock and may have
such Warrants converted automatically into shares of Mandatory Redeemable
Preferred Stock. In addition, no Warrants shall be exercisable in any state
where such exercise would be unlawful. See "Risk Factors -- Inability to
Exercise, Convert or Exchange the Securities Under State and Federal Laws."
If less than all of the Warrants evidenced by a Warrant Certificate are
exercised prior to the Warrant Expiration Date, a new certificate will be
issued for the remaining number of Warrants. Warrant Certificates may only be
exchanged for new certificates or different denominations by presenting the
Warrant Certificate at the office of the Agent.
PAYMENT OF WARRANT EXERCISE PRICE
An exercising Warrant holder must send to the Agent the executed Warrant
Certificate together with payment in full for the specified number of shares of
Series C Preferred Stock based on the exercise price of $1.00 per share. The
exercise of a Warrant to purchase Series C Preferred Stock will be accepted
when such certificate and such payment are received by the Agent as specified
above prior to 5:00 p.m., New York time, on January 1, 1997 (subject to
extension under certain circumstances as described above). The Agent will
deposit all funds received by it for the purchase of Series C Preferred Stock
into an escrow account established by the Company (the interest from which will
belong to the Company) pending distribution of the Series C Preferred Stock.
Payment may only be made by check or postal, telegraphic or express money
order drawn on a commercial bank, trust company or savings and loan having an
office or correspondent in the United States and made payable to the order of
"Tatham Offshore Escrow Account." Checks made payable by any member firm of a
national securities exchange or a member of the NASD for payment of the
exercise price shall be treated in the same manner as a certified or cashier's
check. Payment will be deemed to have been received by the Agent only upon (i)
clearance of any uncertified check or (ii) receipt by the Agent of any (A)
certified check, (B) cashier's check, (C) check made payable by a member firm
of a national securities exchange or a member of the NASD or (D) of any postal,
telegraphic or express money order. IF PAYING BY UNCERTIFIED
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PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE AT LEAST FIVE
(5) BUSINESS DAYS TO CLEAR. Accordingly, an exercising Warrant holder who
wishes to make payment by means of an uncertified personal check is urged to
make payment sufficiently in advance of the Warrant Expiration Date to ensure
that such payment is received and clears by the Warrant Expiration Date and are
urged to consider payment by means of certified or cashier's check or money
order.
THE RISK OF DELIVERY OF ALL DOCUMENTS AND PAYMENTS IS ON THE WARRANT
HOLDER, NOT THE COMPANY OR THE AGENT. IF THE MAIL IS USED, IT IS RECOMMENDED
THAT INSURED, REGISTERED MAIL BE USED AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE AGENT BEFORE THE WARRANT EXPIRATION DATE.
The Warrant Certificates, along with payment in full of the exercise price,
should be mailed or delivered to Chase Mellon Shareholder Services, L.L.C. (the
"Agent") as follows:
BY MAIL: ChaseMellon Shareholder Services, L.L.C.
Midtown Station
P.O. Box 845
New York, NY 10018
BY HAND: ChaseMellon Shareholder Services, L.L.C.
120 Broadway - 13th Floor
New York, NY 10271
Attention: Reorganization Department
BY OVERNIGHT/EXPRESS ChaseMellon Shareholder Services, L.L.C.
MAIL COURIER: 85 Challenger Road (Overpeck Centre)
Ridgefield Park, NJ 07660
Attention: Reorganization Department
VOTING AND OTHER RIGHTS
Warrant holders do not have voting or any other rights of stockholders of
the Company and are not entitled to receive dividends.
NO REDEMPTION OF WARRANTS
The Warrants are not redeemable by the Company.
MODIFICATION OF THE WARRANT AGREEMENT
The Warrant Agreement contains provisions permitting the Company and the
Agent, without the consent of the Warrant holders, to supplement or amend the
Warrant Agreement to cure any ambiguity, and to correct or supplement any
provisions contained therein which may be defective or inconsistent with any
other provision therein, or to make any other provision in regard to matters or
questions arising thereunder which the Company and the Warrant Agent may deem
necessary or desirable and which does not adversely affect the interest of the
Warrant holders. Otherwise, the Warrant Agreement may only be modified,
supplemented, altered or amended upon receipt of the prior written consent of
persons holding not less than 50% of the then outstanding Warrants.
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CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
GENERAL
Each Warrant was initially exercisable to purchase one share of either
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock.
As of October 15, 1996, 18,717,030 Warrants had been exercised to acquire an
aggregate of 18,717,030 shares of Series A Preferred Stock, 74,379 Warrants had
been exercised to acquire an aggregate of 74,379 shares of Series B Preferred
Stock, and there remained outstanding 6,329,539 Warrants exercisable for an
aggregate of 6,329,539 shares of Series C Preferred Stock. Assuming all of the
remaining outstanding Warrants are exercised, an aggregate of 25,120,948 shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock will have been issued. The Series A and Series B Preferred Stock are
quoted on the over-the-counter market, and it is expected that the Series C
Preferred Stock will also be quoted on the over-the-counter market, but there
is not an active trading market for such Securities, and the Company does not
expect that one will develop for any series of the Convertible Exchangeable
Preferred Stock. See "Risk Factors -- Uncertain Market for the Securities" and
"-- Determination of Subscription and Exercise Prices; Possible Volatility of
Security Price."
The Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock have substantially the same terms, except with respect to their
respective liquidation preferences; ranking upon liquidation, dissolution,
merger or sale of the Company; dividend rates and the expiration date before
which a Warrant may be exercised to purchase a share of a particular series.
RANKING UPON LIQUIDATION, DISSOLUTION OR WINDING UP
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of
(i) Series A Preferred Stock are entitled to receive out of the assets of
the Company available for distribution to stockholders the liquidation
preference of $1.50 per share, plus an amount equal to any accrued and
unpaid dividends thereon to the payment date, and no more, before any
payment or distribution of assets is made to the holders of the Series B
Preferred Stock, the Series C Preferred Stock, the Mandatory Redeemable
Preferred Stock, the Common Stock or any other class of capital stock or
series of preferred stock hereafter issued that ranks junior to the Series
A Preferred Stock as to rights upon liquidation, dissolution or winding up;
(ii) Series B Preferred Stock are entitled to receive out of the assets of
the Company available for distribution to stockholders the liquidation
preference of $1.00 per share, plus an amount equal to any accrued and
unpaid dividends thereon to the payment date, and no more, before any
payment or distribution of assets is made to the holders of the Series C
Preferred Stock, the Mandatory Redeemable Preferred Stock, the Common Stock
or any other class of capital stock or series of preferred stock hereafter
issued that ranks junior to the Series B Preferred Stock as to rights upon
liquidation, dissolution or winding up; and
(iii) Series C Preferred Stock are entitled to receive out of the assets of
the Company available for distribution to stockholders the liquidation
preference of $0.50 per share, plus an amount equal to any accrued and
unpaid dividends thereon to the payment date, and no more, before any
payment or distribution of assets is made to the holders of the Mandatory
Redeemable Preferred Stock, the Common Stock or any other class of capital
stock or series of preferred stock hereafter issued that ranks junior to
the Series C Preferred Stock as to rights upon liquidation, dissolution or
winding up.
The holders of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock will rank junior with respect to voluntary or
involuntary liquidation, dissolution or winding up of the Company to holders of
the Senior Preferred Stock and any other class of capital stock or series of
preferred stock that may be hereafter created that ranks senior to the
Convertible Exchangeable Preferred Stock. The holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and any other class of
capital stock or series of preferred stock hereafter issued that ranks on a
parity as to rights upon
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liquidation, dissolution or winding up with any such series will be entitled to
share ratably, within such class or series, in accordance with the respective
preferential amounts payable on each such stock, in any liquidating
distribution which is not sufficient to pay in full the aggregate of the
amounts payable thereon. After payment in full of the liquidation preference
of the shares of a particular series of the Convertible Exchangeable Preferred
Stock, the holders of shares of such series will not be entitled to any further
participation in any distribution of assets by the Company. Neither a
consolidation, merger or other business combination of the Company with or into
another corporation or other entity nor a sale, lease, exchange or transfer of
all or substantially all of the Company's assets for cash, securities or other
property will be considered a liquidation, dissolution or winding up of the
Company. However, in any such event involving a non-affiliate of the Company
(other than a Farm-out (herein defined)), the Company will be required to
redeem the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock at their respective liquidation preferences, plus any
accrued and unpaid dividends thereon. See "--Mandatory Redemption."
RANKING WITH RESPECT TO DIVIDENDS
With respect to dividends, the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock will rank (i) on a parity with
one another and each other class of capital stock and series of preferred stock
that may be issued that ranks on a parity with the Convertible Exchangeable
Preferred Stock with respect to dividends (the "Parity Stock"), (ii) senior to
the Common Stock, the Mandatory Redeemable Preferred Stock and each other class
of capital stock and series of preferred stock that may be issued that ranks
junior to the Convertible Exchangeable Preferred Stock with respect to
dividends (the "Junior Stock") and (iii) junior to the 9% Senior Preferred
Stock and any other class of capital stock or series of preferred stock that
may hereafter be created that ranks senior to the Convertible Exchangeable
Preferred Stock with respect to dividends (the "Senior Stock"). The Company
will have the right to issue shares of Senior Stock and Parity Stock without
the approval or consent of the holders of Convertible Exchangeable Preferred
Stock.
DIVIDENDS
Dividend Rate on Series A Preferred Stock
Each share of Series A Preferred Stock shall accrue dividends commencing on
July 1, 1996 (regardless of when issued) at an annual rate of 12% on the
liquidation preference of $1.50 ($0.18 per annum per share, subject to
adjustment under certain circumstances), payable quarterly on March 31, June
30, September 30 and December 31 of each year commencing on September 30, 1996.
The Company did not pay any dividends on the Series A Preferred Stock on
September 30, 1996, the initial dividend payment date. See "Risk Factors --
Lack of Funds to Pay Dividends."
Dividend Rate on Series B Preferred Stock
Each share of Series B Preferred Stock shall accrue dividends commencing on
October 1, 1996 (regardless of when issued) at an annual rate of 8% on the
liquidation preference of $1.00 ($0.08 per annum per share, subject to
adjustment under certain circumstances), payable quarterly on March 31, June
30, September 30 and December 31 of each year commencing on December 31, 1996.
See "Risk Factors -- Lack of Funds to Pay Dividends."
Dividend Rate on Series C Preferred Stock
Each share of Series C Preferred Stock shall accrue dividends commencing on
January 1, 1997 (regardless of when issued) at an annual rate of 4% on the
liquidation preference of $0.50 ($0.02 per annum per share, subject to
adjustment under certain circumstances), payable quarterly on March 31, June
30, September 30 and December 31 of each year commencing on March 31, 1997.
See "Risk Factors -- Lack of Funds to Pay Dividends."
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Mechanics of Paying Dividends; Limitations
Dividends on shares of Convertible Exchangeable Preferred Stock will be
cumulative and will be payable to holders of record as they appear on the stock
registry of the Company on such record dates, which shall not be less than ten
days nor more than 60 days preceding the payment date, as are fixed by the
Board of Directors. If, however, shares of Convertible Exchangeable Preferred
Stock are called for redemption (as described below) on a redemption date
falling between a dividend payment record date and the dividend payment date,
in lieu of receiving such dividend on the dividend payment date fixed therefor,
the holders of the shares to be redeemed will receive such dividend payment
together with all other accrued and unpaid dividends with respect to such
shares on the date fixed for redemption.
The amount of dividends payable per share of a particular series of
Convertible Exchangeable Preferred Stock for each quarterly dividend period
will be computed by dividing the annual dividend amount by four. The amount of
dividends payable for any period shorter than a full dividend period will be
computed on the basis of a 360 day year. No interest or sum of money in lieu
of interest will be payable in respect of any dividend payment on the
Convertible Exchangeable Preferred Stock which may be in arrears. Holders of
Convertible Exchangeable Preferred Stock will not be entitled to any
participating dividends or other distributions, whether payable in cash,
property or securities, in excess of the full cumulative dividends described
above.
So long as any shares of the Convertible Exchangeable Preferred Stock are
outstanding, no dividend or distribution may be declared, paid or set apart for
payment on the Common Stock or any other Junior Stock, other than a dividend or
distribution payable in Junior Stock or warrants or other rights to purchase
Junior Stock, nor may any shares of Junior Stock be purchased, redeemed or
acquired by the Company (except by conversion into, exchange for, or out of the
cash proceeds from the substantially concurrent offering of Junior Stock, the
cash proceeds from the exercise of Exchange Warrants or in the ordinary course
of business pursuant to the terms of any employer stock incentive plan) unless
all accrued and unpaid dividends on the Convertible Exchangeable Preferred
Stock have been paid or declared and set apart for payment. Whenever all
accrued dividends are not paid in full on the Convertible Exchangeable
Preferred Stock or any Parity Stock, all dividends declared on the Convertible
Exchangeable Preferred Stock and any such Parity Stock will be declared or made
pro rata so that the amount of dividends declared per share on the Convertible
Exchangeable Preferred Stock and any such Parity Stock will bear the same ratio
that accrued and unpaid dividends per share on the Convertible Exchangeable
Preferred Stock and such Parity Stock bear to each other.
Under Delaware law, the Company may declare and pay dividends on its
capital stock only out of surplus, as defined in the Delaware General
Corporation Law (the "DGCL") or, in case there is no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. Surplus under the DGCL is generally defined to mean the
excess, at any given time, of the net assets of a corporation over the amount
of the corporation's capital. No dividends or distributions may be declared,
paid or made if the Company is or would be rendered insolvent by virtue of such
dividend or distribution, or if such declaration, payment or distribution would
contravene the Certificate of Incorporation. Furthermore, the Company may from
time to time enter into agreements that prohibit or limit the Company from
paying dividends on its capital stock, including the Convertible Exchangeable
Preferred Stock. See "Risk Factors -- Lack of Funds to Pay Dividends."
VOTING RIGHTS
The holders of the Convertible Exchangeable Preferred Stock will have no
voting rights except as described below or as expressly required by applicable
law. Whenever dividends on any series of Convertible Exchangeable Preferred
Stock are in arrears in an aggregate amount equal to at least six quarterly
dividends on such shares, the number of directors of the Company will be
increased by two and the holders of such
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series of Convertible Exchangeable Preferred Stock, voting together as a class
with the holders of shares of any other series of Convertible Exchangeable
Preferred Stock having the then present right to elect directors as a result of
dividend arrearages, will be entitled to elect such two additional directors to
the Board of Directors on the basis of one vote per $0.50 amount of liquidation
preference (exclusive of accumulated dividends) at any annual or special
meeting of stockholders of the Company at which directors are to be elected
held during the period such dividends remain in arrears. Such voting rights
will terminate as to each series of Convertible Exchangeable Preferred Stock
when all such dividends in arrears with respect to that series have been paid
in full or declared and set apart for payment.
MANDATORY REDEMPTION
The Company will be required to redeem all of the issued and outstanding
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock at the respective liquidation preference thereof, plus any
accrued and unpaid dividends thereon up to the Redemption Date, upon the
occurrence of any sale, lease, exchange or transfer of all or substantially all
of the assets of the Company (but specifically excluding a Farm-out (as defined
herein)) for cash, securities or other property to an entity that is not an
affiliate of the Company or the merger, consolidation or other business
combination of the Company with or into another entity that is not an affiliate
of the Company (each, a "Business Combination"). For the purposes of the
preceding sentence, the term "non-affiliate" shall mean any corporation or
other entity which directly or indirectly is not in control of, controlled by
or under common control with the Company. For the purposes of the definition
of "non-affiliate," "control" means the power, directly or indirectly, to
direct or cause the direction of the management and policies of the Company or
vote 10% or more of the securities having ordinary voting power for the
election of directors of such person, and "controlled" has a meaning
correlative to the foregoing. A "Farm-out" means any transfer by the Company
of an interest in any of its oil and gas properties, whether such transfer is
in the form of a farm-out, sale, assignment or otherwise; provided that the
Company retains a reversionary interest of any nature in or a right to be
reassigned or otherwise receive an interest of any nature in, such properties.
Except as set forth in this paragraph, the Convertible Exchangeable Preferred
Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions.
In the event that shares of Convertible Exchangeable Preferred Stock are
being mandatorily redeemed and the funds of the Company legally available for
redemption of shares on the Redemption Date are insufficient to redeem all
shares of Convertible Exchangeable Preferred Stock subject to redemption and
the shares, if any, of any other class of capital stock or series of preferred
stock required to be redeemed on the Redemption Date, then the funds of the
Company, to the extent legally available for such purpose, shall be used to
redeem such shares in accordance with their relative rankings and in such
proportions as is as set forth under the caption "-- Ranking Upon Liquidation,
Dissolution or Winding Up." At any time and from time to time thereafter as
additional funds of the Company are legally available for the redemption of
shares, such funds shall promptly be used to redeem additional shares of those
required to be redeemed on such Redemption Date based on their relative
rankings.
OPTIONAL REDEMPTION
The Convertible Exchangeable Preferred Stock may not be redeemed at the
option of the Company prior to July 1, 1997. On and after July 1, 1997, each
share of Convertible Exchangeable Preferred Stock will be redeemable at the
option of the Company, in whole or in part, at any time or from time to time,
at a price (the "Redemption Price") equal to the liquidation preference ($1.50
per share for the Series A Preferred Stock, $1.00 per share for the Series B
Preferred Stock and $0.50 per share for the Series C Preferred Stock), plus any
accrued and unpaid dividends thereon up to but excluding the date fixed for
redemption, subject to the right of the holder thereof to convert such shares
into Common Stock and/or exchange such shares for Exchange Warrants. If upon
any optional redemption fewer than all the outstanding shares of Convertible
Exchangeable Preferred Stock are to be redeemed, the same number of shares of
each series of Convertible
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Exchangeable Preferred Stock shall be redeemed by the Company. If fewer than
all of the outstanding shares of Convertible Exchangeable Preferred Stock are
to be redeemed, the shares to be redeemed within each series will be determined
pro rata as nearly as practicable, or by such other method as the Board of
Directors may determine to be fair and appropriate. In the event that any
quarterly dividends payable on any series of Convertible Exchangeable Preferred
Stock are in arrears, such series of Convertible Exchangeable Preferred Stock
may not be redeemed unless all outstanding shares of such series of Convertible
Exchangeable Preferred Stock are simultaneously redeemed or the outstanding
shares of such series are redeemed on a pro rata basis.
REDEMPTION PROCEDURES
Notice of any proposed redemption shall be addressed to the holder at such
holder's address as its appears on the stock register of the Company on the
record date determined by the Board. Each such notice shall specify (i) the
date fixed for such redemption (the "Redemption Date"), (ii) the Redemption
Price, (iii) the number of shares to be redeemed and (iv) the place for payment
and for delivering the shares and other necessary transfer instruments to be
executed by the holder in order for the holder to collect the Redemption Price.
Notice of redemption will be mailed at least ten days but not more than 60 days
before the Redemption Date. Any notice given in such manner shall be
conclusively deemed to have been duly given whether or not such notice is in
fact received.
The holder of shares of Convertible Exchangeable Preferred Stock redeemed
upon any exercise of the Company's redemption right shall not be entitled to
receive payment of the Redemption Price for such Convertible Exchangeable
Preferred Stock until the holder shall cause to be delivered to the place
specified in the Redemption Notice given with respect to such redemption (i)
the share certificate(s) evidencing the Convertible Exchangeable Preferred
Stock subject to such redemption and (ii) transfer instruments satisfactory to
the Company.
After the Redemption Date, unless there shall have been a default in
payment of the Redemption Price, dividends will cease to accrue on the shares
of Convertible Exchangeable Preferred Stock called for redemption and all
rights of the holders of such shares will terminate, except the right to
receive the Redemption Price without interest upon surrender of the
certificates evidencing the shares.
CONVERSION OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Each outstanding share of Convertible Exchangeable Preferred Stock may be
converted by the holder thereof, at any time and from time to time after July
1, 1996, into such number of whole shares of Common Stock as is equal to the
liquidation preference thereof ($1.50 per share for the Series A Preferred
Stock, $1.00 per share for the Series B Preferred Stock and $0.50 per share for
the Series C Preferred Stock) plus any accrued and unpaid dividends thereon
through the conversion date, divided by the Trading Reference Price (the
"Conversion Ratio").
The Trading Reference Price is $0.653, which is an amount equal to the
lowest average of the closing prices of the Common Stock on the Nasdaq National
Market for any five consecutive trading days during the period commencing on
December 26, 1995 (the Record Date for the Rights Offering) and continuing
through and including June 30, 1996, subject to adjustment as provided in the
following paragraph.
The Conversion Ratio or Trading Reference Price, as applicable, will be
subject to adjustment in certain events, including: (i) the issuance of stock
as a dividend or distribution on the Common Stock; (ii) certain subdivisions or
combinations of the Common Stock; (iii) the issuance to all holders of Common
Stock of certain rights, warrants or options to subscribe for or purchase
Common Stock; or (iv) the distribution to all holders of Common Stock of
evidences of indebtedness of the Company or other assets (including securities,
but excluding those rights, warrants, dividends and distributions referred to
above and dividends and distributions in connection with the liquidation,
dissolution or winding up of the Company or paid in cash).
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No adjustment in the Trading Reference Price will be required to be made until
cumulative adjustments aggregate 5% or more of the Trading Reference Price as
last adjusted; provided, however, that any adjustment not made shall be carried
forward. No adjustment in the Trading Reference Price will be required if
holders of the Convertible Exchangeable Preferred Stock are to participate in a
transaction on a basis and with notice that the Board determines in good faith
to be fair and appropriate in light of the basis and notice on which holders of
Common Stock participate in the transaction.
The Company from time to time may decrease the Trading Reference Price by
any amount for any period of at least 20 days, in which case the Company shall
give at least 15 days notice of such decrease. The Company may, at its option,
make such decreases in the Trading Reference Price, in addition to those set
forth above, as the Board of Directors of the Company deems advisable to avoid
or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock or issuance of rights or warrants to purchase
or subscribe for Common Stock or from any event treated as such for income tax
purposes. See "Certain Federal Income Tax Considerations -- Convertible
Exchangeable Preferred Stock -- Adjustment of Trading Reference Price."
In case of (i) any recapitalization or reclassification of the Common Stock
(other than a change in par value, or from par value to no par value, or from
no par value to par value), (ii) any consolidation of the Company with, or
merger of the Company into, any other person, or any merger of any person into
the Company (other than a merger that does not result in any reclassification
of, or change in the outstanding shares of Common Stock), (iii) any sale or
transfer of all or substantially all of the assets of the Company (other than a
sale-lease back, farm-out, collateral assignment, mortgage or other similar
financing transaction), or (iv) any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or other properties, then
there shall be no adjustment in the Conversion Ratio or Trading Reference Price
but appropriate provision shall be made so that the holder of each share of
Convertible Exchangeable Preferred Stock then outstanding shall have the right
thereafter, during the period such share of Convertible Exchangeable Preferred
Stock shall be convertible, to convert such share into the kind and amount of
securities, cash or other property receivable upon such recapitalization,
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock into which such share of
Convertible Exchangeable Preferred Stock might have been converted immediately
prior to such recapitalization, reclassification, consolidation, merger, sale,
transfer or share exchange. The company formed by such consolidation or
resulting from such merger or that acquires such assets or that acquires the
Company's shares, as the case may be, shall make provisions in its certificate
or articles of incorporation or other constituent document to establish such
right. Such certificate or articles of incorporation or other constituent
document shall provide for adjustments that, for events subsequent to the
effective date of such certificate or articles of incorporation or other
constituent documents, shall be as nearly equivalent as may be practicable to
the relevant adjustments provided for in the preceding two paragraphs and in
this paragraph.
No fractional shares of Common Stock will be issued upon conversion, but,
in lieu thereof, in the sole discretion of the Board of Directors, either (i)
such fractional interest will be rounded up to the next whole share or (ii) an
appropriate amount will be paid in cash by the Company based on the closing
price for the shares of Common Stock on the trading day before the date of
conversion.
EXCHANGE OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
At any time until 5:00 p.m., New York time, on December 31, 1998, the
holder of any shares of Series A Preferred Stock, Series B Preferred Stock
and/or Series C Preferred Stock will have the right, at the holder's option, to
exchange each share of Convertible Exchangeable Preferred Stock (including all
accrued and unpaid dividends thereon) for four Exchange Warrants, each of which
will entitle the holder thereof to purchase one share of Common Stock at the
Trading Reference Price.
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Each holder of shares of Convertible Exchangeable Preferred Stock may
exchange such shares by surrendering the certificate evidencing such shares,
with the form of election to exchange on the reverse side of such certificate
properly completed and executed, prior to 5:00 p.m., New York time, on the
Exchange Warrant Expiration Date (December 31, 1998, unless extended by the
Board of Directors).
In the event a holder of shares of Convertible Exchangeable Preferred Stock
elects to exchange all or a portion of such shares for Exchange Warrants, the
holder will forgo all accrued and unpaid dividends with respect to the shares
of Convertible Exchangeable Preferred Stock so exchanged. If the Convertible
Exchangeable Preferred Stock has been called for redemption, the exchange right
as to the shares of Convertible Exchangeable Preferred Stock being redeemed
shall terminate at the close of business on the last business day before the
Redemption Date (unless the Company defaults in the payment of the Redemption
Price).
OTHER PROVISIONS
The shares of Convertible Exchangeable Preferred Stock, when, as, and if
issued as described in this Prospectus, will be duly and validly issued, fully
paid and non-assessable. The holders of the shares of Convertible Exchangeable
Preferred Stock have no preemptive rights with respect to any securities of the
Company.
Pursuant to the Certificate of Incorporation of the Company, the Board of
Directors of the Company is authorized, subject to any limitations prescribed
by law, to provide for the issuance of shares of Preferred Stock in series and
to establish from time to time the number of shares to be included in each such
series and to fix the designation, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or restrictions
thereof. Because the Board of Directors has the power to establish the
preferences and rights of each series, it may afford the holders of any
Preferred Stock preferences, powers and rights (including voting rights) senior
to the rights of the holders of Common Stock. The issuance of shares of
Preferred Stock, or the issuance of rights to purchase such shares, could be
used to discourage an unsolicited acquisition proposal. See "Risk Factors --
Certain Provisions Relating to Changes in Control; Issuances of Preferred
Stock."
As of the date of this Prospectus, the Board of Directors has provided for
the issuance of five series of Preferred Stock, the Senior Preferred Stock, the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Mandatory Redeemable Preferred Stock.
EXCHANGE WARRANTS
GENERAL
The Exchange Warrants will be issued in registered form pursuant to the
terms of the Exchange Warrant Agreement dated as of February 8, 1996, between
the Company and the Agent. Up to 99,200,336 Exchange Warrants may be issued
pursuant to the Exchange Warrant Agreement. It is expected that the Exchange
Warrants will be quoted on the over-the-counter market. However, there can be
no assurance that a trading market will develop for the Exchange Warrants. See
"Risk Factors -- Uncertain Market for the Securities" and "-- Determination of
Subscription and Exercise Prices; Possible Volatility of Security Price."
RIGHTS TO PURCHASE SHARES OF COMMON STOCK; CALCULATION OF EXERCISE PRICE
Each Exchange Warrant will entitle the registered holder thereof to
purchase from the Company one share of Common Stock at a per share price equal
to the Trading Reference Price. The exercise price of the Exchange Warrants
does not necessarily bear any relationship to the Company's book value of
assets, past operations, financial condition or any other established criteria
for value and should not be considered an
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indication of the actual value of the Company or the Common Stock, when, as and
if issued. The market value of the Common Stock may be significantly higher or
lower than the exercise price of the Exchange Warrants. See "Risk Factors --
Determination of Subscription and Exercise Prices; Possible Volatility of
Security Price" and "-- Uncertain Market for the Securities."
EXERCISE PERIOD
Each Exchange Warrant is exercisable during the period commencing upon the
issuance of such Exchange Warrant and continuing through 5:00 p.m., New York
time, on the Exchange Warrant Expiration Date (July 1, 1999, unless extended by
the Board of Directors), at which time the Exchange Warrants will expire and
will no longer be exercisable.
METHOD OF EXERCISE
Each holder of an Exchange Warrant may exercise such Exchange Warrant by
surrendering the Exchange Warrant Certificate evidencing such warrant, with the
form of election to purchase on the reverse side of such certificate properly
completed and executed, together with payment of the exercise price to the
Agent, prior to 5:00 p.m., New York time, on the Exchange Warrant Expiration
Date; provided, however, that no Exchange Warrants may be exercised unless at
the time of exercise there is a current prospectus covering the shares of
Common Stock issuable upon the exercise of such warrants under an effective
registration statement. The Company has agreed to use its best efforts to have
the Common Stock so registered or qualified on or before July 1, 1999 and to
maintain a current prospectus relating thereto. In the event that a
registration statement is not effective and a current prospectus is not
available on July 1, 1999, the Company has agreed to extend the Exchange
Warrant Expiration Date for a period not to exceed the earlier to occur of (i)
the expiration of a ten business day period following the date on which the
Company announces that a registration statement covering the shares of Common
Stock has become effective and a current prospectus covering such shares is
available and (ii) the expiration of a 100 calendar day period following July
1, 1999 (regardless of whether a registration statement has been declared
effective and a current prospectus is available). There can be no assurance
that such a prospectus will be available or a registration statement will be
effective within the prescribed time, in which event the Exchange Warrants will
expire valueless. In addition, no Exchange Warrants shall be exercisable in
any state where such exercise would be unlawful. See "Risk Factors --
Inability to Exercise, Convert or Exchange the Securities Under State and
Federal Laws."
The Exchange Warrant Certificates and the payment in full of the exercise
price shall be mailed or delivered to the Agent at the addresses specified in "
- -- The Warrants -- Payment of Warrant Exercise Price" unless the holder is
subsequently notified of an alternate address.
If less than all of the Exchange Warrants evidenced by an Exchange Warrant
Certificate are exercised prior to the Exchange Warrant Expiration Date, a new
certificate will be issued for the remaining number of Exchange Warrants.
Exchange Warrant Certificates may only be exchanged for new certificates of
different denominations by presenting the Exchange Warrant Certificate at the
office of the Agent.
PAYMENT OF EXCHANGE WARRANT EXERCISE PRICE
An exercising Exchange Warrant holder must send to the Agent the executed
Exchange Warrant Certificate together with payment in full for the specified
number of shares of Common Stock based on the Trading Reference Price. The
exercise of an Exchange Warrant will be accepted when such certificate and such
payment is received by the Agent as specified above prior to 5:00 p.m., New
York time, on the Exchange Warrant Expiration Date. Payment may be made in the
same manner specified in " -- The Warrants -- Payment of Warrant Exercise
Price." The Agent will deposit all funds received by it for the purchase of
Common Stock into an escrow account of the Company (the interest from which
will belong to the Company) pending distribution of the Common Stock.
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ADJUSTMENTS
The exercise price and the number of shares of Common Stock and the number
of Exchange Warrants are subject to adjustment upon the occurrence of certain
events, including: (i) the issuance of stock as a dividend on the Common Stock;
(ii) certain subdivisions or combinations of the Common Stock; (iii) the
issuance of Common Stock or the issuance to all holders of Common Stock of
certain rights, warrants or options to subscribe for or purchase Common Stock,
in each case, at a per share price less than the current market price per share
of the Common Stock; and (iv) the distribution to all holders of Common Stock
of evidences of indebtedness of the Company or other assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above and dividends and distributions in connection with the
liquidation, dissolution or winding up of the Company or paid in cash). No
adjustment will be required to be made until cumulative adjustments aggregate
5% or more of the exercise price of the Exchange Warrants as last adjusted;
provided, however, that any adjustment not made shall be carried forward.
In case of (i) any recapitalization or reclassification of the Common Stock
(other than a change in par value, or from par value to no par value, or from
no par value to par value), (ii) any consolidation of the Company with, or
merger of the Company into, any other person, or any merger of any person into
the Company (other than a merger that does not result in any reclassification
of, or change in the outstanding shares of Common Stock), (iii) any sale or
transfer of all or substantially all of the assets of the Company (other than a
sale-lease back, collateral assignment, mortgage or other similar financing
transaction), and (iv) any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or other properties, then there shall
be no adjustment in the Exercise Price but appropriate provision shall be made
that the holder of an Exchange Warrant then outstanding shall have the right
thereafter, during the period such share of Exchange Warrant shall be
exercisable, to exercise such warrant for the kind and amount of securities,
cash or other property receivable upon such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock for which such Exchange Warrant might have
been exercised immediately prior to such reclassification, recapitalization,
consolidation, merger, sale, transfer or share exchange. The company formed by
such consolidation or resulting from such merger or that acquires such assets
or that acquires the Company's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or other constituent
document to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide for adjustments that,
for events subsequent to the effective date of such certificate or articles of
incorporation or other constituent documents, shall be as nearly equivalent as
may be practicable to the relevant adjustments provided for in the preceding
paragraph and in this paragraph.
VOTING AND OTHER RIGHTS
In the event of an adjustment in the number of shares of Common Stock
issuable upon exercise of the Exchange Warrants, the Company will not be
required to issue fractional shares of Common Stock upon exercise of the
Warrants. In lieu of fractional shares of Common Stock, in the sole discretion
of the Board of Directors, either (i) such fractional interest will be rounded
up to the next whole share or (ii) there will be paid to the holder of the
Exchange Warrants at the time of such exercise an amount in cash equal to the
same fraction of the closing bid price of the Common Stock on the last trading
day prior to the exercise date.
Exchange Warrant holders do not have voting or any other rights of
stockholders of the Company and are not entitled to receive dividends.
REDEMPTION OF EXCHANGE WARRANTS
The Exchange Warrants are not redeemable by the Company.
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MODIFICATION OF THE EXCHANGE WARRANT AGREEMENT
The Exchange Warrant Agreement contains provisions permitting the Company
and the Agent, without the consent of the Exchange Warrant holders, to
supplement or amend the Exchange Warrant Agreement in order to cure any
ambiguity, and to correct or supplement any provisions contained therein which
may be defective or inconsistent with any other provision therein, or to make
any other provision in regard to matters or questions arising thereunder which
the Company and the Agent may deem necessary or desirable and which does not
adversely affect the interest of the Exchange Warrant holders. Otherwise, the
Exchange Warrant Agreement may only be modified, supplemented, altered or
amended upon receipt of the prior written consent of persons holding not less
than 50% of the then outstanding Exchange Warrants.
MANDATORY REDEEMABLE PREFERRED STOCK
GENERAL
Up to 6,329,539 shares of Mandatory Redeemable Preferred Stock may be
issued by the Company (assuming all of the 6,329,539 Warrants outstanding as of
October 15, 1996 remain unexercised at 5:00 p.m., New York time, on the Warrant
Expiration Date (January 1, 1997), subject to extension under certain
circumstances). Each Warrant remaining unexercised at such time will be
automatically converted, without any action on the part of the holder thereof,
into one share of Mandatory Redeemable Preferred Stock. It is expected that
the Mandatory Redeemable Preferred Stock will be quoted on the over-the-counter
market. However, there can be no assurance that a trading market will develop
for the Mandatory Redeemable Preferred Stock. See "Risk Factors -- Uncertain
Market for the Securities" and "-- Determination of Subscription and Exercise
Prices; Possible Volatility of Security Price."
DIVIDENDS
No dividends will accrue on or be payable with respect to the Mandatory
Redeemable Preferred Stock.
RANKING
The Mandatory Redeemable Preferred Stock will rank, upon liquidation,
dissolution or winding up, (i) junior to the Convertible Exchangeable Preferred
Stock and any other class of capital stock or series of preferred stock of the
Company the terms of which expressly provide that such class or series ranks
senior to the Mandatory Redeemable Preferred Stock upon liquidation,
dissolution or winding up (the "Senior Securities"), (ii) on a parity with any
other class of capital stock or series of preferred stock of the Company the
terms of which expressly provide that such class or series ranks on a parity
with the Mandatory Redeemable Preferred Stock upon liquidation, dissolution or
winding up (the "Parity Securities") and (iii) senior to the Common Stock and
any other class of capital stock or series of preferred stock the terms of
which do not expressly provide that such class or series ranks senior to or on
a parity with the Mandatory Redeemable Preferred Stock upon liquidation,
dissolution or winding up (the "Junior Securities). The Company will have the
right to issue other classes of capital stock and series of preferred stock
that rank senior to or on a parity with the Mandatory Redeemable Preferred
Stock without the approval or consent of the holders of Mandatory Redeemable
Preferred Stock.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, holders of Mandatory Redeemable
Preferred Stock will be entitled to receive out of the assets of the Company
available for distribution to stockholders a liquidation preference of $0.50
per share, and no more, before any payment or distribution of assets is made to
the holders of Common Stock or any other Junior Securities. The holders of
Mandatory Redeemable Preferred Stock and any Parity Securities will be
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entitled to share ratably, in accordance with the respective preferential
amounts payable on such stock, in any liquidating distribution which is not
sufficient to pay in full the aggregate of the amounts payable thereon. After
payment in full of the liquidation preference of the shares of the Mandatory
Redeemable Preferred Stock, the holders of such shares will not be entitled to
any further participation in any distribution of assets by the Company.
Neither a consolidation, merger or other business combination of the Company
with or into another corporation or other entity nor a sale, lease, or exchange
or transfer of all or substantially all of the Company's assets for cash,
securities or other property will be considered a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Except as expressly required by law, the holders of the Mandatory Redeemable
Preferred Stock will not be entitled to any voting rights.
MANDATORY REDEMPTION
The Company will be required to redeem shares of Mandatory Redeemable
Preferred Stock, without any action on the part of the holder thereof, at the
Mandatory Redemption Price of $0.50 per share (i) if the Company redeems any
shares of Convertible Exchangeable Preferred Stock, including upon the
occurrence of a Business Combination or (ii) from the net proceeds from the
sale of Common Stock pursuant to the exercise of Exchange Warrants, subject to
certain conditions.
REDEMPTION OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK.
In connection with a Business Combination, the Company, prior to the
consummation thereof, will be required to redeem all the outstanding shares of
Convertible Exchangeable Preferred Stock and Mandatory Redeemable Preferred
Stock; provided, however, that if on the redemption date the funds of the
Company legally available for such redemption are insufficient to redeem all
the shares of Convertible Exchangeable Preferred Stock and Mandatory Redeemable
Preferred Stock and any other class of capital stock or series of preferred
stock required to be redeemed upon the occurrence of a Business Combination,
then the funds of the Company, to the extent legally available for such
purpose, shall be used to redeem such shares in accordance with their relative
ranking as set forth under the caption " -- Ranking." At any time and from
time to time thereafter as additional funds become legally available for the
redemption of shares, such funds shall promptly be used to redeem such
additional shares that are required to be redeemed based on their ranking.
If the Company optionally redeems all the outstanding shares of Convertible
Exchangeable Preferred Stock, the Company will be also be required to redeem
all shares of Mandatory Redeemable Preferred Stock then outstanding. If fewer
than all of the shares of Convertible Exchangeable Preferred Stock are to be
redeemed in connection with an optional redemption, the Company will be
required to redeem the same number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Mandatory Redeemable
Preferred Stock. If fewer than all the outstanding shares of Mandatory
Redeemable Preferred Stock are to be redeemed, the shares of Mandatory
Redeemable Preferred Stock to be redeemed within such series will be determined
pro rata as nearly as practicable, or by such other method as the Board of
Directors may determine to be fair and appropriate.
In no event shall the Company be obligated to redeem the Mandatory
Redeemable Preferred Stock in the event any other class of capital stock or
series of preferred stock (other than the Convertible Exchangeable Preferred
Stock) is redeemed by the Company.
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EXERCISE OF EXCHANGE WARRANTS.
In the event Exchange Warrants are exercised by the record holders thereof,
the Agent shall place in an escrow account ("Exchange Warrant Escrow Account")
all net proceeds received therefrom (determined after deducting from the
exercise price all costs, fees and expenses incurred by or on behalf of the
Company in connection with the exercise of the Exchange Warrants and the
redemption of the Mandatory Redeemable Preferred Stock). Upon the earlier to
occur of (i) the date on which the Exchange Warrant Escrow Account contains
sufficient net proceeds (exclusive of interest thereon, which shall belong to
the Company and be paid to the Company from time to time as it may request) to
redeem all of the issued and outstanding shares of Mandatory Redeemable
Preferred Stock or (ii) the Exchange Warrant Expiration Date (July 1, 1999,
unless extended) (the earlier to occur is hereinafter referred to as the
"Mandatory Redemption Triggering Event"), the Company shall use the net
proceeds in the Exchange Warrant Escrow Account to redeem outstanding shares of
Mandatory Redeemable Preferred Stock. All excess proceeds in the Exchange
Warrant Escrow Account, if any, shall be paid to the Company. In the event the
net proceeds from the Exchange Warrant Escrow Account are insufficient to
redeem all of the outstanding shares of Mandatory Redeemable Preferred Stock
upon the occurrence of the Mandatory Redemption Triggering Event, the Mandatory
Convertible Preferred Stock shall be redeemed on a pro rata basis, by lot or in
such other manner as the Board of Directors may determine.
MECHANICS OF MANDATORY REDEMPTION
Notice of mandatory redemption shall be addressed to the holder at such
holder's address as it appears on the stock register of the Company. Each such
notice shall specify (i) the Mandatory Redemption Date, (ii) the Mandatory
Redemption Price, (iii) the number of shares to be redeemed and (iv) the place
or places where certificates for such shares are to be surrendered for payment
of the Mandatory Redemption Price. Notice of mandatory redemption will be
mailed at least ten days but not more than 60 days before the Mandatory
Redemption Date. Any notice given in such manner shall be conclusively deemed
to have been duly given whether or not such notice is in fact received.
The holder of shares of Mandatory Redeemable Preferred Stock redeemed upon
any exercise of the Company's redemption right shall not be entitled to receive
payment of the Mandatory Redemption Price for such Mandatory Redeemable
Preferred Stock until the holder shall cause to be delivered to the place
specified in the Mandatory Redemption Notice given with respect to such
redemption (i) the certificate(s) representing share(s) of Mandatory Redeemable
Preferred Stock subject to such redemption and (ii) transfer instruments
satisfactory to the Company.
OTHER PROVISIONS
The shares of Mandatory Redeemable Preferred Stock, when, as and if issued
as described in this Prospectus, will be duly and validly issued, fully paid
and non-assessable. The holders of the shares of Mandatory Redeemable
Preferred Stock will have no preemptive rights with respect to any securities
of the Company.
GENERAL PROVISIONS
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS
The Certificate of Incorporation and the By-laws of the Company contain
provisions that could have an anti-takeover effect. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors of the Company and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of the
Company. The provisions are designed to reduce the vulnerability of the
Company to an
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unsolicited proposal for a takeover of the Company that does not contemplate
the acquisition of all of its outstanding shares or an unsolicited proposal for
the restructuring or sale of all or part of the Company. The provisions are
also intended to discourage certain tactics that may be used in proxy fights.
The Board of Directors believes that, as a general rule, such takeover
proposals would not be in the best interest of the Company and its
stockholders. Set forth below is a description of such provisions in the
Certificate of Incorporation and the By-laws. The Board of Directors has no
current plans to formulate or effect additional measures that could have an
anti-takeover effect.
Pursuant to the Certificate of Incorporation, directors, other than those,
if any, elected by the holders of Preferred Stock, can be removed from office
by the affirmative vote of the holders of 66 2/3% of the voting power of the
then outstanding shares of capital stock entitled to vote thereon ("Voting
Stock"). Vacancies on the Board of Directors may only be filled by the
remaining directors and not by the stockholders.
Except as otherwise provided for with respect to the rights of the holders
of Preferred Stock, the Certificate of Incorporation provides that the whole
Board of Directors will consist of that number of directors determined from
time to time by the Board of Directors.
The By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election to the Board of Directors and
with regard to certain matters to be brought before an annual meeting of
stockholders of the Company. In general notice must be received by the Company
not later than 10 days after the public announcement of the meeting date and
must contain certain specified information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal
The Company has elected not to be governed by Section 203 of the DGCL. The
Company's Certificate of Incorporation provides, however, that in addition to
any other vote required by law, a "business combination" (which is defined in
the Certificate of Incorporation to generally include (i) any merger or
consolidation with or into, (ii) any sale or other transfer of assets
aggregating $1.0 million or more to or (iii) other material corporate
transactions with, a "related person" (which is defined in the Certificate of
Incorporation to generally include any person, entity or group which
beneficially owns 10% or more of the outstanding voting stock of the Company,
provided, however, that Thomas P. Tatham, DeepTech and their respective heirs,
successors, assigns and certain designees are deemed not to be a "related
person")) shall require the affirmative vote of the holders of at least 75% or
more of the combined voting power of the then- outstanding shares of voting
capital stock of the Company, voting together as a class; provided, however, if
there are one or more "continuing directors" then in office, and such business
combination has been approved by the Board of Directors (including the
affirmative vote of at least a majority of the "continuing directors"), then
such "business combination" shall only require such vote, if any, as is
required by law or by other provisions of the Certificate of Incorporation. A
"continuing director" means generally, as to any related person, any member of
the Board of Directors who (i) is not, and is not affiliated with, the related
person and (ii) became a member of the Board of Directors prior to the time the
related person became a related person or is a successor to a continuing
director.
The Certificate of Incorporation provides that, except as otherwise
provided for with respect to the rights of the holders of Preferred Stock no
action that is required or permitted to be taken by the stockholders of the
Company at any annual or special meeting of stockholders may be effected by
written consent of stockholders in lieu of a meeting of stockholders, unless
the action to be effected by written consent of stockholders and the taking of
such action by such written consent have expressly been approved in advance by
the Board of Directors of the Company and, if such action involves a business
combination, such written consent shall have expressly been approved in advance
by the affirmative vote of at least a majority of the continuing directors then
in office.
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The Certificate of Incorporation further provides that the Board of
Directors, by a majority vote, may adopt, alter, amend or repeal provisions of
the By-laws. However, stockholders may only adopt alter, amend or repeal
provisions of the By-laws by a vote of 66 2/3% outstanding Voting Stock. In
addition, the Certificate of Incorporation provides that whenever any vote of
Voting Stock is required by law to amend, alter, repeal or rescind ("Change")
any provision thereof, then, in addition to any affirmative vote required by
law, (i) the affirmative vote of 66 2/3% or more of the combined voting power
of the then outstanding shares of Voting Stock is required to Change certain
provisions of the Company's Certificate of Incorporation, including the
provisions referred to above relating to vacancies on the Board of Directors,
removal of directors, prohibiting stockholder action by written consent the
calling of special meetings by stockholders and approval of amendments to the
Company's By-laws and (ii) if at that time there exists one or more related
persons, such Change must also be approved by the affirmative vote of the
holders of at least a majority of the combined voting power of the
Disinterested Shares (as defined in the Certificate of Incorporation).
LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION
The Certificate of Incorporation of the Company limits the liability of the
directors of the Company to the Company or its stockholders (in their capacity
as directors but not in their capacity as officers) to the fullest extent
permitted by the DGCL. Accordingly, pursuant to the terms of the DGCL as
presently in effect, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for unlawful payments of dividends or unlawful stock repurchases or redemptions
as provided in Section 174 of the DGCL or (iv) for any action from which the
director derived an improper personal benefit. The Certificate of
Incorporation also provides that if the DGCL is amended after the approval of
the Certificate of Incorporation to authorize corporate action further limiting
or eliminating the personal liability of directors, then the liability of a
director of the Company will be eliminated or limited to the full extent
permitted by the DGCL, as so amended.
In addition, the By-laws, in substance, require the Company to indemnify
each person who is or was a director, officer, employee or agent of the Company
to the full extent permitted by the laws of the State of Delaware in the event
he is involved in legal proceedings by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was serving at
the Company's request as a director, officer, employee or agent of another
corporation, partnership or other enterprise. The Company is also required to
advance to such persons payments incurred in defending a proceeding to which
indemnification might apply, provided the recipient provides an undertaking
agreeing to repay all such advanced amounts if it is ultimately determined that
he is not entitled to be indemnified. In addition, the By-laws specifically
provide that the indemnification rights granted thereunder are non-inclusive.
The Company has entered into indemnification agreements with certain of its
directors providing for indemnification to the full extent permitted by the
laws of the State of Delaware. These agreements provide for specific
procedures to better assure the directors' rights to indemnification, including
procedures for directors to submit claims, for determination of directors'
entitlement to indemnification (including the allocation of the burden of proof
and selection of a reviewing party) and for enforcement of directors'
indemnification rights. The Company also has obtained officers' and directors'
liability insurance in amounts that it believes are reasonable under the
circumstances.
FEDERAL INCOME TAX CONSEQUENCES
See "Certain Federal Income Tax Considerations" for a summary of certain
tax consequences relating to the Securities.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain United States
federal income tax consequences of acquiring, holding and disposing of the
Warrants, Convertible Exchangeable Preferred Stock, Mandatory Redeemable
Preferred Stock and Exchange Warrants, subject to the qualifications,
limitations and assumptions set forth below. The term "Common Stock" as used
below refers only to the common stock of the Company.
Tax consequences that result from the tax status or particular
circumstances of the holder are not addressed. Thus, for example, the summary
does not discuss the treatment of holders that are subject to special tax
rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, corporations subject to the alternative minimum
tax, S corporations, broker dealers and tax-exempt entities. Also not
addressed are the state and local taxes, foreign taxes applicable to a holder,
and tax consequences to subsequent holders of Securities. The discussion also
assumes that the Securities and the Common Stock will be traded on an
established securities market.
The summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, court decisions and current administrative
rulings and pronouncements of the Internal Revenue Service ("IRS") in effect as
of the date of this Prospectus, all of which are subject to change, possibly
with retroactive effect. There can be no assurance that future changes in
applicable law or administrative and judicial interpretations thereof will not
adversely affect the tax consequences discussed herein. The summary assumes
that the Securities will be held as "capital assets" as defined in the Code.
Prospective purchasers are advised to consult their own tax advisors regarding
the tax consequences of acquiring, holding or disposing of the Securities in
light of their particular circumstances.
TAX CONSEQUENCES TO U.S. SHAREHOLDERS
Treatment as Section 306 Stock
Under the provisions of Section 306 of the Code, the redemption or
disposition of "Section 306 Stock" is subject to special rules for United
States federal income tax purposes. Section 306 Stock is defined as stock
(other than common stock) or rights to acquire stock that was received tax-free
in one of the following transactions: (i) a tax-free stock dividend under
Section 305 of the Code, (ii) a reorganization under Section 368 of the Code or
a corporate division under Section 355 of the Code, or (iii) a transaction
where stock has an adjusted basis determined by reference to Section 306 Stock.
A redemption of Section 306 Stock will result in dividend income to the holder
to the extent of the Company's earnings and profits, then a recovery of basis
in the Section 306 Stock and, thereafter, capital gain from the sale or
exchange of property. A disposition (other than a redemption) is subject to
similar rules except that a holder of Section 306 Stock will recognize dividend
income to the extent that such holder would have been required to recognize
dividend income (at the time of distribution) if the Company had distributed
cash rather than stock. In general, stock will not constitute Section 306
Stock if the distributing corporation had distributed cash in lieu of the stock
and no part of the cash distribution would have been a dividend. For purposes
of Section 306, (i) stock rights are treated as stock and (ii) stock acquired
through the exercise of stock rights is treated as stock distributed at the
time of the distribution of stock rights (to the extent of the fair market
value of such rights at the time of distribution). Accordingly, if the Company
had no current or accumulated earnings and profits in the taxable year of the
distribution of Rights, a holder of Warrants, Convertible Exchangeable
Preferred Stock or Mandatory Redeemable Preferred Stock will not be considered
a holder of Section 306 Stock. The Company had no current or accumulated
earnings and profits by the end of the year in which the Rights distribution
was made. Accordingly, the Warrants, Convertible Exchangeable Preferred Stock
and Mandatory Redeemable Preferred Stock will not be Section 306 Stock.
Holders are urged to consult their own tax advisors regarding their particular
circumstances with regard to this matter.
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THE WARRANTS
EXCHANGE OR CONVERSION OF WARRANTS
It is likely, although not free from doubt, that the Warrants will be
treated as stock of the Company for United States federal income tax purposes.
Accordingly, holders of Warrants, whether corporate or noncorporate, will
recognize neither gain nor loss upon the exercise of the Warrants for
Convertible Exchangeable Preferred Stock. A holder of Warrants who receives
Convertible Exchangeable Preferred Stock upon exercise of the Warrants will
acquire a tax basis in such Convertible Exchangeable Preferred Stock equal to
the sum of the exercise price paid and the tax basis of such holder of Warrants
in the Warrants. A holder of Warrants will generally have a tax basis in such
Warrants equal to the exercise price paid for such Warrants and the tax basis,
if any, of such holder in the Rights surrendered for the Warrants. Further, if
the Warrants remain unexercised as of a certain date, such Warrants will
automatically be exchanged for Mandatory Redeemable Preferred Stock. Holders
of Warrants whose Warrants are automatically exchanged for Mandatory Redeemable
Preferred Stock will recognize neither gain nor loss upon such exchange.
TRANSFER OF WARRANTS
Pursuant to Section 1234 of the Code, a Warrant holder who sells Warrants
or otherwise transfers Warrants prior to exercise will be entitled to treat the
difference between the amount received for the Warrants and the adjusted tax
basis (if any) of such holder of Warrants in the Warrants as a short-term
capital gain or capital loss (unless the Warrants are treated as Section 306
Stock as described in "Treatment as Section 306 Stock" above), provided that
the Convertible Exchangeable Preferred Stock and the Mandatory Redeemable
Preferred Stock subject to the Warrants would have been capital assets in the
hands of such holder had either been acquired by him. The gain or loss so
recognized will be short-term capital gain or loss if the Warrants have been
held for less than one year or long-term capital gain or loss if the Warrants
have been held for more than one year.
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
DIVIDENDS ON CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Distributions with respect to the Convertible Exchangeable Preferred Stock
will constitute "dividends" for federal income tax purposes to the extent that
the Company has current or accumulated earnings and profits for federal income
tax purposes. In general, distributions classified as dividends for federal
income tax purposes constitute ordinary income and are taxable in the year of
receipt. Distributions in excess of the Company's current or accumulated
earnings and profits will be treated first as a nontaxable recovery of basis in
the stockholder's Convertible Exchangeable Preferred Stock and then will be
treated as gain from the sale or exchange of such Convertible Exchangeable
Preferred Stock. Any such gain will be long-term gain if the stockholder's
holding period exceeds one year. Because the amount of the Company's current
or accumulated earnings and profits is a question of fact which depends, in
part, upon the Company's results of operations, there can be no assurance that
all or any portion of a distribution on the Convertible Exchangeable Preferred
Stock or the Common Stock will be classified as a dividend for federal income
tax purposes. The Company has no accumulated earnings and profits for federal
income tax purposes, and it is uncertain whether and to what extent the Company
will have current or accumulated earnings and profits in the future. The
amount of income tax attributable to the receipt of any dividend is dependent,
among other things, on the taxpayer's other income and expenses for such year
and the rate then in effect.
Distributions paid to corporations that qualify as "dividends" for federal
income tax purposes will generally be eligible for the 70% dividends received
deduction under Sections 243 and 244 of the Code, subject to the limitations
contained in Sections 246 and 246A of the Code. In general, the dividends
received deduction is available only if the stock in respect of which the
dividends are paid is held for at least 46 days,
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or at least 91 days in the case of a dividend attributable to a period or
periods aggregating more than 366 days. A taxpayer's holding period for these
purposes is reduced by periods during which the taxpayer has an option to sell,
is under a contractual obligation to sell, has made (but not closed) a short
sale of substantially identical stock or securities, or is the grantor of an
option to purchase substantially identical stock or securities. A taxpayer's
holding period also is reduced where the taxpayer's risk of loss with respect
to the stock is considered diminished by reason of the taxpayer holding one or
more positions in substantially similar or related property. Further, the
dividends received deduction will also not be available if the taxpayer is
under an obligation to make related payments with respect to positions in
substantially similar or related property. The dividends received deduction
will be limited to specified percentages of the holder's taxable income and may
be reduced or eliminated if the holder has indebtedness "directly attributable"
to its investment in the stock. Prospective corporate purchasers of
Convertible Exchangeable Preferred Stock should consult their own tax advisors
to determine whether these limitations might apply to them.
The legislative history of the Revenue Reconciliation Act of 1990 indicates
that the Treasury Department may treat accrued and unpaid dividends on
cumulative preferred stock, like the Convertible Exchangeable Preferred Stock,
as a disguised redemption premium if, at the time of issuance of the stock,
there is no intention for dividends to be paid currently. If accrued and
unpaid dividends were treated as a disguised redemption premium, the holder
would be required to accrue such dividends into income without regard to
whether they were paid in cash. Holders of Convertible Exchangeable Preferred
Stock are urged to consult their own tax advisors with regard to this matter.
A corporate holder may, in general, be required to include in its
alternative minimum taxable income an amount equal to a portion of any
dividends received deduction allowed in computing regular taxable income.
EXTRAORDINARY DIVIDENDS; CORPORATE STOCKHOLDERS
If a corporate holder receives an "extraordinary dividend" from the Company
with respect to Convertible Exchangeable Preferred Stock which it has not held
for more than two years on the dividend announcement date, the basis of the
Convertible Exchangeable Preferred Stock will be reduced (but not below zero)
by the portion of the dividend which is not taxed because of the dividends
received deduction. If, because of the limitation on reducing basis below
zero, any amount of the non-taxed portion of an extraordinary dividend has not
been applied to reduce basis, such amount will be treated as gain from the sale
or exchange of stock upon the disposition of such stock. An "extraordinary
dividend" on the Convertible Exchangeable Preferred Stock would include a
dividend that (i) equals or exceeds 5% of the holder's adjusted tax basis in
the stock, treating all dividends having ex-dividend dates within an 85-day
period as one dividend, or (ii) exceeds 20% of the holder's adjusted tax basis
(determined without regard to any reduction for the non-taxed portion of prior
extraordinary dividends) in the stock, treating all dividends having
ex-dividend dates within a 365-day period as one dividend. A holder may elect
to use the fair market value of the stock rather than its adjusted basis for
purposes of applying the 5% or 20% limitation if the holder is able to
establish such fair market value to the satisfaction of the IRS. An
"extraordinary dividend" would also include any amount treated as a dividend in
the case of a redemption of the Convertible Exchangeable Preferred Stock that
is non-pro rata as to all stockholders, without regard to the period the holder
held the stock.
Special rules apply with respect to "qualified preferred dividends." A
qualified preferred dividend is any fixed dividend payable with respect to
preferred stock which (i) provides for fixed preferred dividends payable no
less often than annually and (ii) is not in arrears as to dividends when
acquired, provided the actual rate of return on such stock does not exceed 15%
as determined under Section 1059(e)(3) of the Code. Where a qualified
preferred dividend exceeds the 5% or 20% limitation described above, (i) the
extraordinary dividend rules will not apply if the taxpayer holds the stock for
more than five years, and (ii) if the taxpayer disposes of the stock before it
has been held for more than five years, the aggregate reduction in basis will
not exceed the excess of the qualified preferred dividends paid on such stock
during the period held by the taxpayer over the qualified preferred dividends
which would have been paid during such period on the basis
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of the stated rate of return as determined under Section 1059(e)(3) of the
Code. The length of time that a taxpayer is deemed to have held stock for
purposes of the extraordinary dividend rules is determined under principles
similar to those applicable for purposes of the dividends received deduction
discussion above.
TRANSFER OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Upon the sale or other disposition of Convertible Exchangeable Preferred
Stock, a holder of Convertible Exchangeable Preferred Stock will recognize gain
or loss equal to the difference between the amount realized on such sale or
other disposition and the holder's tax basis in the Convertible Exchangeable
Preferred Stock (unless the Convertible Exchangeable Preferred Stock is treated
as Section 306 Stock as described in "Treatment as Section 306 Stock" above).
Such gain or loss will be long-term capital gain or loss if, at the time of the
sale or other disposition, the Convertible Exchangeable Preferred Stock has
been held for more than one year.
REDEMPTION FOR CASH
A redemption of Convertible Exchangeable Preferred Stock for cash will be a
taxable event upon which income or loss will be recognized. Generally, the
redemption of all of a holder's Convertible Exchangeable Preferred Stock for
cash would result in capital gain or loss equal to the difference between the
amount of cash received, except to the extent received for declared and unpaid
dividends, and the stockholder's tax basis in the Convertible Exchangeable
Preferred Stock redeemed (unless the Convertible Exchangeable Preferred Stock
is treated as Section 306 Stock as described in "Treatment as Section 306
Stock" above). Such gain or loss would be long-term capital gain or loss if
the holding period for the Convertible Exchangeable Preferred Stock were to
exceed one year. Under the rules of Section 302 of the Code, however, a
redemption of shares of Convertible Exchangeable Preferred Stock by the Company
for cash will be treated as a distribution taxable as a dividend to redeemed
stockholders to the extent of the Company's current or accumulated earnings and
profits unless the redemption (i) results in a "complete termination" of the
stockholder's interest in the Company (within the meaning of Section 302(b)(3)
of the Code), (ii) is "substantially disproportionate" (within the meaning of
Section 302(b)(2) of the Code) with respect to the holder or (iii) is "not
essentially equivalent to a dividend" (within the meaning of Section 302(b)(1)
of the Code). The substantially disproportionate test of Section 302(b)(2) of
the Code is based on changes in ownership of voting stock and will not apply
where solely non- voting stock is redeemed. The Convertible Exchangeable
Preferred Stock is not voting stock for this purpose except when a dividend
arrearage equals or exceeds six quarterly dividend payments. Moreover, shares
considered to be owned by the holder by reason of the constructive ownership
rules set forth in Section 318 of the Code, as well as shares actually owned,
will be taken into account. Based on a published IRS ruling, the redemption of
a stockholder's Convertible Exchangeable Preferred Stock for cash should be
treated as "not essentially equivalent to a dividend" if, taking into account
the constructive ownership rules, (a) the stockholder's relative stock interest
in the Company is minimal (an interest of less than 1% should satisfy this
requirement), (b) the stockholder exercises no control over the Company's
affairs and (c) there is a reduction in the holder's proportionate interest in
the Company.
CONVERSION OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK INTO COMMON STOCK
No gain or loss generally will be recognized upon conversion of shares of
Convertible Exchangeable Preferred Stock into shares of Common Stock, except
with respect to any cash paid in lieu of fractional shares of Common Stock.
Additionally, if the conversion takes place when there is a dividend arrearage
on the Convertible Exchangeable Preferred Stock and the fair market value of
the Common Stock exceeds the issue price of the Convertible Exchangeable
Preferred Stock, a portion of the Common Stock received might be treated as a
dividend distribution, taxable as ordinary income. Assuming the conversion is
not treated as resulting in the payment of a dividend, the tax basis of the
Common Stock received upon conversion will be equal to the tax basis of the
shares of Convertible Exchangeable Preferred Stock and the holding period of
the Common stock will include the holding period of the shares of Convertible
Exchangeable Preferred Stock
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converted. The tax basis of any Common Stock treated as a dividend will be
equal to its fair market value on the date of the distribution.
EXCHANGE OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK INTO EXCHANGE WARRANTS
Holders of Convertible Exchangeable Preferred Stock who exchange such
Convertible Exchangeable Preferred Stock for Exchange Warrants generally will
be treated as having sold or exchanged their Convertible Exchangeable Preferred
Stock in a taxable transaction. Such holders will recognize gain or loss equal
to the difference between the fair market value of the Exchange Warrants and
their tax basis in the Convertible Exchangeable Preferred Stock (unless the
Convertible Exchangeable Preferred Stock is treated as Section 306 Stock as
described in "Treatment as Section 306 Stock" above). The resulting gain or
loss will be long-term capital gain or loss if, at the time of the sale or
exchange, the Convertible Exchangeable Preferred Stock has been held for more
than one year.
ADJUSTMENT OF TRADING REFERENCE PRICE
Holders of Convertible Exchangeable Preferred Stock may be deemed to have
received a constructive distribution of stock that is taxable as a dividend
where the Conversion Ratio and/or Trading Reference Price is adjusted to
reflect a cash or property distribution with respect to stock into which such
Convertible Exchangeable Preferred Stock is convertible. An adjustment to the
conversion price made pursuant to a bona fide reasonable adjustment formula
which has the effect of preventing the dilution of the interest of the holders,
however, generally will not be considered to result in a constructive
distribution of stock. Certain of the possible adjustments provided in the
Convertible Exchangeable Preferred Stock (in particular, those in connection
with the special conversion rights applicable to the Convertible Exchangeable
Preferred Stock) may not qualify as being pursuant to a bona fide reasonable
adjustment formula. If a nonqualifying adjustment were made, the holders of
Convertible Exchangeable Preferred Stock might be deemed to have received a
taxable stock dividend.
THE EXCHANGE WARRANTS
EXERCISE OF EXCHANGE WARRANTS
Holders of Exchange Warrants, whether corporate or noncorporate, will
recognize neither gain nor loss upon the exercise of the Exchange Warrants for
Common Stock. A holder of Exchange Warrants who receives Common Stock upon the
exercise of the Exchange Warrants will have a tax basis in the Common Stock
equal to the sum of the exercise price paid and the tax basis of the holder in
the Exchange Warrants.
TRANSFER OF EXCHANGE WARRANTS
Pursuant to Section 1234 of the Code, a holder of Exchange Warrants who
sells or otherwise disposes of Exchange Warrants prior to exercise will be
entitled to treat the difference between the amount received for the Exchange
Warrants and the adjusted tax basis of the holder of the Exchange Warrants in
such Exchange Warrants as a long-term capital gain or loss, if (i) at the time
of such sale or other disposition the Exchange Warrants have been held for more
than one year and (ii) the Common Stock subject to the Exchange Warrants would
have been a capital asset in the hands of the holder had it been acquired by
him.
LAPSE OF EXCHANGE WARRANTS
Holders of Exchange Warrants who allow their Exchange Warrants to lapse are
deemed to have sold their Exchange Warrants on the date on which the Exchange
Warrants expire. Since upon such lapse no consideration will be received by a
holder of Exchange Warrants, a long-term capital loss (if the Exchange Warrants
have been held for more than one year) equal to the tax basis of the holder in
the Exchange
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Warrants will be sustained by the holder on such lapse, provided that the
Common Stock subject to the Exchange Warrants would have been a capital asset
in the hands of the holder had it been acquired by him.
MANDATORY REDEEMABLE PREFERRED STOCK
TRANSFER OF MANDATORY REDEEMABLE PREFERRED STOCK
Upon the sale or other disposition of Mandatory Redeemable Preferred Stock,
a holder of such stock will recognize gain or loss equal to the difference
between the amount realized on such sale or other disposition and the holder's
tax basis in the Mandatory Redeemable Preferred Stock (unless the Mandatory
Redeemable Preferred Stock is treated as Section 306 Stock as described in
"Treatment as Section 306 Stock" above). Such gain or loss will be long-term
capital gain or loss if, at the time of the sale or other disposition, the
Mandatory Redeemable Preferred Stock has been held for more than one year.
REDEMPTION FOR CASH
A redemption of Mandatory Redeemable Preferred Stock for cash will be a
taxable event upon which income or loss will be recognized. Generally, the
redemption of all of a holder's Mandatory Redeemable Preferred Stock for cash
would result in capital gain or loss equal to the difference between the amount
of cash received, except to the extent received for declared and unpaid
dividends, and the stockholder's tax basis in the Mandatory Redeemable
Preferred Stock redeemed (unless the Mandatory Redeemable Preferred Stock is
treated as Section 306 Stock as described in "Treatment as Section 306 Stock"
above). Such gain or loss would be long-term capital gain or loss if the
holding period for the Mandatory Redeemable Preferred Stock were to exceed one
year. Under the rules of Section 302 of the Code, however, a redemption of
shares of Mandatory Redeemable Preferred Stock by the Company for cash will be
treated as a distribution taxable as a dividend to redeemed stockholders to the
extent of the Company's accumulated earnings and profits unless the redemption
(i) results in a "complete termination" of the stockholder's interest in the
Company (within the meaning of Section 302(b)(3) of the Code), (ii) is
"substantially disproportionate" (within the meaning of Section 302(b)(2) of
the Code) with respect to the holder or (iii) is "not essentially equivalent to
a dividend" (within the meaning of Section 302(b)(1) of the Code). The
substantially disproportionate test of Section 302(b)(2) of the Code is based
on changes in ownership of voting stock and will not apply where solely
non-voting stock is redeemed. The Mandatory Redeemable Preferred Stock is not
voting stock for this purpose. Moreover, shares considered to be owned by the
holder by reason of the constructive ownership rules set forth in Section 318
of the Code, as well as shares actually owned, will be taken into account.
Based on a published IRS ruling, the redemption of a shareholder's Mandatory
Redeemable Preferred Stock for cash will be treated as "not essentially
equivalent to a dividend" if, taking into account the constructive ownership
rules, (a) the stockholder's relative stock interest in the Company is minimal
(an interest of less than 1% should satisfy this requirement), (b) the
stockholder exercises no control over the Company's affairs and (c) there is a
reduction in the holder's proportionate interest in the Company.
MISCELLANEOUS RULES APPLICABLE TO U.S. STOCKHOLDERS
FEDERAL LEGISLATIVE TAX CHANGES
The Revenue Reconciliation Act of 1993 enacted substantial changes for all
taxpayers. Some of the changes were retroactive, including an increase in the
top marginal tax rates. Capital gains continue to be taxed at a top rate of
28% for noncorporate taxpayers. Changes have been proposed before the Congress
to lower the capital gains rate, but it is impossible to predict as of this
time whether such changes will be enacted into law. Stock of the Company will
not qualify for the 50% capital gain exclusion for so-called "qualified small
business stock." Such changes may have a significant impact on potential
investors.
45
<PAGE> 47
STATE, LOCAL AND FOREIGN INCOME TAXES
Holders of Convertible Exchangeable Preferred Stock, Mandatory Redeemable
Preferred Stock or Common Stock may be liable for state, local and foreign
income taxes with respect to dividends (if applicable) paid on, or gain from
the sale, exchange or redemption of Warrants, Convertible Exchangeable
Preferred Stock, Mandatory Redeemable Preferred Stock, Exchange Warrants or
Common Stock, as the case may be. Many states and localities do not allow
corporations a deduction analogous to the federal dividends received deduction.
Prospective investors are advised to consult their own tax advisors as to the
state, local and other tax consequences of acquiring, holding and disposing of
Warrants, Convertible Exchangeable Preferred Stock, Mandatory Redeemable
Preferred Stock, Exchange Warrants or Common Stock .
BACKUP WITHHOLDING
Under the backup withholding provisions of the Code and applicable Treasury
regulations, a holder of Warrants, Convertible Exchangeable Preferred Stock,
Mandatory Redeemable Preferred Stock, Exchange Warrants or Common Stock may be
subject to backup withholding at the rate of 31% with respect to dividends (if
applicable) on, or the proceeds of a sale, exchange or redemption of Warrants,
Convertible Exchangeable Preferred Stock, Mandatory Redeemable Preferred Stock,
Exchange Warrants or Common Stock, unless such holder (i) is a corporation or
comes within certain other exempt categories and when required demonstrates
this fact or (ii) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. The amount of any
backup withholding from a payment to a holder will not constitute additional
tax and will be allowed as a credit against the holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
TAX CONSEQUENCES TO NON-U.S. SHAREHOLDERS
The following is a summary of certain United States federal income tax
consequences of the ownership and disposition of Warrants, Convertible
Exchangeable Preferred Stock, Mandatory Redeemable Preferred Stock, Exchange
Warrants or Common Stock (hereinafter sometimes referred to as "Preferred or
Common Stock") by a holder who is not a United States person (a "Non-U.S.
Holder"). For this purpose, the term "Non-U.S. Holder" is defined as any
person who under United States tax laws is a foreign corporation, a nonresident
alien individual, a nonresident fiduciary of a foreign estate or trust, or a
foreign partnership one or more of the members of which is, for United States
federal income tax purposes, a foreign corporation, a nonresident alien, a
nonresident individual or a nonresident fiduciary of a foreign estate or trust.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present
in the United States on at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year). Resident
aliens are subject to United States federal tax in much the same manner as if
they were United States citizens.
Dividends received by a Non-U.S. Holder are generally subject to United
States income tax at a 30% rate, or such lower rate as may be specified by an
applicable income tax treaty. United States income tax will generally be
withheld from distributions to Non-U.S. Holders at a 30% rate, or a lower
applicable treaty rate if certain certification and other requirements are met.
Persons subject to withholding may obtain a refund of overwithheld tax by
filing an appropriate claim for refund with the United States IRS.
However, income of a Non-U.S. Holder from dividends on preferred or common
stock which is effectively connected with the conduct of a United States trade
or business will be taxed similarly to United States citizens and domestic
corporations with respect to such income. If a capital gain is effectively
46
<PAGE> 48
connected with the conduct of a trade or business of the Non-U.S. Holder within
the United States, or if the Non-U.S. Holder is more than a 5% shareholder
during the five years preceding the sale (directly or under rules of
attribution), the capital gain will be subject to United States federal income
tax at regular graduated rates. Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty.
An individual Non-U.S. Holder who does not have a United States trade or
business, has not been a more than 5% stockholder during the five years
preceding the sale (directly or under rules of attribution), and holds common
stock as a capital asset will generally not be subject to United States income
tax on such capital gain. However, a Non-U.S. Holder will be subject to
income tax on any capital gain recognized during any year on such stock if such
person (i) is present in the United States for 183 days or more in the taxable
year of sale or other disposition or (ii) has a "tax home" in the United States
(within the meaning of Section 865(g) of the Code). Non-U.S. Holders should
consult applicable tax treaties, which may provide for different rules.
The Company is, and likely will continue to be, a United States Real
Property Holding Corporation under Section 897 of the Code. Accordingly, a
Non-U.S. Holder may be subject to United States income tax on any disposition
of preferred or common stock Warrants, or Exchange Warrants, and United States
income tax withholding of 10% of the gross sales price, if such person owns
more than 5% of the Company's Preferred or Common Stock (directly, under rules
of attribution, or indirectly through Warrants or Exchange Warrants to acquire
such stock) at the time of such disposition or in any of the five preceding
years. Gains and losses from such dispositions by such 5% stockholders are
treated as income effectively connected with the conduct of a United States
trade or business. Further, with respect to transactions described herein as
resulting in no gain or loss to Holders of preferred or common stock, Warrants
or Exchange Warrants, Section 897 of the Code provides that such nonrecognition
provisions will generally apply only in the case of an exchange for an interest
the sale of which would be taxable under such same chapter of the Code. The
exemption from taxation under Section 897 of the Code for a Non-U.S. Holder
that owns (directly and under rules of attribution) 5% or less of a class of
stock generally applies only as long as that class of stock is regularly traded
on an established securities market (as defined under Section 897). The
Company expects that its Preferred and Common Stock will be so traded, but
cannot assure that result in the future.
Backup withholding tax (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements) and
information reporting with respect to such tax will generally not apply to
dividends paid to Non-U.S. Holders outside the United States that are either
subject to the 30% withholding discussed above or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding.
In that regard, under temporary United States Treasury regulations, backup
withholding and information reporting generally will not apply to dividends
paid on Preferred or Common Stock to a Non-U.S. Holder at an address outside
the United States.
As a general matter, backup withholding, and information reporting also
will not apply to a payment of the proceeds of a sale of Preferred or Common
Stock by or through a foreign office of a foreign broker. Information
reporting requirements (but not backup withholding) will apply, however, to a
payment of the proceeds of a sale of Preferred or Common Stock by a foreign
office of a broker (that is effected for a United States person) that derives
50% or more of its gross income for certain periods from the conduct of a trade
or business in the United States, or that is a "controlled foreign corporation"
(generally, a foreign corporation controlled by United States stockholders)
with respect to the United States, unless the broker has documentary evidence
in its records that the holder is a Non-U.S. Holder and certain other
conditions are met, or the holder otherwise establishes an exemption. Payment
by a United States office of a broker of the proceeds of a sale of Preferred or
Common Stock is subject to both backup withholding and information reporting
unless the holder certifies under penalties of perjury that it is not a
Non-U.S. Holder, or otherwise establishes an
47
<PAGE> 49
exemption. A Non-U.S. Holder may obtain a refund of any amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with
the IRS.
These backup withholding and information reporting rules are under review
by the United States Treasury, and their application to the Preferred or Common
Stock could be changed prospectively by future regulations.
The Company must report annually to the IRS the total amount of United
States federal income taxes withheld from dividends paid to Non-U.S. Holders.
In addition, the Company must report annually to each Non-U.S. Holder the
amount of dividends paid to and the tax withheld with respect to such holder.
These information reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. This
information may also be made available to the tax authorities of the country in
which the Non-U.S. Holder resides.
Stock held by an individual Non-U.S. Holder at the time of death will be
included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
Non-U.S. Holders are urged to consult their own tax advisors with respect
to their particular circumstances relating to acquiring, holding and disposing
of the Warrants, Convertible Exchangeable Preferred Stock, Mandatory Redeemable
Preferred Stock, Exchange Warrants, and Common Stock.
48
<PAGE> 50
LEGAL MATTERS
The validity of the Securities being offered hereby has been passed upon
for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P. Akin, Gump,
Strauss, Hauer & Feld, L.L.P. owns 235,357 shares of Common Stock of DeepTech.
EXPERTS
The financial statements of the Company incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended June 30, 1996,
have been so incorporated in reliance upon the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Information incorporated in this Prospectus by reference to the Annual
Report on Form 10-K for the year ended June 30, 1996 derived from the report of
Ryder Scott, independent petroleum engineers, with respect to estimated oil and
gas reserves of the Company, have been so incorporated in reliance upon the
authority of said firm as experts with respect to the matters contained in
their report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, and, in accordance therewith, files reports, proxy and information
statements and other information with the Commission. The reports, proxy
statements, information statements and other information may be inspected,
without charge, and copied at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Additionally, copies of such
materials can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. The
Common Stock is listed on the Nasdaq National Market. Reports, proxy
statements, information statements and other information concerning the Company
can be inspected and copied at the offices of Nasdaq located at 1735 K Street,
N.W., Washington, D.C. 20006. Such documents may also be obtained through the
website maintained by the SEC at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement (which
term shall encompass any and all pre- and post-effective amendments thereto) on
Form S-1 (the "Registration Statement") under the Securities Act with respect
to the securities offered hereby. This Prospectus, which is filed as part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain
items of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document referred to are summaries of the terms of
such contract, agreement or other document and are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement, as amended, and exhibits thereto may be inspected without charge at
the public reference facilities maintained by the Commission, regional offices
of the Commission and offices of the Commission and the Nasdaq referred to
above, and copies thereof may be obtained from the SEC at prescribed rates.
49
<PAGE> 51
GLOSSARY
The following are defined terms used in connection with the Securities
in this Prospectus.
"Agent" means Chase Mellon Shareholder Services, L.L.C.
"Business Combination" means the sale, lease, exchange or transfer of all
or substantially all of the assets of the Company (but specifically excluding a
Farm-out) for cash, securities or other property to an entity that is not an
affiliate of the Company or the merger, consolidation or other business
combination of the Company with or into another entity that is not an affiliate
of the Company. For the purposes of this definition, the term "affiliate"
shall mean any corporation or other entity which directly or indirectly is in
control of, or controlled by or under common control with the Company. For the
purposes of the definition of "affiliate," the term "control" means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of the Company or vote 10% or more of the securities having ordinary
voting power for the election of directors of such person, and "controlled" has
a meaning correlative to the foregoing.
"Common Stock" means the common stock, $0.01 par value per share, of the
Company.
"Conversion Ratio" means a number, the numerator of which is the
liquidation preference of a particular series of Convertible Exchangeable
Preferred Stock ($1.50 per share for the Series A Preferred Stock, $1.00 per
share for the Series B Preferred Stock and $0.50 for the Series C Preferred
Stock) plus all accrued and unpaid dividends thereon, and the denominator of
which is the Trading Reference Price. The Conversion Ratio represents the
number of shares of Common Stock that will be issued upon the conversion of one
share of Convertible Exchangeable Preferred Stock.
"Convertible Exchangeable Preferred Stock" means the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock,
collectively.
"Eligible Institution" means any member firm of a national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank, savings and loan or trust company having an office or
correspondent in the United States.
"Exchange Warrant" means one of four warrants that is issued in exchange
for one share of Convertible Exchangeable Preferred Stock and entitles the
holder thereof to purchase one share of Common Stock at the Trading Reference
Price, subject to adjustment.
"Exchange Warrant Certificate" means a transferable certificate evidencing
one or more Exchange Warrants.
"Exchange Warrant Escrow Account" means the escrow account of the Company
in which the Agent shall place all net proceeds from the exercise of Exchange
Warrants to purchase shares of Common Stock.
"Exchange Warrant Expiration Date" means July 1, 1999 (unless extended by
the Board of Directors), after which date the Exchange Warrants will expire and
will no longer be exercisable.
"Farm-out" means any transfer by the Company of an interest in any of its
oil and gas properties, whether such transfer is in the form of a farm-out,
sale, assignment or otherwise, provided that the Company retains a reversionary
interest of any nature in, or a right to be reassigned or to otherwise receive
an interest of any nature in, such properties.
G - 1
<PAGE> 52
"Junior Securities" means the Common Stock and each class of capital stock
or series of preferred stock of the Company the terms of which specifically
provide that such class or series ranks junior and subordinate to the Mandatory
Redeemable Preferred Stock upon liquidation, dissolution or winding up.
"Junior Stock" means the Common Stock and Mandatory Redeemable Preferred
Stock and each other class of capital stock or series of preferred stock of the
Company the terms of which specifically provide that such class or series ranks
junior and subordinate to the Convertible Exchangeable Preferred Stock with
respect to dividends.
"liquidation preference" means with respect to the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock the amounts of
$1.50, $1.00 and $0.50 per share, respectively.
"Mandatory Redeemable Preferred Stock" means the Mandatory Redeemable
Preferred Stock, $0.01 per value per share, of the Company, each share of which
has a liquidation preference of $0.50 and is mandatorily redeemable by the
Company under certain circumstances.
"Mandatory Redemption Date" means the date on which the Company proposes to
redeem shares of the Mandatory Redeemable Preferred Stock.
"Mandatory Redemption Notice" means a notice sent to the holders of
Mandatory Redeemable Preferred Stock informing such holders of the Mandatory
Redemption Date, the Mandatory Redemption Price and such other information as
the Company deems necessary and appropriate to inform such holders about the
redemption.
"Mandatory Redemption Price" means the price at which the Company may
redeem a share of Mandatory Redeemable Preferred Stock and is equal to $0.50
per share.
"Mandatory Redemption Triggering Event" means the earlier to occur of (i)
the date on which the Exchange Warrant Escrow Account contains sufficient net
proceeds from the exercise of Exchange Warrants to redeem all of the issued and
outstanding shares of Mandatory Redeemable Preferred Stock or (ii) the Exchange
Warrant Expiration Date (July 1, 1999, unless extended).
"NASD" means the National Association of Securities Dealers, Inc.
"Notice of Guaranteed Delivery" means a guaranteed notice, substantially in
the form set forth in the instructions distributed with the Subscription
Certificates, from an Eligible Institution stating the name of the exercising
Rights holder, the number of Warrants being subscribed for and guaranteeing the
delivery to the Agent of the Subscription Certificates representing the number
of Warrants being subscribed for within five (5) business days following the
date of the Notice of Guaranteed Delivery.
"Parity Securities" means any class of capital stock or series of preferred
stock of the Company the terms of which specifically provide that such class or
series ranks on a parity with the Mandatory Redeemable Preferred Stock with
respect to liquidation, dissolution or winding up.
"Parity Stock" means any series of preferred stock of the Company the terms
of which specifically provide that such class or series ranks on a parity with
the Convertible Exchangeable Preferred Stock with respect to dividends.
"Record Date" means December 26, 1995.
"Redemption Date" means the date on which the Company proposes to redeem
all or a portion of the shares of Convertible Exchangeable Preferred Stock.
G - 2
<PAGE> 53
"Redemption Notice" means a notice sent to the holders of Convertible
Exchangeable Preferred Stock informing such holders of the proposed redemption
of all or a portion of such shares by the Company.
"Redemption Price" means the price at which the Company may redeem a share
of Convertible Exchangeable Preferred Stock and is equal to the liquidation
preference ($1.50 per share for the Series A Preferred Stock, $1.00 per share
for the Series B Preferred Stock and $0.50 per share for the Series C Preferred
Stock) plus all accrued and unpaid dividends with respect to such share up to
but excluding the Redemption Date.
"Securities" means the Rights, Warrants, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Mandatory Redeemable Preferred Stock
and Exchange Warrants, collectively.
"Senior Preferred Stock" means the 9% Senior Convertible Preferred Stock,
each share of which shall accrue dividends at 9% per annum on the liquidation
preference of $1,000 per share, which is convertible into shares of the
Company's Series A Preferred Stock in certain circumstances.
"Senior Securities" means any series of Convertible, Exchangeable Preferred
Stock or any class of capital stock or series of preferred stock of the Company
the terms of which specifically provide that such class or series ranks senior
to the Mandatory Redeemable Preferred Stock upon liquidation, dissolution or
winding up.
"Senior Stock" means any series of preferred stock of the Company the terms
of which specifically provide that such series ranks senior to the Convertible
Exchangeable Preferred Stock with respect to dividends.
"Series A Preferred Stock" means the Series A Convertible Exchangeable
Preferred Stock, $0.01 par value per share, of the Company, each share of which
shall accrue dividends at 12% per annum on the liquidation preference of $1.50
per share.
"Series B Preferred Stock" means the Series B Convertible Exchangeable
Preferred Stock, $0.01 par value per share, of the Company, each share of which
shall accrue dividends at 8% per annum on the liquidation preference of $1.00
per share.
"Series C Preferred Stock" means the Series C Convertible Exchangeable
Preferred Stock, $0.01 par value per share, of the Company, each share of which
shall accrue dividends at 4% per annum on the liquidation preference of $.50
per share.
"Trading Reference Price" means $0.653, an amount equal to the lowest
average of the closing prices of Common Stock on the Nasdaq National Market for
any five consecutive trading days during the period commencing on the Record
Date and continuing through and including June 30, 1996, subject to adjustment
from time to time.
"Warrant Certificate" means a transferable certificate evidencing one or
more Warrants.
"Warrant Expiration Date" means 5:00 p.m. New York time on January 1, 1997
(unless extended by the Board of Directors), at which time each unexercised
Warrant will be automatically converted, without any action on the part of the
holder thereof, into one share of Mandatory Redeemable Preferred Stock.
"Warrants" means the 25,120,948 Warrants issued in the Rights Offering.
Each Warrant initially entitled the holder thereof to purchase one share of any
(i) Series A Preferred Stock at any time on or before July 1, 1996, (ii) Series
B Preferred Stock at any time on or before October 1, 1996 and (iii) Series C
Preferred Stock at any time on or before the Warrant Expiration Date (January
1, 1997, subject to extension under certain circumstances), in each case at an
exercise price of $1.00 per share.
G - 3
<PAGE> 54
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . 14
The Company . . . . . . . . . . . . . . . . . . . . . . . 22
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 22
Description of the Securities . . . . . . . . . . . . . . 24
Certain Federal Income Tax Considerations . . . . . . . . 41
Legal Matters . . . . . . . . . . . . . . . . . . . . . . 49
Experts . . . . . . . . . . . . . . . . . . . . . . . . . 49
Available Information . . . . . . . . . . . . . . . . . . 49
Glossary . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>
6,329,539 SHARES OF
SERIES C 4%
CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK
AND/OR MANDATORY REDEEMABLE
PREFERRED STOCK
99,200,336 EXCHANGE WARRANTS
99,200,336 SHARES OF COMMON STOCK
TATHAM OFFSHORE, INC.
-------------------------
PROSPECTUS
-------------------------
October ___, 1996
<PAGE> 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the issuance and distribution of the securities being registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee . . . . . . . . . . . $ 67,134
National Association of Securities Dealers, Inc. Filing Fee . . . . 19,875
Nasdaq National Market Listing Fee . . . . . . . . . . . . . . . . . 50,000
Blue Sky Filing Fees and Expenses . . . . . . . . . . . . . . . . . 25,000
Printing and Engraving Costs . . . . . . . . . . . . . . . . . . . . 75,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 420,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . 60,000
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,991
------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $770,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL")
authorized, inter alia, a corporation generally to indemnify any person
("indemnitee") who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation ) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation, in a similar position with
another corporation or entity, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
With respect to actions or suits by or in the right of the corporation;
however, an indemnitee who acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation is
generally limited to attorneys' fees and other expenses, and no indemnification
shall be made if such person is adjudicated liable to the corporation unless
and only to the extent that a court of competent jurisdiction determines that
indemnification is appropriate. Section 145 further provides that any
indemnification shall be made by the corporation only as authorized in each
specific case upon a determination by the (i) stockholders, (ii) board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs, that indemnification of the
indemnitee is proper because he has met the applicable standard of conduct.
Section 145 provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
Article VIII of the Company's By-laws, a copy of which is filed as
Exhibit 3.2 to this Registration Statement, provides, in substance, that
directors, officers, employees and agents shall be indemnified to the fullest
extent permitted by Section 145 of the DGCL.
Article Sixth of the Company's Restated Certificate of Incorporation,
a copy of which is filed as Exhibit 3.1 to this Registration Statement, limits
the liability of directors of the Company to the Company or its stockholders
(in their capacity as directors but not in their capacity as officers) to the
fullest extent permitted by the DGCL. Specifically, directors of the Company
will not be personally liable for monetary
II - 1
<PAGE> 56
damages for breach of a director's fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit. The Restated Certificate of
Incorporation also provides that if the DGCL is amended after the approval of
the Restated Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Company will be eliminated or limited to the full extent
permitted by the DGCL, as so amended.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Underwriter against civil
liabilities under the Securities Act.
The Company intends to enter into indemnification agreements with
certain of its directors providing for indemnification to the fullest extent
permitted by the laws of the State of Delaware. These agreements provide for
specific procedures to better assure the directors' rights to indemnification,
including procedures for directors to submit claims, for determination of
directors' entitlement to indemnification (including the allocation of the
burden of proof and selection of a reviewing party) and for enforcement of
directors' indemnification rights.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement.
Exhibit
Number Description
------ -----------
1.1* Form of Standby Underwriting Agreement between Sanders
Morris Mundy Inc. and Tatham Offshore.
2.1* Agreement and Plan of Merger by and between Tatham Offshore,
a Delaware corporation, and Tatham Offshore, Inc. a Texas
corporation (filed as exhibit 2.1 in Tatham Offshore's
Annual Report on Form 10-K for the fiscal year ended June
30, 1994, Commission File No. 0-22892, and incorporated
herein by reference).
4.1* Form of Certificate of Designations Establishing the Series
A Convertible Exchangeable Preferred Stock of Tatham
Offshore.
4.2* Form of Certificate of Designations Establishing the Series
B Convertible Exchangeable Preferred Stock.
4.3* Form of Certificate of Designations Establishing the Series
C Convertible Exchangeable Preferred Stock.
4.4* Form of Certificate of Designations Establishing the
Mandatory Redeemable Preferred Stock.
4.5* Form of Warrant Agreement relating to the warrants entitling
the holder thereof to purchase shares of Convertible
Exchangeable Preferred Stock.
4.6* Form of Warrant Agreement relating to the warrants entitling
the holder thereof to purchase shares of Tatham Offshore's
Common Stock.
5.1* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
23.1+ Consent of Independent Accountants, Price Waterhouse LLP.
23.2+ Consent of Ryder Scott Company Petroleum Engineers,
Independent Petroleum Engineers.
II - 2
<PAGE> 57
23.3* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (such
consent is included in the opinion to be filed as Exhibit 5.1
to this Registration Statement).
24.1* Power of Attorney.
99.1* Form of Subscription Certificate.
99.2* Form of Chairman's Letter to the Stockholders dated December
26, 1995.
99.3* Form of Letter of Transmittal from Tatham Offshore to the
Record Holders transmitting materials to be distributed to
beneficial holders.
99.4* Form of Letter for transmittal to a Record Holder's Clients
that Own Tatham Offshore Common Stock.
99.5* Form of Beneficial Owner Instruction and Exercise Form.
99.6* Form of Nominee Subscription Rights Exercise Form.
99.7* Form of Notice of Guaranteed Delivery.
99.8* Form of Instructions to Record Holders on Exercising Rights.
99.9* Form of Transmittal Letter from Tatham Offshore, Inc. to the
Record Holders.
- --------------------
* Previously filed
+ Filed herewith
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this registration statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of
the subscription offer, the transactions by the underwriters during the
subscription period, the amount of unsubscribed securities to be purchased by
the underwriters,
II - 3
<PAGE> 58
and the terms of any subsequent reoffering thereof. If any public offering by
the underwriters is to be made on terms differing from those set forth on the
cover page of the prospectus, a post-effective amendment will be filed to set
forth the terms of such offering.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II - 4
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Houston, State of Texas, on October 29, 1996.
TATHAM OFFSHORE, INC.
By: /s/ THOMAS P. TATHAM
------------------------------------
Thomas P. Tatham
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS P. TATHAM Chairman of the Board and October 29, 1996
---------------------------------------- Chief Executive Officer
Thomas P. Tatham (Principal Executive
Officer)
/s/ DIANA J. WALTERS Chief Financial Officer October 29, 1996
----------------------------------------- and Director (Principal
Diana J. Walters Financial Officer and
Principal Accounting
Officer)
Director October __, 1996
-------------------------------------------
Donald S. Taylor
/s/ ANTOINE GAUTREAUX, JR. Director October 29, 1996
-----------------------------------------
Antoine Gautreaux, Jr.
/s/ KENNETH E. BEENEY Director October 29, 1996
----------------------------------------
Kenneth E. Beeney
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ PHILLIP G. CLARKE Director October 29, 1996
----------------------------------------
Phillip G. Clarke
/s/ CLYDE E. NATH Director October 29, 1996
-----------------------------------------
Clyde E. Nath
Director October ___, 1996
-----------------------------------------
James G. Niven
Director October ___, 1996
--------------------------------------
Jonathan D. Pollock
/s/ HUMBERT B. POWELL, III Director October 29, 1996
--------------------------------------
Humbert B. Powell, III
/s/ ROGER B. VINCENT, SR. Director October 29, 1996
--------------------------------------
Roger B. Vincent, Sr.
</TABLE>
<PAGE> 61
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
NUMBER DESCRIPTION OF EXHIBIT Page
------ ---------------------- ----
<S> <C>
1.1* Form of Standby Underwriting Agreement between Sanders
Morris Mundy Inc. and Tatham Offshore.
2.1* Agreement and Plan of Merger by and between Tatham
Offshore, a Delaware corporation, and Tatham Offshore,
Inc., a Texas corporation (filed as exhibit 2.1 in Tatham
Offshore's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, Commission File No. 0-22892, and
incorporated herein by reference).
4.1* Form of Certificate of Designations Establishing the
Series A Convertible Exchangeable Preferred Stock of
Tatham Offshore.
4.2* Form of Certificate of Designations Establishing the
Series B Convertible Exchangeable Preferred Stock.
4.3* Form of Certificate of Designations Establishing the
Series C Convertible Exchangeable Preferred Stock.
4.4* Form of Certificate of Designations Establishing the
Mandatory Redeemable Preferred Stock.
4.5* Form of Warrant Agreement relating to the warrants
entitling the holder thereof to purchase shares of
Convertible Exchangeable Preferred Stock.
4.6* Form of Warrant Agreement relating to the warrants
entitling the holder thereof to purchase shares of Tatham
Offshore's Common Stock.
5.1* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
23.1 Consent of Independent Accountants, Price Waterhouse LLP.
23.2 Consent of Ryder Scott Company Petroleum Engineers,
Independent Petroleum Engineers.
23.3* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (such
consent is included in the opinion to be filed on Exhibit
5.1 to this Registration Statement).
23.4* Consent of Richards, Layton & Finger (such consent of
included in the opinion to be filed on Exhibit 7.1 to this
Registration Statement.
24.1* Power of Attorney.
99.1* Form of Subscription Certificate.
99.2* Form of Chairman's Letter to the Stockholders dated
December 26, 1995.
99.3* Form of Letter of Transmittal from Tatham Offshore to the
Record Holders transmitting materials to be distributed to
beneficial holders.
99.4* Form of Letter for transmittal to a Record Holder's
Clients that own Tatham Offshore Common Stock.
99.5* Form of Beneficial Owner Instruction and Exercise Form.
99.6* Form of Nominee Subscription Rights Exercise Form.
99.7* Form of Notice of Guaranteed Delivery.
99.8* Form of Instructions to Record Holders on Exercising
Rights.
99.9* Form of Transmittal Letter from Tatham Offshore, Inc. to
the Record Holders.
</TABLE>
- --------------------
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Post-Effective Amendment No. 1 to Form S-1 on Form S-3 of our report dated
August 30, 1996, which appears on page F-2 of Tatham Offshore, Inc.'s Annual
Report on Form 10-K for the year ended June 30, 1996. We also consent to the
reference to us under the heading "Experts" in such Post-Effective Amendment
No. 1.
PRICE WATERHOUSE LLP
Houston, Texas
October 29, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the
incorporation by reference in this Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 on Form S-3 of the references of our Firm
and to the information derived from our report dated August 7, 1996,
concerning our review of proved oil and gas reserve quantities of Tatham
Offshore, Inc. as of June 30, 1996, appearing in Tatham Offshore, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
October 29, 1996
