<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant |X|
Filed by a Party other than the Registrant | |
Check the appropriate box:
| | Preliminary Proxy Statement
| | Confidential, for use of the Commission only [as permitted by
Rule 14a-6(e)(2)]
|X| Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to 14a-11(c) or Rule 14a-12
TATHAM OFFSHORE, INC.
(Name of Registrant as Specified in its Charter)
----------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:*
----------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------
5) Total fee paid:
-------------------------------------------------------------
| | Fee paid previously with preliminary materials.
| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identity the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
-----------------------------------------------
2) Form, Schedule or Registration Statement No.
---------------------------
3) Filing party:
----------------------------------------------------------
4) Date filed:
-----------------------------------------------------------
- ------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
TATHAM OFFSHORE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 15, 1998
TO THE STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
of Tatham Offshore, Inc. ("Tatham Offshore") to be held at The St. Regis Hotel,
2 East 55th Street, New York, New York at 9:30 a.m., Eastern Standard Time, on
Tuesday, December 15, 1998, for the following purposes:
1. To elect five directors of Tatham Offshore to hold office
until the next annual meeting of stockholders and until their
respective successors are duly elected and qualified;
2. To ratify the Board of Directors' appointment of
PricewaterhouseCoopers LLP as Tatham Offshore's independent
accountants for the fiscal year ending June 30, 1999;
3. To transact such other business as may properly be brought
before the meeting or any adjournment(s) thereof.
Holders of record of Tatham Offshore's common stock at the close of
business on October 15, 1998 will be entitled to notice of and to vote at the
meeting or any adjournment(s) thereof.
Stockholders who do not expect to attend the meeting are requested to
sign and return the enclosed proxy, for which a postage-paid, return envelope is
enclosed. The proxy must be signed and returned in order to be counted.
By Order of the Board of Directors,
THOMAS P. TATHAM
Chairman of the Board
Houston, Texas
November 23, 1998
<PAGE> 3
TATHAM OFFSHORE, INC.
7400 CHASE TOWER
600 TRAVIS STREET
HOUSTON, TEXAS 77002
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
------------------
The enclosed form of proxy is solicited by the Board of Directors of
Tatham Offshore, Inc. ("Tatham Offshore" or the "Company") to be used at the
1998 Annual Meeting of Stockholders (the "Annual Meeting") to be held at The St.
Regis Hotel, 2 East 55th Street, New York, New York at 9:30 a.m., Eastern
Standard Time, on Tuesday, December 15, 1998. This Proxy Statement and the
related proxy are to be first sent or given to the stockholders of Tatham
Offshore on or about November 23, 1998. Any stockholder giving a proxy may
revoke it at any time provided written notice of such revocation is received by
the Secretary of Tatham Offshore before such proxy is voted; otherwise, if
received in time, properly completed proxies will be voted at the meeting in
accordance with the instructions specified thereon. Stockholders attending the
Annual Meeting may revoke their proxies and vote in person.
Holders of record at the close of business on October 15, 1998 of
Tatham Offshore's common stock, $.01 par value ("Common Stock"), will be
entitled to notice of and to vote at the Annual Meeting. Each stockholder is
entitled to one vote per share on all matters submitted to a vote of the
stockholders at the meeting. On October 15, 1998, there were outstanding and
entitled to vote 26,074,321 shares of Common Stock, which is the only class of
voting securities.
Tatham Offshore's Annual Report for the fiscal year ended June 30,
1998, including financial statements, is being mailed herewith to all
stockholders entitled to vote at the Annual Meeting. The Annual Report does not
constitute a part of the proxy soliciting material. Unless otherwise indicated,
all references in the Proxy Statement to shares, options or awards relating to
Common Stock of the Company shall reflect adjustments for the one-for-ten
reverse stock split effected by the Company which was completed on November 24,
1997.
ELECTION OF DIRECTORS
(ITEM 1)
At the Annual Meeting, five directors are to be elected to hold office
until the next succeeding annual meeting of the stockholders and until their
respective successors have been elected and qualified. Four of the director
nominees are currently directors of Tatham Offshore. Proxies cannot be voted for
a greater number of persons than the number of nominees named on the enclosed
form of proxy. A plurality of the votes cast in person or by proxy by the
holders of Common Stock is required to elect a director. Accordingly, under
Delaware law and Tatham Offshore's Restated Certificate of Incorporation (as
amended) and By-laws, abstentions and "broker non-votes" would not have the same
legal effect as a vote against a particular director. A broker non-vote occurs
if a broker or other nominee does not have discretionary authority and has not
received instructions with respect to a particular item. Stockholders may not
cumulate their votes in the election of directors. The Board of Directors
recommends a vote "FOR" each of the following five nominees.
<PAGE> 4
The following information regarding the director nominees of Tatham Offshore,
their principal occupations, employment history and directorships in certain
companies is as reported by the respective individuals.
DIRECTOR NOMINEES
THOMAS P. TATHAM, age 53, has served as Chairman of the Board and a
Director of Tatham Offshore since its inception in 1988. In addition, Mr. Tatham
served as Chairman of the Board, Chief Executive Officer and a Director of
DeepTech International Inc. ("DeepTech") and Chairman of the Board of Leviathan
Gas Pipeline Company ("Leviathan"), affiliates of Tatham Offshore, since October
1989 and February 1989, respectively, through August 14, 1998. In addition, Mr.
Tatham served as Chief Executive Officer of Leviathan from February 1989 until
June 1995. Mr. Tatham sold all of his interests in DeepTech and Leviathan to El
Paso Energy in August 1998. Mr. Tatham has over 30 years of experience in the
oil and gas industry. He founded Mid American Oil Company in 1970 and served as
Chairman of the Board and Chief Executive Officer until he sold his interest
therein to Centex Corporation in 1979. In 1979, Mr. Tatham founded Tatham
Corporation to acquire Sugar Bowl Gas Corporation ("Sugar Bowl"), the second
largest intrastate pipeline system in Louisiana. He served as Chairman of the
Board of Tatham Corporation from 1979 to December 1983, at which time it sold
the assets of Sugar Bowl to a joint venture between MidCon Corp. and Texas Oil
and Gas, Inc. From 1984 to 1988, Mr. Tatham pursued personal investments in
various industries, including the oil and gas industry. Mr. Tatham served as a
director of J. Ray McDermott, S.A. from its inception in February 1995 through
August 1997.
KENNETH E. BEENEY, age 39, has served as a Director of Tatham Offshore
since August 1993. In addition, Mr. Beeney served as Vice President - Chief
Geophysicist of Tatham Offshore from August 1993 through August 14, 1998. Since
August 17, 1998, Mr. Beeney has served as Exploration Manager - Deepwater for
Pennzoil Exploration and Production. Mr. Beeney has 16 years of exploration
experience, with a primary focus in the Gulf of Mexico. Prior to joining Tatham
Offshore in 1989, Mr. Beeney worked for Tenneco Oil Company for eight years and
Anadarko Petroleum Corporation on a variety of exploration assignments. Mr.
Beeney received a B.S. in Geophysics from the Colorado School of Mines.
JAMES G. NIVEN, age 52, has served as a Director of Tatham Offshore
since June 1994 and as a General Partner of Pioneer Associates, a venture
capital investment company, since 1982. Mr. Niven has been a Senior Vice
President of Sotheby's Inc. since November 1996 and is currently a Director of
The Lynton Group, Inc. and HealthPlan Services, Inc. He served as Chairman of
the Board of Global Natural Resources from 1989 to 1995 and is a member of the
Board of Managers of Memorial Sloan-Kettering Cancer Center, and a Trustee of
the Museum of Modern Art, and the National Center for Learning Disabilities,
Inc.
ROGER B. VINCENT, SR., age 53, has served as a Director of Tatham
Offshore since January 1996. Mr. Vincent is President of Springwell Corporation,
a corporate finance advisory firm located in New York. Prior to founding
Springwell, Mr. Vincent spent 18 years with Bankers Trust Company where he was a
Managing Director of the firm as well as in charge of the firm's Client Group.
Mr. Vincent is a director of AmeriGas Propane, Inc., a general partner of
AmeriGas Partners, L.P. (NYSE listed), a Trustee of the GCG Trust of the Golden
American Life Insurance Company (a subsidiary of the ING Group) and a member of
the Policy Committee of Atlantic Asset Management Partners, L.L.C. Mr. Vincent
is a graduate of Yale University and Harvard Business School.
DON W. WILSON, age 51, is currently President and Chief Operating
Officer of Odyssea Marine, Inc. From January 1998 through September 1998, Mr.
Wilson served as President and Chief Operating Officer of Prime Natural
Resources, Inc. Mr. Wilson served as President and Chief Executive Officer of FW
Oil Interests, Inc. from 1996 through 1997. During 1995, Mr. Wilson served as
Executive Vice President of J. Ray McDermott, S.A. From 1993 to 1995 Mr. Wilson
served as President of O.P.I. International, Inc., prior to its merger with J.
Ray McDermott, S.A. From 1975 through 1993 Mr. Wilson was employed by Brown &
Root, Inc., and served in various operational and managerial positions. During
his employment with Brown & Root, Inc., Mr. Wilson was Vice President of Global
Operations from 1990 to 1993. Presently, along with Mr. Wilson's position with
Odyssea Marine, Inc., he is Chairman of the Board of Grant Geophysical, Inc. and
director of Prime Natural Resources, Inc.
2
<PAGE> 5
DIRECTORS NOT STANDING FOR REELECTION
PHILLIP G. CLARKE, age 63, has served as a Director of Tatham Offshore
since March 1995. Mr. Clarke has worked in the oil and gas industry for 40
years. He was initially employed by Texaco, Inc. for approximately eight years,
serving in various engineering positions. In 1965, Mr. Clarke was employed by
Placid Oil Company ("Placid") where he accumulated an additional 30 years of
diversified experience. In 1977, Mr. Clarke was made Vice President of
Operations for Placid's world-wide activities and held that position until his
retirement in 1995. Following his retirement, Mr. Clarke continued his oil
industry activity by joining several associates in forming Rising Star Energy,
LLC, a Dallas, Texas based independent energy company where he is currently
employed. Mr. Clarke received a B.S. degree in Mechanical Engineering from
Oklahoma State University.
ANTOINE GAUTREAUX, JR., age 45, has served as a Director of the Company
since October 1996, Chief Operating Officer of the Company since July 1996 and
as Senior Vice President - Operations from September 1995 to July 1996. Prior to
joining DeepTech, Mr. Gautreaux was employed by Placid Oil Company ("Placid")
for 21 years in various capacities, including Manager of Drilling and
Production. Mr. Gautreaux received a B.S. degree from Nicholls State University.
Mr. Gautreaux resigned his office and directorship of the Company effective
August 14, 1998, in connection with the Merger (as hereinafter defined).
ERIC LYNN HILL, age 52, has served as a Director of the Company since
November 1997. From March 1997 to January 1998, Mr. Hill served as Chief
Financial Officer and Secretary of the Company. Since January 1998, Mr. Hill has
served as Vice President of Finance and Administration of Seagull Egypt Ltd.
Prior to joining DeepTech, Mr. Hill served as Senior Vice President - Finance,
Administration and Secretary - Treasurer of Global Natural Resources, Inc. from
July 1988 to March 1997. Mr. Hill has over 28 years of experience in finance and
auditing in energy related companies and in public accounting. Mr. Hill received
a B.B.A. degree from the University of North Texas and is a certified public
accountant. Mr. Hill resigned his directorship of the Company effective August
14, 1998, in connection with the Merger.
EDWARD L. MOSES, JR., age 62, has served as Senior Vice President -
Engineering and Production of DeepTech since 1992, Managing Director and a
Director of Deepwater Systems since August 1993 and a Director of the Company
since November 1997. From 1991 to 1992, he served as Senior Vice President and a
Director of the Company. From 1989 to 1991, Mr. Moses served as Vice President -
Engineering of the Company. Mr. Moses has worked for over 30 years in the oil
and gas industry. Prior to joining DeepTech, he worked for 12 years as an
independent consultant in the oil and gas industry. Prior thereto, he spent 18
years working for Superior Oil Company where he served as Manager of
International Drilling Operations. Mr. Moses has a B.S. in Petroleum Engineering
from Texas A&M University. Mr. Moses resigned his office and directorship of the
Company effective August 14, 1998, in connection with the Merger.
CLYDE E. NATH, age 64, has served as a Director of Tatham Offshore
since March 1995. Mr. Nath worked in the oil and gas industry for 40 years with
Kerr-McGee Corp., holding various positions in Kerr-McGee's Exploration and
Production Division throughout his career. From 1985 until his retirement in
December 1994, Mr. Nath was Vice President of Exploration for the Gulf of Mexico
Region of Kerr-McGee's Exploration and Production Division. Mr. Nath holds a
Bachelor's degree in Geology from Oklahoma City University. He is a member of
the American Association of Petroleum Geologists, the Houston Geological Society
and American Petroleum Institute.
JONATHAN D. POLLOCK, age 35, is a Portfolio Manager of Stonington
Management Corp. which performs administrative services for Elliott Associates,
L.P. and Westgate International, L.P. Mr. Pollock is responsible for the firm's
oil and gas investments and has served as a Director of Tatham Offshore since
October 1996. Mr. Pollock has been with Stonington Management Corp. since 1989.
Prior to joining Stonington Management Corp., Mr. Pollock was employed by
Greenleaf Partners, an investment banking firm. Mr. Pollock
3
<PAGE> 6
has served as a director of Horizon Offshore, Inc. since June 1997, and of Grant
Geophysical, Inc. since September 1997. Elliott Associates, L.P. and Westgate
International, L.P. are each deemed to beneficially own more than 5% of the
Common Stock of the Company. See "--Security Ownership of Certain Beneficial
Owners and Management." Stonington Management Corp. is under common control with
Manchester Securities Corp. which is a NASD member broker-dealer.
DIANA J. WALTERS, age 35, has served as a Director of Tatham Offshore
since September 1995. Ms. Walters is a Vice President of PaineWebber, Inc. in
their energy group and is a NASD broker-dealer. Prior to joining PaineWebber,
Ms. Walters served as Vice President - Corporate Finance and Planning of Tatham
Offshore from October 1993 through September 1995 and as Chief Financial Officer
of Tatham Offshore from September 1995 through November 1996. Prior to joining
Tatham Offshore, she served as a Vice President in the Natural Resources Group
of Internationale Nederlanden Bank (ING Bank) from 1990 to 1993 financing
independent oil and gas companies and as an Assistant Vice President in the
Natural Resources Department at The Chase Manhattan Bank (formerly Manufacturers
Hanover Trust Company) from 1986 to 1990 financing interstate and intrastate
pipeline companies. Ms. Walters received a B.A. degree and an M.A. degree in
Energy and Mineral Resources from the University of Texas at Austin.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held two meetings during the fiscal year ended
June 30, 1998. During the fiscal year ended June 30, 1998, each director other
than Mr. Hill attended all of the meetings of the Board of Directors and the
committees on which each such director served. Mr. Hill attended one of the two
meetings held during fiscal 1998.
The Incentive Plan Compensation Committee is responsible for
administering the Equity Incentive Plan (the "Incentive Plan"). Pursuant to the
Incentive Plan, the Board of Directors appoints two or more directors to the
Incentive Plan Compensation Committee each of which is a disinterested person
within the meaning of Rule 16b(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and qualifies as an "outside director" as such
term is used for the purposes of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). The Incentive Plan Compensation Committee, which
was comprised of Messrs. Clarke, Nath and Vincent, held two meetings during the
fiscal year ended June 30, 1998.
The Conflicts and Audit Committee provides two primary services. First,
it advises the Board of Directors in matters regarding the system of internal
controls and the annual independent audit, and reviews policies and practices of
Tatham Offshore, including changes in accounting practices and significant
estimates made by management affecting the financial statements. Second, the
Conflicts and Audit Committee, at the request of the Board of Directors, reviews
specific matters as to which the Board of Directors believes there may be a
conflict of interest in order to determine if the resolution of such potential
conflict proposed by the Board of Directors is fair and reasonable to Tatham
Offshore. The Conflicts and Audit Committee also reviews other matters that it
deems appropriate. Any such matters approved by a majority vote of the Conflicts
and Audit Committee will be deemed conclusively to be fair and reasonable to
Tatham Offshore. The Conflicts and Audit Committee of the Board of Directors,
comprised of Messrs. Niven and Vincent met once during the fiscal year ended
June 30, 1998.
The Special Committee is responsible for certain matters at the request
of the Board of Directors by resolution. The Special Committee is comprised of
Messrs. Clarke, Nath, Niven, Powell and Vincent. The Special Committee met twice
during the fiscal year ended June 30, 1998.
Directors of Tatham Offshore are entitled to reimbursement for their
reasonable out-of-pocket expenses in connection with their travel to and from,
and attendance at, meetings of the Board of Directors or committees thereof.
Directors of Tatham Offshore who are not officers or affiliates of Tatham
Offshore are paid an annual fee of $30,000 plus $2,000 per meeting attended. See
"--Executive Compensation--Director Plan."
4
<PAGE> 7
EXECUTIVE OFFICERS
The following table sets forth certain information as of October 15,
1998 regarding the executive officers of Tatham Offshore. Each executive officer
named in the following table has been elected to serve until his successor is
duly appointed or elected or until his earlier removal or resignation from
office. No arrangement or understanding exists between any executive officer of
Tatham Offshore and any other person pursuant to which he was or is to be
selected as an officer.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Thomas P. Tatham 53 Chairman of the Board,
Chief Executive Officer
Dennis A. Kunetka 49 Chief Financial Officer,
Senior Vice President and Secretary
Harvey O. Fleisher 52 Senior Vice President - Marine Services
Philip German 45 Vice President - Engineering
Tatham Offshore Canada Limited
Kenneth L. Hamilton 52 Vice President, Treasurer
and Assistant Secretary
Dennis J. Lubojacky 45 Vice President - Controller
and Financial Planning
</TABLE>
Thomas P. Tatham has served as Chairman of the Board and a Director of
the Company since 1988. In addition, Mr. Tatham has served as Chairman of the
Board, Chief Executive Officer and a Director of DeepTech and Chairman of the
Board of Leviathan since October 1989 and February 1989, respectively. Mr.
Tatham also served as Chief Executive Officer of Leviathan from February 1989
until June 1995. Mr. Tatham has over 30 years of experience in the oil and gas
industry. He founded Mid American Oil Company in 1970 and served as Chairman of
the Board and Chief Executive Officer until he sold his interest therein to
Centex Corporation in 1979. In 1979, Mr. Tatham founded Tatham Corporation to
acquire Sugar Bowl Gas Corporation ("Sugar Bowl"), the second largest intrastate
pipeline system in Louisiana. He served as Chairman of the Board of Tatham
Corporation from 1979 to December 1983, at which time it sold the assets of
Sugar Bowl to a joint venture between MidCon Corp. and Texas Oil and Gas, Inc.
From 1984 to 1988, Mr. Tatham pursued personal investments in various
industries, including the oil and gas industry. Mr. Tatham served as a director
of J. Ray McDermott, S.A. from its inception in February 1995 through August
1997.
Dennis A. Kunetka has served as Senior Vice President - Corporate
Finance of the Company since October 1993 and as Chief Financial Officer and
Secretary since January 1998. Mr. Kunetka served as Senior Vice President -
Corporate Finance and Investor Relations of DeepTech and Leviathan from August
1993 through August 14, 1998. Prior to joining DeepTech, Mr. Kunetka served as
Vice President and Controller of United Gas Pipe Line Company and its parent
company, United Gas Holding Corporation. Prior to joining United in 1984, Mr.
Kunetka spent 11 years with Getty Oil Company in various tax, financial and
regulatory positions. Mr. Kunetka holds B.B.A. and M.S.A. degrees from the
University of Houston, a J.D. degree from South Texas College of Law and is a
certified public accountant.
Philip German has served as Vice President - Engineering of Tatham
Offshore Canada Limited since August 1998. From July 1997 through August 1998,
Mr. German served as a consultant to the Company. From July 1995 through July
1997, Mr. German served as the Chief Pipeline Engineer for Intec Engineering,
Inc. From June 1990 through July 1995, Mr. German served as Vice President of
J.P. Kenny Inc. of Houston. From
5
<PAGE> 8
1981 through 1990, Mr. German was associated with J.P. Kenny and Partners, Ltd.,
London. Mr. German has been actively involved in offshore pipeline and onshore
pipeline and facilities projects in the U.K., Norway, Australia, North Africa,
East Africa and China. In addition to his work with engineering companies, Mr.
German has also spent extended periods acting on behalf of oil and gas
companies, most notably Statoil and Conoco. Mr. German holds a Bachelor of
Science (degree) in Mechanical Engineering from Thames Polytechnic, London.
Harvey O. Fleisher has served as Senior Vice President of Marine
Services of the Company since August 1998. Mr. Fleisher has served as Executive
Vice President of DeepFlex since April 1995. From June 1988 to April 1995, Mr.
Fleisher held various engineering and operations positions with DeepTech
entities. Mr. Fleisher has over 25 years experience in the offshore oil and gas
industry primarily in the floating drilling and production areas. Prior to
joining DeepTech in 1988, Mr. Fleisher worked for two years as an independent
consultant and 14 years with Sonat Offshore Drilling, Inc. (formerly The
Offshore Company). Mr. Fleisher is a Registered Professional Engineer and holds
M.S. and B.S. degrees in Industrial Engineering from Texas A&M University.
Kenneth L. Hamilton has served as Vice President - Treasurer and
Assistant Secretary of the Company since August 1998. Mr. Hamilton served as
Corporate Tax Director of DeepTech from August 1997 through August 14, 1998.
Prior to joining DeepTech, Mr. Hamilton was a shareholder in Verne Sanders &
Associates, a certified public accounting firm for 11 years. Mr. Hamilton served
as Vice President-Controller of Tatham Corporation from 1981 to 1986 and as Tax
Manager with Price Waterhouse LLP in Houston from 1974 to 1981. Mr. Hamilton
holds a B.A. degree from the University of Texas at El Paso and is a certified
public accountant.
Dennis J. Lubojacky has served as Vice President - Controller and
Financial Planning of the Company since August 1998. Mr. Lubojacky served as
Controller of DeepFlex from August 1996 through August 1998. Prior to joining
DeepTech, Mr. Lubojacky worked for two years as an independent consultant after
serving as Vice President - Controller for Nabors Yemen Ltd. from 1991 to 1994.
Mr. Lubojacky has over 23 years of experience in the oil and gas industry,
primarily with offshore and onshore drilling contractors in various accounting
and financial management positions. Mr. Lubojacky holds a B.B.A. degree from Sam
Houston State University and is a certified public accountant.
Kenneth E. Beeney has served as a Director and Vice President - Chief
Geophysicist of the Company since August 1993. Mr. Beeney has 16 years of
exploration experience, with a primary focus in the Gulf of Mexico. Prior to
joining DeepTech in 1989, Mr. Beeney worked for Tenneco Oil Company ("Tenneco
Oil") for eight years and Anadarko Petroleum Corporation on a variety of
exploration assignments. Mr. Beeney received a B.S. in Geophysics from the
Colorado School of Mines. Mr. Beeney resigned his office effective August 14,
1998 in connection with the Merger.
Antoine Gautreaux, Jr. has served as a Director of the Company since
October 1996, Chief Operating Officer of the Company since July 1996 and as
Senior Vice President - Operations from September 1995 to July 1996. Prior to
joining DeepTech, Mr. Gautreaux was employed by Placid Oil Company ("Placid")
for 21 years in various capacities, including Manager of Drilling and
Production. Mr. Gautreaux received a B.S. degree from Nicholls State University.
Mr. Gautreaux resigned his office and directorship of the Company effective
August 14, 1998 in connection with the Merger.
Edward J. Gibbon, Jr. served as Vice President - Reservoir Engineering
of the Company since September 1995. Mr. Gibbon has served as Vice President -
Reservoir Engineering of Deepwater Production Systems, Inc. ("Deepwater
Systems"), an affiliate of the Company, since September 1993. Prior thereto, Mr.
Gibbon served as the President of IDM Engineering, Inc., a company he founded,
which specialized in reservoir engineering studies and economic evaluations. Mr.
Gibbon received a degree in Petroleum Engineering from the Colorado School of
Mines. Mr. Gibbon resigned his office with the Company effective August 14, 1998
in connection with the Merger.
6
<PAGE> 9
Jeffrey K. Lucas served as Vice President - Land Manager of the Company
since June 1991. Mr. Lucas has worked in the oil industry for 18 years. Prior to
joining the Company, Mr. Lucas served in various capacities, including Division
Landman, in the Land Department of Tenneco Oil from 1979 to 1989 and was
primarily responsible for negotiating lease acquisitions in the Rocky Mountain
area and the Gulf. Mr. Lucas received a B.S. in Mineral Land Management from the
University of Colorado. Mr. Lucas resigned his office with the Company effective
August 14, 1998 in connection with the Merger.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM 2)
Pursuant to the recommendation of the Conflicts and Audit Committee,
the Board of Directors has appointed PricewaterhouseCoopers LLP, independent
accountants, to audit the consolidated financial statements of Tatham Offshore
for the year ending June 30, 1999. Tatham Offshore is advised that no member of
PricewaterhouseCoopers LLP has any direct financial interest or material
indirect financial interest in Tatham Offshore or any of its subsidiaries or,
during the past three years, has had any connection with Tatham Offshore or any
of its subsidiaries in the capacity of promoter, underwriter, voting trustee,
director, officer or employee.
Ratification of this appointment shall be effective upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting. Under Delaware
law, an abstention would have the same legal effect as a vote against this
proposal, but a broker non-vote would not be counted for purposes of determining
whether a majority had been achieved. The Board of Directors recommends voting
"FOR" ratification by the stockholders of this appointment.
A representative of PricewaterhouseCoopers LLP is expected to be
present at the Annual Meeting, will have the opportunity to make a statement and
will be available to respond to appropriate questions.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Through August 14, 1998, the executive officers of the Company were
compensated by DeepTech and did not receive compensation from the Company for
their services as such. Effective August 14, 1998, DeepTech was acquired by an
affiliate of El Paso Natural Gas Company and divested all equity ownership in
Tatham Offshore through a rights offering. DeepTech had entered into management
agreements with each of its subsidiaries, including the Company, pursuant to
which each affiliate was charged an annual management fee in exchange for
operational, financial, accounting and administrative services. The management
fee was intended to reimburse DeepTech for the estimated costs of the services
provided to each affiliate. The management agreement was amended effective July
1, 1997 to provide for an annual management fee equal to 26% of DeepTech's
overhead expenses. During the year ended June 30, 1998, the Company was charged
$4,375,000 under its management agreement. The management agreement between
DeepTech and the Company was terminated in connection with the merger of
DeepTech and El Paso. Effective August 14, 1998, Tatham Offshore hired a
management team and support personnel to implement its business strategy. The
Company's executive officer compensation program is administered and reviewed by
the Incentive Plan Compensation Committee.
The following table sets forth the compensation paid by DeepTech to the
Company's Chief Executive Officer and each of the Company's five other most
highly compensated executive officers for the fiscal year ended June 30, 1998
(collectively, the "Named Officers"). The compensation set forth in the table
represents amounts paid to the Named Officers for their services rendered in all
capacities to DeepTech and its subsidiaries for the fiscal years ended June 30,
1998, 1997 and 1996. Therefore, the amounts shown do not reflect amounts earned
solely as compensation for services to the Company. During the fiscal year ended
June 30, 1998, each of Messrs. Tatham and Kunetka spent less than a majority of
his time performing services for the Company. During the same period, Messrs.
Gautreaux, Beeney, Gibbon and Lucas spent a majority of their time performing
services for the Company. As noted below, in addition to serving as executive
officers of the Company, each of Messrs. Tatham and Kunetka also served as
officers of DeepTech and one or more of its affiliates.
7
<PAGE> 10
ANNUAL COMPENSATION BY DEEPTECH
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
NAME/PRINCIPAL OTHER ANNUAL AWARDS ALL OTHER
POSITION WITH FISCAL SALARY(1) BONUS(1) COMPENSATION(2) OPTIONS COMPENSATION
TATHAM OFFSHORE YEAR ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Tatham (3) 1998 $1,000,000 (4) -- $1,400,000(4) -- $272,500(14)
Chief Executive Officer 1997 $1,000,000 (4) -- $1,400,000(4) --(5) --
1996 $2,731,750 (6) $600,000(6) $39,178(7) 300,000(8)(9) --
Antoine Gautreaux, Jr.(10) 1998 $200,000 -- -- -- $759,375(14)
Chief Operating Officer 1997 $200,000 -- -- 10,000(11) --
1996 $162,500 -- -- 75,000(9) --
Dennis A. Kunetka (12) 1998 $161,450 -- -- 100,000(13) --
Chief Financial Officer 1997 $140,000 -- -- -- --
1996 $120,000 -- -- 30,000(9) --
Kenneth E. Beeney (10) 1998 $140,000 -- -- -- $668,250(14)
Vice President - 1997 $140,000 -- -- 10,000(11) --
Chief Geophysicist 1996 $110,000 -- -- 75,000(9) --
Edward J. Gibbon, Jr. (10) 1998 $125,000 -- -- -- $506,250(14)
Vice President - 1997 $125,000 -- -- 10,000(11) --
Reservoir Engineering 1996 $106,660 -- -- 50,000(9) --
Jeffrey K. Lucas (10) 1998 $110,000 -- -- -- $506,250(14)
Vice President - 1997 $110,000 -- -- 7,000(11) --
Land Manager 1996 $95,000 -- -- 50,000(9) --
</TABLE>
- -------------------------------
(1) Includes the aggregate market value of Common Stock and DeepTech common
stock issued as a result of the exercise of options granted pursuant to
the Deferred Compensation Arrangement (as defined herein) for salary
and bonuses. The aggregate market value is calculated based on the last
reported sales prices of the Common Stock and/or the DeepTech common
stock on the dates of exercise of the options.
(2) Other Annual Compensation excludes the aggregate value of perquisites
when such value is less than the lesser of $50,000 or 10% of total
annual Salary and Bonus for each Named Officer.
(3) Mr. Tatham also served as Chairman of the Board and Chief Executive
Officer of DeepTech and Chairman of the Board of Leviathan. During the
fiscal year ended June 30, 1998, Mr. Tatham spent less than a majority
of his time performing services for the Company.
(4) Effective July 1, 1996, the Compensation Committee of DeepTech's Board
of Directors established a compensation plan for Mr. Tatham for the
years ended June 30, 1997 and 1998. Under the compensation plan, Mr.
Tatham is to receive a base salary of $1,000,000 per annum plus
$1,400,000 per annum to be credited against incentive bonuses as they
are earned. The base salary and bonus are payable at the rate of
$200,000 per month. The Compensation Committee of DeepTech's Board of
Directors detailed certain performance goals for DeepTech and its
subsidiaries and affiliates, including the Company, and Mr. Tatham
which would allow him to earn the incentive bonus payments over the two
year period. The performance goals are structured to reward Mr. Tatham
for enhancing shareholder value through increased earnings per share
and by obtaining financing for key projects.
(5) Excludes options to acquire 1,100,000 shares of DeepTech common stock
that were granted to Mr. Tatham during the fiscal year ended June 30,
1997 related to matters other than for executive compensation and
unrelated to the operations of DeepTech or the Company.
(6) Mr. Tatham's salary and bonus for the fiscal year ended June 30, 1996
were settled through the issuance of options pursuant to a deferred
compensation arrangement (the "Deferred Compensation Arrangement").
Under the Deferred Compensation Arrangement, for each $1.00 of salary
deferred, Mr. Tatham was entitled to apply $3.00 to the exercise price
of options to acquire Common Stock or DeepTech common stock under the
Company's Incentive Plan or DeepTech's equity incentive plan,
respectively. Through June 30, 1996, Mr. Tatham had exercised options
to acquire 600,125 shares of DeepTech common stock in full settlement
of his salary for the
8
<PAGE> 11
fiscal year ended June 30, 1996. In addition, Mr. Tatham was awarded a
bonus during the fiscal year ended June 30, 1996 unrelated to the
Company's operations. This bonus was settled pursuant to the Deferred
Compensation Arrangement in September 1995 when Mr. Tatham exercised
options to purchase 150,000 shares of DeepTech common stock. The
aggregate market value of the 750,125 shares of DeepTech common stock
issued, calculated based on the last reported sales price on the dates
of exercise, was $3,331,750.
(7) Represents dues for club memberships.
(8) Excludes options to acquire 1,666,666 shares of DeepTech common stock
that were granted by DeepTech to Mr. Tatham during the fiscal year
ended June 30, 1996 related to matters other than for executive
compensation and unrelated to the operations of DeepTech or the
Company.
(9) Options to acquire DeepTech common stock granted pursuant to DeepTech's
equity incentive plan.
(10) Each of these executive officers spent the majority of his time
performing services for the Company during the fiscal year ended June
30, 1998.
(11) Represents options issued to purchase shares of Common Stock pursuant
to the Company's Incentive Plan as adjusted for the one-for-ten reverse
stock split effective November 24, 1997.
(12) Mr. Kunetka also served as Senior Vice President - Corporate Finance
and Investor Relations for DeepTech and Leviathan. During the fiscal
year ended June 30, 1998, Mr. Kunetka spent less than a majority of his
time performing services for the Company.
(13) Represents options issued to purchase shares of Common Stock pursuant
to the Company's Incentive Plan.
(14) Represents the excess of the fair market value of DeepTech options over
the exercise price on the date such options were exercised.
The following table sets forth certain information detailing option
grants made to the Named Officers under the Incentive Plan with respect to
shares of Tatham Offshore Common Stock during the fiscal year ended June 30,
1998. Each of the options listed below were issued pursuant to the Company's
Incentive Plan.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF TATHAM OFFSHORE PERCENT OF EXERCISE POTENTIAL REALIZABLE VALUE AT
COMMON STOCK TOTAL OPTIONS OR BASE ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS GRANTED IN PRICE EXPIRATION STOCK PRICE APPRECIATION FOR
NAME GRANTED FISCAL YEAR ($/SHARE) DATE OPTION TERM
5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Dennis A. Kunetka 100,000 100% $3.00 1/15/08 $188,668 $478,123
</TABLE>
9
<PAGE> 12
OPTION EXERCISES AND YEAR-END VALUE TABLES
The following table sets forth certain information regarding the
outstanding options and warrants to purchase DeepTech common stock held by the
Named Officers at June 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED REALIZED ($) AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)
NAME ON EXERCISE (#) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Thomas P. Tatham 2,168,749 (1) -- (2) -- / -- -- / --
100,000 $272,500 -- / -- -- / --
Antoine Gautreaux, Jr. 75,000 $759,375 -- / -- -- / --
Dennis A. Kunetka -- -- 15,000 / 15,000(3) $150,000 / $150,000
Kenneth E. Beeney 75,000 $747,000 -- / -- -- / --
Edward J. Gibbon, Jr. 50,000 $506,250 -- / -- -- / --
Jeffrey K. Lucas 50,000 $506,250 -- / -- -- / --
</TABLE>
- ---------------------
(1) Options exercised to purchase DeepTech common stock were acquired by Mr.
Tatham related to matters other than executive compensation and unrelated
to the operations of DeepTech or the Company.
(2) On February 26, 1998, Mr. Tatham exercised 1,343,749 warrants and 825,000
warrants to purchase a like amount of shares of Common Stock at $4.50 per
share and $10.00 per share, respectively. On February 26, 1998, the Common
Stock closed at $12.875 per share on NASDAQ.
(3) Represents options issued pursuant to DeepTech's equity incentive plan and
unvested as of June 30, 1998, which options vest 25% annually beginning
November 14, 1996. As a result of El Paso's acquisition of DeepTech, these
options vested on August 14, 1998.
The following table sets forth certain information regarding the
outstanding options and warrants to purchase Tatham Offshore Common Stock held
by the Named Officers at June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED ON REALIZED ($) AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)
NAME EXERCISE (#) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Antoine Gautreaux, Jr. -- -- 25,000(1) /10,000(2) -- / --
Dennis A. Kunetka -- -- -- /100,000(3) -- / --
Kenneth E. Beeney -- -- -- / 10,000(2) -- / --
Edward J. Gibbon, Jr. -- -- -- / 10,000(2) -- / --
Jeffrey K. Lucas -- -- -- / 7,000(2) -- / --
</TABLE>
- ---------------------
(1) Options granted pursuant to Tatham Offshore's Incentive Plan which are 100%
vested.
(2) SARs granted pursuant to Tatham Offshore's Incentive Plan on October 21,
1996 which vest 1/3 each year beginning three years from the date of grant.
(3) Options granted pursuant to Tatham Offshore's Incentive Plan on January 15,
1998 which vest 25% each year beginning January 15, 1999.
10
<PAGE> 13
REPORT ON EXECUTIVE COMPENSATION
The Investment Plan Compensation Committee of the Board of Directors
determines the compensation of the executive officers named in the Summary
Compensation Table. The Investment Plan Compensation Committee has furnished the
following report on executive compensation in connection with the Annual
Meeting.
COMPENSATION PHILOSOPHY
As members of the Investment Plan Compensation Committee, it is our
duty to administer the executive compensation program for the Company. The
Investment Plan Compensation Committee is responsible for establishing
appropriate compensation goals for the executive officers of the Company,
evaluating the performance of such executive officers in meeting such goals and
making recommendations to the Board of Directors with regard to executive
compensation.
The Company's compensation philosophy is to ensure that executive
compensation be directly linked to continuous improvements in corporate
performance, achievement of specific operations, financial and strategic
objectives and increases in stockholder value. The Investment Plan Compensation
Committee regularly reviews the compensation packages of the Company's executive
officers, taking into account factors which it considers relevant, such as
business conditions within and outside the industry, the Company's financial
performance, the market composition for executives of similar background and
experience and the performance of the executive officer under consideration. The
particular elements of the Company's compensation programs for executive
officers are described below.
COMPENSATION STRUCTURE
The executive base compensation for the executive officers of the
Company named in the Summary Compensation Table is intended to be competitive
with that paid in comparable situated industries, taking into account the scope
of responsibilities and internal relationships. The goals of the Investment Plan
Compensation Committee in establishing the Company's executive compensation
program are:
(1) To fairly compensate the executive officers of the
Company and its subsidiaries for their contributions
to the Company's short-term and long-term
performance. The elements of the Company's executive
compensation program are (a) annual base salaries,
(b) annual bonuses and (c) equity incentives.
(2) To allow the Company to attract, motivate and retain
the management personnel necessary to the Company's
success by providing an executive compensation
program comparable to that offered by companies with
which the Company competes for management personnel.
Individual's base salaries are determined by the Investment Plan
Compensation Committee based on the scope of the executive's responsibilities, a
subjective evaluation of the executive's performance and the length of time the
executive has been in the position.
EXECUTIVE COMPENSATION DEDUCTIBILITY
It is the Company's intent that amounts paid pursuant to the Company's
compensation plans will generally be deductible compensation expenses. The
Investment Plan Compensation Committee does not
11
<PAGE> 14
currently anticipate that the amount of compensation paid to executive officers
will exceed the amounts specified as deductible pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended.
INVESTMENT PLAN COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Phillip G. Clarke
Clyde E. Nath
Roger B. Vincent
INCENTIVE PLAN
In 1995, Tatham Offshore adopted the Incentive Plan. The Incentive Plan
was effected to provide Tatham Offshore with the ability of making a variety of
awards pursuant to the Incentive Plan including stock options, restricted stock
and stock value equivalent awards.
Under the Incentive Plan, Tatham Offshore may grant to employees,
consultants or agents of Tatham Offshore or any of its parents or subsidiaries
one or more options (each, a "Stock Option") to purchase shares of Common Stock
as hereinafter set forth. Stock Options granted under the Incentive Plan may be
either incentive stock options ("Incentive Stock Options") within the meaning of
Section 422(b) of the Code, or options that do not qualify as Incentive Stock
Options ("Non-Qualified Stock Options"). Pursuant to the Incentive Plan, Tatham
Offshore may grant awards of Common Stock subject to restrictions on sale or
other disposition of such shares ("Restricted Stock Grant"), and such other
requirements as the Incentive Plan Compensation Committee deems appropriate
including the requirement that such shares be forfeited upon termination of
employment for certain reasons within a specified period of time. Pursuant to
the Incentive Plan, Tatham Offshore may also grant rights to receive an amount
equal to the fair market value of shares of Common Stock or rights to receive an
amount equal to any appreciation or increase in the fair market value of Common
Stock over a specified period of time (SARs). Stock Options, Restricted Stock
Grants and SARs are referred to collectively herein as "Awards."
Except with respect to outstanding Awards, and unless sooner terminated
by action of Tatham Offshore's Board of Directors or the committee thereof
charged with administration of the Incentive Plan, the Incentive Plan will
terminate on December 31, 2005. The maximum number of shares of Common Stock
with respect to which Awards may be granted under the Incentive Plan is
4,000,000.
The Board of Directors may terminate or suspend the Incentive Plan (or
any portion thereof) at any time with respect to any shares for which Awards
have not previously been granted and remain outstanding. The Board of Directors
has the right to alter or amend the Incentive Plan or any part thereof from time
to time; provided, however, that no change in any Award theretofore granted may
be made which would materially adversely affect the rights and obligations of
the holder of any such Award without the written consent of such Incentive Plan
participant; and provided, further, that the Board of Directors may not, without
stockholder approval as required under the Incentive Plan, (i) materially
increase the number of shares of Common Stock which may be issued under the
Incentive Plan (other than in connection with adjustments permitted by the
Incentive Plan), (ii) materially modify the requirements as to eligibility for
participation in the Incentive Plan, (iii) materially increase the benefits
accruing to participants under the Incentive Plan, or (iv) extend the
termination date of the Incentive Plan. In addition, no amendment, suspension or
termination can be adopted which would disqualify the Incentive Plan from (i)
the exemption provided by Rule 16b-3, promulgated under the Exchange Act, or any
successor rule or regulation to such Rule 16b-3, as such rule is applicable from
time to time, or (ii) the benefits provided under Section 422 of the Code, or
any successor thereto.
The Incentive Plan is not subject to any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or the qualification
requirements of Section 401 of the Code.
The Incentive Plan is to be administered by the Incentive Plan
Compensation Committee. Each member of the Incentive Plan Compensation Committee
is a disinterested person within the meaning of Rule 16b-3 of the
12
<PAGE> 15
Exchange Act and qualifies as an "outside director", as such term is used for
the purposes of Section 162(m) of the Code and any rules and regulations
promulgated thereunder.
Subject to the provisions of the Incentive Plan, the Incentive Plan
Compensation Committee has sole authority to select the individuals who are to
be granted Awards from among those persons who are eligible and to determine the
restrictions, terms and conditions of each Award granted under the Incentive
Plan (subject to the terms of the Incentive Plan). The Incentive Plan
Compensation Committee is authorized to interpret the Incentive Plan and may,
from time to time, adopt, amend or rescind rules and regulations relating to the
implementation, administration and maintenance of the Incentive Plan.
Effective with the one-for-ten reverse stock split on November 24,
1997, each of the then outstanding Awards were adjusted to reflect the reverse
stock split. A total of 181,500 Awards issued pursuant to the Incentive Plan are
currently outstanding.
DIRECTOR PLAN
In 1995, Tatham Offshore adopted the Director Plan. The purpose of the
Director Plan is to allow Tatham Offshore to attract the best available
individuals to serve as outside directors of Tatham Offshore.
All non-employee directors of Tatham Offshore are eligible to
participate in the Director Plan. The Director Plan provides for both automatic
one time grants of Stock Options to Tatham Offshore's non-employee directors and
for the issuance and exercise of Stock Options in lieu of standard cash director
compensation upon the election of non-employee directors. All Stock Options
granted under the Director Plan are Non-Qualified Stock Options.
Except with respect to outstanding Stock Options, and unless sooner
terminated by action of the Board of Directors, the Director Plan will terminate
on December 31, 2005. The maximum number of shares of Common Stock with respect
to which Stock Options may be granted under the Director Plan is 1,000,000,
subject to adjustments for stock splits, stock dividends and certain other
changes in capitalization.
Under the Director Plan, grants of Stock Options to purchase 30,000
shares of Common Stock were automatically made to all non-employee directors of
Tatham Offshore provided that such non-employee directors had not already
received stock options to purchase 30,000 shares of Common Stock in connection
with their service as a director of Tatham Offshore. In addition, after the
effective date of the Director Plan, any newly elected non-employee director
will automatically receive Stock Options to purchase 30,000 shares of Common
Stock. The exercise price for the Stock Options to purchase 30,000 shares of
Common Stock will be 100% of the fair market value of the Common Stock on the
later to occur of (i) the effectiveness of the Director Plan, or (ii) the
election of a participant as a Director of Tatham Offshore. The Stock Options
issued pursuant to these provisions can be immediately exercisable and, unless
terminated sooner in accordance with the Director Plan, shall expire on a date
which is ten (10) years after the date of grant of the option.
In connection with their agreements to serve on the Board of Directors,
each of Messrs. Niven and Powell were originally granted stock options to
purchase 30,000 shares of Common Stock of Tatham Offshore at $10.00 per share,
the initial public offering price. Each of these stock options vested at the
rate of 10,000 per year beginning June 30, 1995 and were subject to shareholder
approval. During the year ended June 30, 1996, these stock options were canceled
and Messrs. Niven and Powell were granted Stock Options to purchase 30,000
shares of Common Stock at $0.8125 per share pursuant to the Director Plan which
included 10,000 Stock Options each, which vested immediately, and 10,000 Stock
Options each, which vested annually on June 30, 1996 and 1997. In connection
with his appointment to the Board, Mr. Vincent was issued Stock Options to
purchase 30,000 shares of Common Stock at $0.8125 per share pursuant to the
Director Plan. These Stock Options vest at the rate of 10,000 per year beginning
January 31, 1997.
13
<PAGE> 16
In connection with his election to the Board of Directors in October
1996, Mr. Pollock was issued Stock Options to purchase 30,000 shares of Common
Stock at $0.8125 per share. In her new role as a non-employee director on the
Board of Directors, in October 1996, Ms. Walters was issued Stock Options to
purchase 30,000 shares of Common Stock at $0.8125 per share. The Stock Options
issued to Mr. Pollock and Ms. Walters vest at the rate of 10,000 per year
beginning October 21, 1997. On January 15, 1998, E. Lynn Hill, a director of the
Company, was awarded options to purchase 15,000 shares of Common Stock at $3.00
per share which vested immediately. Effective with the one-for-ten reverse stock
split on November 24, 1997, each of the then outstanding options issued under
the Director Plan were adjusted to reflect the reverse stock split.
The Board of Directors may terminate or suspend the Director Plan (or
any portion thereof) at any time with respect to any shares for which Stock
Options have not previously been granted and remain outstanding. The Board of
Directors has the right to alter or amend the Director Plan or any part thereof
from time to time; provided, however, that no change in any Stock Option
theretofore granted may be made which would materially adversely affect the
rights and obligations of the holder of any such Stock Option without the
written consent of such Director Plan participant; and provided, further, that
the Board of Directors may not, without stockholder approval as required under
the Director Plan, (i) materially increase the number of shares of Common Stock
which may be issued under the Director Plan (other than in connection with
adjustments permitted by the Director Plan), (ii) materially modify the
requirements as to eligibility for participation in the Director Plan, (iii)
materially increase the benefits accruing to participants under the Director
Plan, or (iv) extend the termination date of the Director Plan. In addition, no
amendment, suspension or termination may be adopted which would disqualify the
Director Plan from (i) the exemption provided by Rule 16b-3, promulgated under
the Exchange Act, or any successor rule or regulation to such Rule 16b-3, as
such rule is applicable from time to time, or (ii) the benefits provided under
Section 422 of the Code, or any successor thereto.
14
<PAGE> 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 15, 1998, the beneficial ownership
of the outstanding Common Stock of Tatham Offshore by (i) each person who is
known to Tatham Offshore to beneficially own more than 5% of the outstanding
Common Stock of Tatham Offshore, (ii) each director and director nominee of
Tatham Offshore, (iii) each executive officer named in the Summary Compensation
Table (see "Executive Compensation") and (iv) all executive officers and
directors of Tatham Offshore as a group.
<TABLE>
<CAPTION>
SHARES OF CLASS BENEFICIALLY OWNED(1)
TATHAM OFFSHORE
COMMON STOCK(2)
NUMBER PERCENT
<S> <C> <C>
Kenneth E. Beeney................................ 8,500 *
Phillip G. Clarke................................ 6,378 *
Antoine Gautreaux, Jr. .......................... 25,000 (3) *
Edward J. Gibbon, Jr............................. 115 *
Dennis A. Kunetka................................ 1,250 *
Jeffrey K. Lucas................................. 10,000 *
Clyde E. Nath.................................... 8,458 (4) *
James G. Niven................................... 9,378 (5) *
Jonathan D. Pollock.............................. 2,000 (6)(9) *
Thomas P. Tatham................................. 617,974 (7) 2.3%
7500 Chase Tower
Houston, Texas 77002
Roger B. Vincent, Sr............................. 3,385 (8) *
Diana J. Walters................................. 4,500 (9) *
Don W. Wilson.................................... -- --
Tatham Brothers Securities, LLC ................. 21,752,121 (10) 80.4% (11)
7500 Chase Tower
Houston, Texas 77002
Elliott Associates, L.P.......................... 1,719,561 (12) 6.2%
712 5th Avenue, 36th Floor
New York, New York 10019
Martley International, L.P. ..................... 1,719,561 (12) 6.2%
1086 Teaneck Road
Teaneck, New Jersey 07666
Westgate International, L.P. ................... 1,719,561 (12) 6.2%
c/o Midland Bank Trust
Corporation (Cayman) Limited
P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands
British West Indies
Lehman Commercial Paper, Inc..................... 1,461,253 (13) 5.6%
3 World Financial Center, 9th Floor
New York, New York 10285
Executive officers and directors
as a group (16 persons)......................... 740,574 (14) 2.8%
</TABLE>
- ----------------------------
*Less than 1%.
15
<PAGE> 18
(1) Shares of Common Stock that are not outstanding but that may be
acquired by a person upon exercise of options or warrants within 60
days of the above date are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by
such person. However, such shares are not deemed to be outstanding for
the purpose of computing the percentage of outstanding shares
beneficially owned by any other person.
(2) Shares of Series A 12% Convertible Exchangeable Preferred Stock
("Series A Preferred Stock"), Series B 8% Convertible Exchangeable
Preferred Stock ("Series B Preferred Stock") and Series C 4%
Convertible Exchangeable Preferred Stock ("Series C Preferred Stock")
held by each named person are assumed converted into shares of Common
Stock for the purpose of computing the number of shares of Common Stock
beneficially owned by such person. Alternatively, each share of Series
A, B and C Preferred Stock may be exchanged for four exchange warrants
which are each exercisable to purchase one share of Common Stock at
$6.53 per share. See "--Certain Relationships and Related
Transactions--Convertible Exchangeable Preferred Stock."
(3) Includes options to purchase 25,000 shares of Common Stock.
(4) Includes options to purchase 3,000 shares of Common Stock.
(5) Includes options to purchase 3,000 shares of Common Stock.
(6) Mr. Pollock is Portfolio Manager of Elliott Associates whose beneficial
ownership of securities is shown elsewhere in this table. See footnote
12.
(7) Includes 437,909 shares assumed acquired as a result of conversion of
1,537,600 shares of Series A Preferred Stock into Common Stock. Also
includes 1,705 shares assumed acquired as a result of conversion of
21,000 shares of Series C Preferred Stock into Common Stock. Mr. Tatham
owns 9.1% of the Series A Preferred Stock outstanding.
(8) Includes 285 shares assumed acquired as a result of conversion of 1,000
shares of Series A Preferred Stock, which is less than 1% of the Series
A Preferred Stock outstanding, into Common Stock. Also includes options
to purchase 2,000 shares of Common Stock.
(9) Includes options to purchase 2,000 shares of Common Stock.
(10) Includes 984,110 shares of Common Stock assumed acquired as a result of
conversion of 3,455,444 shares of Series A Preferred Stock. Tatham
Brothers Securities, LLC owns 20.4% of the Series A Preferred Stock
outstanding.
(11) Pursuant to a Pledge and Security Agreement dated as of August 14,
1998, Tatham Brothers, LLC ("Tatham Brothers") pledged to Thomas P.
Tatham all of the outstanding membership interests in Tatham Brothers
Securities, LLC, as security for amounts owed by Tatham Brothers
to Thomas P. Tatham pursuant to a promissory note dated
August 14, 1998.
(12) The total number of shares credited to each of Elliott Associates, a
Delaware limited partnership, Westgate International, L.P., a Cayman
Islands Limited Partnership ("Westgate") and Martley International,
Inc., a Delaware corporation ("Martley") as beneficial ownership
interest includes (a) 1,477,481 shares beneficially owned by Elliott
Associates ("Elliott Shares") and (b) 242,080 shares beneficially owned
by Westgate ("Westgate Shares"). The Westgate Shares are credited to
Martley because Westgate and Martley share the power to vote, direct
the vote of, and to dispose or direct the disposition of the Westgate
Shares. The Westgate Shares are credited to Elliott Associates, the
Elliott
16
<PAGE> 19
Shares credited to Westgate, and the Elliott Shares credited to Martley
as a result of Elliott Associates, Martley and Westgate's actions as a
shareholder group under Rule 13D-3 of the Exchange Act. The Elliott
Shares include 1,477,481 shares that may be acquired by Elliott
Associates by conversion of 5,187,784 shares of Series A Preferred
Stock owned by Elliott Associates into Common Stock; the Westgate
Shares include 242,080 shares of Common Stock that may be acquired by
Westgate as a result of the conversion of 850,000 shares of Series A
Preferred Stock owned by Westgate into Common Stock. Each of Elliott
Associates, Westgate and Martley beneficially owns 35.7% of the Series
A Preferred Stock outstanding.
(13) Includes 66,110 shares assumed acquired as a result of conversion of
232,128 shares of Series A Preferred Stock into Common Stock.
(14) Includes 455,367 shares of Common Stock assumed acquired as a result of
conversion of 1,598,900 shares of Series A Preferred Stock. Also
includes 1,705 shares of Common Stock assumed acquired as a result of
conversion of 21,000 shares of Series C Preferred Stock. Also includes
options to purchase 38,000 shares of Common Stock. The executive
officers and directors as a group beneficially own 9.5% of the Series A
Preferred Stock outstanding.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain agreements, arrangements and
transactions between or among Tatham Offshore and certain related parties,
including DeepTech and its affiliates. It is Tatham Offshore's policy to enter
into transactions with related parties on terms that, on the whole, are no less
favorable than those that would be available from unaffiliated parties. Based on
Tatham Offshore's experience in the industry and the terms of its transactions
with unaffiliated parties, it is Tatham Offshore's belief that all of the
transactions described below involving Tatham Offshore met that standard at the
time such transactions were effected.
Unless the context otherwise requires, references in this Proxy
Statement to "DeepTech" shall mean DeepTech International Inc., a Delaware
corporation. Prior to its acquisition by El Paso on August 14, 1998, DeepTech
was a diversified energy company, which conducted its operations through its
operating subsidiaries which, as of June 30, 1998, primarily included Leviathan
(indirectly 85%-owned), Tatham Offshore (95%-owned), DeepFlex Production
Services, Inc. (100%-owned) ("DeepFlex"), Offshore Gas Marketing, Inc.
(80%-owned) ("Offshore Marketing") and Offshore Gas Processors, Inc.
(85%-owned), and their respective subsidiaries. Leviathan is the general partner
of Leviathan Gas Pipeline Partners, L.P. (the "Partnership"), in which DeepTech
owned an indirect 23.2% effective interest.
Recent Events
On February 27, 1998, DeepTech entered into an Agreement and Plan of
Merger (the "Merger Agreement") with El Paso Natural Gas Company ("El Paso") and
El Paso Acquisition Company ("El Paso Acquisition"), a wholly-owned subsidiary
of El Paso, pursuant to which DeepTech would merge (the "Merger") with El Paso,
or under certain circumstances, with El Paso Acquisition. Subsequently,
DeepTech, El Paso and El Paso Acquisition executed Amendment No. 1 to the Merger
Agreement (the "Amended Merger Agreement") with El Paso Energy Corporation ("El
Paso Corporation") to reflect El Paso's reorganization of its corporate
structure. The holders of a majority of DeepTech's common stock approved the
Amended Merger Agreement on July 19, 1998. Pursuant to the Amended Merger
Agreement, DeepTech merged with El Paso Acquisition on August 14, 1998.
As a result of the Merger and related transactions, some of the assets
of Tatham Offshore and DeepTech were restructured so that DeepFlex became a
wholly-owned subsidiary of Tatham Offshore and Tatham Offshore transferred its
interest in the Sunday Silence prospect to DeepTech. Pursuant to the Redemption
Agreement
17
<PAGE> 20
(discussed below), Tatham Offshore agreed to transfer all of its remaining
assets located in the Gulf to the Partnership, an affiliate. Further, DeepTech
divested itself of its equity ownership interest in Tatham Offshore by offering
all of the shares of Tatham Offshore common stock and Series A Preferred Stock
held by DeepTech to the stockholders of DeepTech in a Rights Offering (discussed
below).
Following the asset restructuring, Tatham Offshore's marine services
business includes the operation of two semisubmersible drilling rigs, the FPS
Bill Shoemaker and the FPS Laffit Pincay, currently owned by DeepFlex. In
addition, Tatham Offshore will continue to pursue energy related opportunities
in Atlantic Canada, including the North Atlantic pipeline project, related gas
processing facilities, a facility for the generation of electricity and other
related investments.
The material terms of the Merger and the transactions contemplated by
the Amended Merger Agreement, Redemption Agreement (discussed below) and other
agreements as these agreements relate to Tatham Offshore and its subsidiaries
are as follows:
(a) DeepTech contributed all of the outstanding shares of capital stock of
DeepFlex to Tatham Offshore on June 25, 1998. As a result of this
contribution by DeepTech, Tatham Offshore, through DeepFlex, assumed
certain indebtedness due to DeepTech (see (b) below) and $64,406,000 of
third-party and affiliate debt in addition to the ownership of the
semisubmersible drilling rigs, the FPS Laffit Pincay and the FPS Bill
Shoemaker.
(b) On June 25, 1998, Tatham Offshore conveyed to DeepTech all of the
outstanding shares of capital stock of Tatham Development and canceled
its reversionary interests in certain oil and gas properties in payment
of the indebtedness owed to DeepTech discussed in (a) above.
(c) On August 14, 1998, Tatham Offshore transferred its remaining assets
located in the Gulf to the Partnership in consideration of the
redemption by Tatham Offshore of its Senior Preferred Stock currently
owned by the Partnership (the "Redemption Agreement"). Specifically,
under the terms of the Redemption Agreement and subject to the
satisfaction of certain conditions to closing, the Partnership
exchanged 7,500 shares of Senior Preferred Stock and all related
accrued and unpaid dividends due to the Partnership as of the date of
the exchange for 100% of Tatham Offshore's right, title and interest in
and to Viosca Knoll Blocks 772, 773, 774, 817, 818 and 861 (subject to
an existing production payment obligation), West Delta Block 35, Ewing
Bank Blocks 871, 914, 915 and 916 and the platform located on Ship
Shoal Block 331. At the closing, Tatham Offshore paid the Partnership
$1,605,000, the amount equal to the net cash generated from such
properties from January 1, 1998 through August 14, 1998. In addition,
the Partnership assumed all abandonment and restoration obligations
associated with the platform and leases. At the closing of the
Redemption Agreement on August 14, 1998, the management fees charged to
Tatham Offshore by DeepTech were reduced by 50% effective retroactively
to January 1, 1998 and the balance of $1,405,000 owed to DeepTech was
paid. See (e) below.
(d) On July 16, 1998, the Commission declared effective Tatham Offshore's
Registration Statement on Form S-1 relating to the offering of rights
to the DeepTech stockholders to purchase DeepTech's 28,073,450 shares
of Tatham Offshore common stock and 4,670,957 shares of Tatham
Offshore's Series A Preferred Stock (the "Rights Offering"). As a
result of the Rights Offering, unaffiliated parties purchased 3,378,693
shares of common stock and 562,148 shares of Series A Preferred Stock.
Tatham Brothers Securities, LLC ("TB Securities"), an affiliate of Mr.
Thomas P. Tatham, Chairman of the Board and Chief Executive Officer of
Tatham Offshore and DeepFlex, purchased 20,768,011 shares of common
stock and 3,455,440 shares of Series A Preferred Stock which resulted
in DeepTech receiving net proceeds from the Rights Offering of $75.0
million. Under a firm underwriting agreement, TB Securities received
a fee of $6.9 million as an underwriting fee. To the extent any shares
held by DeepTech remained unsubscribed, Tatham Offshore purchased such
shares and DeepTech contributed the proceeds from such purchase to
Tatham Offshore. DeepTech no longer owns any of Tatham Offshore's
capital stock as a result of the Rights Offering.
18
<PAGE> 21
(e) As of August 14, 1998, the closing of the Merger, DeepTech no longer
operates Tatham Offshore under its management agreement. Tatham
Offshore has hired a management team and support personnel required to
conduct its contract drilling services business and implement its
Atlantic Canada strategy.
Sale of Properties to the Partnership
On June 30, 1995, the Partnership entered into a purchase and sale
agreement (the "Purchase and Sale Agreement") with Tatham Offshore. Pursuant to
the Purchase and Sale Agreement, the Partnership acquired, subject to certain
reversionary interests, a 75% working interest in Viosca Knoll Block 817, a 50%
working interest in Garden Banks Block 72 and a 50% working interest in Garden
Banks Block 117 (the "Assigned Properties") from Tatham Offshore for
$30,000,000. Tatham Offshore received $15,000,000 at closing and an additional
$15,000,000 on August 15, 1995. The Partnership was entitled to retain all of
the revenue attributable to the Assigned Properties until it has received net
revenue equal to the Payout Amount (as defined below), whereupon Tatham Offshore
was entitled to receive a reassignment of the Assigned Properties, subject to
reduction and conditions as discussed below. Prior to December 10, 1996, "Payout
Amount" was defined as an amount equal to all costs incurred by Flextrend
Development with respect to the Assigned Properties (including the $30,000,000
acquisition cost paid to Tatham Offshore) plus interest thereon at a rate of 15%
per annum. Effective February 1, 1996, the Partnership entered into an agreement
with Tatham Offshore regarding the restructuring of certain transportation
agreements that increased the amount recoverable from the Payout Amount by
$7,500,000 plus interest (see "Impairment, Abandonment and Other" discussion
below). During the year ended June 30, 1996, Tatham Offshore waived its options
to prepay the then-existing Payout Amount and receive a reassignment of its
working interests and recognized $22,641,000 as a gain on the sale of oil and
gas properties.
Effective December 10, 1996, the Partnership exercised its option to
permanently retain 50% of the acquired working interest in the Assigned
Properties in exchange for forgiving 50% of the then-existing Payout Amount
exclusive of the $7,500,000 plus interest added to the Payout Amount in
connection with the restructuring of certain transportation agreements discussed
above. The Partnership remained obligated to fund any further development costs
attributable to Tatham Offshore's portion of the working interests, with such
costs to be added to the Payout Amount. The Partnership's election to retain 50%
of the acquired working interest in the Assigned Properties reduced the Payout
Amount from $94,020,000 to $50,760,000. Subsequent to December 10, 1996, only
50% of the development and operating costs attributable to the Assigned
Properties were added to the Payout Amount and 50% of the net revenue from the
Assigned Properties reduce the Payout Amount. As a result of the Merger and
related transactions, the reversionary interests were cancelled.
Viosca Knoll Block 817
In September 1995, Tatham Offshore reacquired an aggregate 25% working
interest in Viosca Knoll Block 817 and an approximate 12.5% working interest in
the remainder of Viosca Knoll Blocks 772/773, 774, 818 and 861 (collectively,
the "Viosca Knoll Properties") from two industry partners for a total of
$16,000,000 in convertible production payments payable from 25% of the net cash
flow from the Viosca Knoll Properties so acquired. The estimated net present
value of the convertible production payments payable of $2,000,000 was recorded
as oil and gas properties on the date of acquisition. The unpaid portion of the
production payments is convertible into Tatham Offshore common stock at any time
during the first five years at $8.00 per share. At June 30, 1998, the unpaid
portion of the production payment obligation totaled $11,299,000. For the years
ended June 30, 1998 and 1997, production and operating expenses include
$1,236,000 and $1,465,000, respectively, of production payments made during the
year. As part of the Redemption Agreement, this property was transferred to the
Partnership effective August 14, 1998, subject to the existing production
payment.
19
<PAGE> 22
Transportation and Processing Agreements
General. In December 1993, Tatham Offshore entered into a master gas
dedication arrangement with the Partnership (the "Master Dedication Agreement").
Under the Master Dedication Agreement, Tatham Offshore dedicated all production
from its Garden Banks, Viosca Knoll, Ewing Bank and Ship Shoal leases as well as
certain adjoining areas of mutual interest to the Partnership for
transportation. In exchange, the Partnership agreed to install the pipeline
facilities necessary to transport production from the areas and certain related
facilities and to provide transportation services with respect to such
production. Tatham Offshore agreed to pay certain fees for transportation
services and facilities access provided under the Master Dedication Agreement.
Pursuant to the terms of the Purchase and Sale Agreement, the Partnership
assumed all of Tatham Offshore's obligations under the Master Dedication
Agreement and certain ancillary agreements with respect to the Assigned
Properties.
Ewing Bank Gathering System. Pursuant to a gathering agreement (the
"Ewing Bank Agreement") among Tatham Offshore, DeepTech, and a subsidiary of the
Partnership, Tatham Offshore dedicated all natural gas and crude oil produced
from eight of its Ewing Bank leases for gathering and redelivery by the
Partnership and was obligated to pay a demand rate as well as a commodity charge
equal to 4% of the market price of production actually transported. Tatham
Offshore's Ewing Bank 914 #2 well commenced production in August 1993.
Production and operating expenses on the accompanying consolidated statement of
operations included demand and commodity fees of $1,493,000 and $5,090,000 for
the years ended June 30, 1997 and 1996, respectively, related to the Ewing Bank
Agreement. In March 1996, the Partnership settled all remaining unpaid demand
charge obligations under this agreement in exchange for certain consideration as
discussed below.
Ship Shoal. Tatham Offshore and the Partnership also entered into a
gathering and processing agreement (the "Ship Shoal Agreement") pursuant to
which the Partnership constructed a gathering line from Tatham Offshore's Ship
Shoal Block 331 lease to interconnect with a third-party pipeline at the
Partnership's processing facilities located on its Ship Shoal Block 332
platform. Pursuant to the terms of the Ship Shoal Agreement, and in
consideration for constructing the interconnect, refurbishing the platform and
providing access to the processing facilities, Tatham Offshore was required to
pay the Partnership demand charges and has dedicated all production from its
Ship Shoal 331 lease and eight additional surrounding leases for gathering and
processing by the Partnership for additional commodity fees. Production and
operating expenses on the accompanying consolidated statement of operations
include demand and commodity fees of $638,000 and $997,000 for the years ended
June 30, 1997 and 1996, respectively, related to the Ship Shoal Agreement. In
March 1996, the Partnership settled all remaining unpaid demand charge
obligations under this agreement in exchange for certain consideration as
discussed below.
Transportation Agreements Settled. Effective February 1, 1996, Tatham
Offshore entered into an agreement with the Partnership to prepay its remaining
demand charge obligations under the Ewing Bank and Ship Shoal Agreements. Under
the agreement, Tatham Offshore's demand charge obligations relative to the Ewing
Bank Gathering System and the pipeline facilities constructed by the Partnership
for its Ship Shoal property have been prepaid in full. In exchange, Tatham
Offshore (i) issued to the Partnership 7,500 shares of Series B 9% Senior
Convertible Preferred Stock (the "Senior Preferred Stock") with a liquidation
preference of $1,000 per share, (ii) added the sum of $7,500,000 to the Payout
Amount under the Purchase and Sale Agreement and (iii) granted to the
Partnership certain rights to use and acquire the Ship Shoal Block 331 platform.
The Partnership has the right to utilize the Ship Shoal Block 331 platform and
related facilities at a rental rate of $1.00 per annum for such period as the
platform is owned by Tatham Offshore and located on the Ship Shoal Block 331,
provided such use does not interfere with lease operations or other activities
of Tatham Offshore. In addition, the Partnership has a right of first refusal
relative to a sale of the platform. The agreement with the Partnership resulted
in a reduction in demand charge payments of $7,800,000 and $4,100,000 for the
years ended June 30, 1997 and 1996, respectively. Tatham Offshore remains
obligated to pay the commodity charges under these agreements. This agreement
was transferred to the Partnership on August 14, 1998 as part of the Redemption
Agreement.
20
<PAGE> 23
Long-term debt - affiliates
As of June 30, 1997, Tatham Offshore had $60,000,000 aggregate
principal amount of Subordinated Convertible Promissory Notes (the "Subordinated
Notes") outstanding, all of which were held by DeepTech. Interest expense
related to the Subordinated Notes totaled $1,709,000 from July 1, 1997 through
September 18, 1997, the date on which the DeepTech Board of Directors approved
entering into an option agreement to restructure the Subordinated Notes (the
"Restructuring Agreement"). Pursuant to the Restructuring Agreement, DeepTech
forgave the scheduled interest payments due in September and December 1997 under
the Subordinated Notes and on December 17, 1997, converted the Subordinated
Notes into 26,666,667 shares of Tatham Offshore common stock at a conversion
rate of $2.25 per share, the average closing price of Tatham Offshore common
stock for the ten trading days immediately preceding the exercise of the option.
As a result of the conversion of the Subordinated Notes, Tatham Offshore
eliminated all of its then existing outstanding debt.
The Subordinated Notes bore interest at a rate of 11 3/4% per annum,
payable quarterly. Effective July 1, 1997, the interest rate increased to 13%
per annum. Interest expense related to this borrowing totaled $1,709,000,
$7,040,000 and $7,060,000 for the years ended June 30, 1998, 1997 and 1996,
respectively.
Other
On May 15, 1998, DeepFlex borrowed $5,000,000 from Tatham Brothers, an
affiliate of Mr. Tatham. Proceeds from the borrowing were used to fund certain
upgrades and routine maintenance on the FPS Laffit Pincay. This borrowing
matures on January 15, 1999, bears interest at 12% per annum, payable at
maturity and is secured by the Subordinated Promissory Note dated September 30,
1996 issued by RIGCO North America, L.L.C. payable to DeepFlex. Interest expense
totaled $10,000 for the period from June 25, 1998 through June 30, 1998.
Convertible Exchangeable Preferred Stock
Tatham Offshore filed a registration statement (the "Offering") with
the Securities and Exchange Commission (the "Commission") which was declared
effective on December 26, 1995, relating to the granting to all holders of
Tatham Offshore's common stock, on the record date, December 26, 1995, rights
(the "Rights") to purchase up to 25,120,948 warrants (the "Warrants"). Each
Right entitled the holder to subscribe to purchase one Warrant at the purchase
price of $.50 per Warrant. In February 1996, Tatham Offshore issued 25,120,948
Warrants and received $12,560,000 in gross proceeds ($11,291,000 in net
proceeds) pursuant to the exercise of Rights. A total of 20,129,571 Warrants
were exercised to purchase 18,717,030 shares, 74,379 shares and 1,338,162 shares
of Series A, B and C Preferred Stock, respectively, at $1.00 per share which
generated an additional $15,459,000 in proceeds to Tatham Offshore. The
remaining 4,991,377 Warrants outstanding on January 1, 1997 were automatically
converted into an equal number of shares of Mandatory Redeemable Preferred
Stock.
In February 1998, DeepFlex exchanged its 1,016,957 shares of Tatham
Offshore Series C Preferred Stock for 406,783 Exchange Warrants and immediately
converted the Exchange Warrants into 406,783 shares of common stock at $6.53 per
share for a total of $2,656,000 in proceeds to Tatham Offshore. Tatham Offshore
used $2,496,000 of proceeds to redeem all of its 4,991,377 shares of Mandatory
Redeemable Preferred Stock outstanding at $0.50 per share as required under the
terms of the Mandatory Redeemable Preferred Stock issue. DeepFlex conveyed the
406,783 shares of common stock to DeepTech in March 1998.
Stock Compensation Plans
On August 28, 1995, Tatham Offshore filed a registration statement on
Form S-8 with the Commission for the registration of 4,000,000 shares of common
stock authorized for issuance upon exercise of options under
21
<PAGE> 24
Tatham Offshore's Equity Incentive Plan (the "Incentive Plan") and 1,000,000
shares of common stock authorized for issuance upon exercise of options under
Tatham Offshore's Non-Employee Director Stock Option Plan (the "Director Option
Plan" and collectively with the Incentive Plan, the "Option Plans"). The
Incentive Plan, as amended, provides Tatham Offshore the ability to issue a
variety of awards pursuant to the plan including stock options, restricted
stock, stock appreciation rights and stock value equivalent awards. In January
1998, Tatham Offshore issued 100,000 options under the Incentive Plan. In June
1996, Tatham Offshore issued 25,514 shares of common stock to outside directors
pursuant to the exercise of options granted under the Director Option Plan in
settlement of directors' fees and meeting attendance fees for the year ended
June 30, 1996. During the years ended June 30, 1998, 1997 and 1996, Tatham
Offshore issued 15,000 options, 9,000 options and 13,000 options, respectively,
pursuant to the Director Option Plan. Options outstanding under the Option Plans
at June 30, 1998 totaled 136,500 of which 31,500 options were exercisable. In
addition, Tatham Offshore issued 79,000 stock appreciation rights pursuant to
the Incentive Plan during the year ended June 30, 1997.
Other Related Party Transactions
DeepTech
The management agreement between Tatham Offshore and DeepTech provides
for an annual management fee which was intended to reimburse DeepTech for the
estimated costs of its operational, financial, accounting and administrative
services provided to the Company. Effective November 1, 1995, July 1, 1996 and
July 1, 1997, the Company amended its management agreement with DeepTech to
provide for an annual management fee of 27.4%, 24% and 26%, respectively, of
DeepTech's overhead. During the years ended June 30, 1998, 1997 and 1996,
DeepTech charged Tatham Offshore $4,375,000, $3,279,000 and $4,436,000,
respectively, under the management agreement. The Company believes these amounts
are representative of what costs would have been on a stand alone basis for
these services. The management agreement was terminated upon the closing of the
Merger.
DeepTech also entered into a management agreement with DeepFlex which
was intended to reimburse DeepTech for the estimated costs of its operational,
financial, accounting and administrative services. The management fee was
intended to reimburse DeepTech for the estimated costs of services provided to
DeepFlex. Effective July 1, 1996, the management agreement was amended to
provide for an annual management fee of 18% of DeepTech's unreimbursed overhead.
For the years ended June 30, 1998 and 1997, DeepFlex incurred $3,029,000 and
$2,458,000, respectively, under this management agreement. The Company believes
these amounts are representative of what costs would have been on a stand-alone
basis for these services. The management agreement was terminated upon the
closing of the Merger.
In October 1995, DeepFlex entered into a bridge loan agreement (the
"Bridge Loan") with Tatham Offshore whereby DeepFlex agreed to make $12,500,000
of interim bridge financing available to fund a portion of the Company's working
capital and capital requirements. Tatham Offshore borrowed a total of $8,000,000
under the Bridge Loan which accrued interest at a rate of 15% per annum.
Interest expense related to borrowings under the Bridge Loan totaled $210,000
for the year ended June 30, 1996. On January 31, 1996, DeepFlex subscribed for
the purchase of 10,000,000 Warrants, pursuant to the exercise of Rights which
had been assigned from DeepTech, at a cost of $5,000,000, which was paid through
the forgiveness of $5,000,000 of principal and interest due under the Bridge
Loan. In February 1996, Tatham Offshore used Offering proceeds to repay in full
the remaining principal and accrued interest outstanding under the Bridge Loan.
On June 30, 1996, DeepFlex exercised 4,670,957 of its 10,000,000
Warrants to purchase an equal number of shares of Series A Preferred Stock at
$1.00 per share by offsetting the then outstanding payable to DeepTech for costs
allocated under the management agreement by $4,670,957.
22
<PAGE> 25
On November 1, 1995, Tatham Offshore converted $1,734,000 of its
accounts payable to an affiliate into an unsecured promissory note payable to
DeepTech (the "Affiliate Note"). The Affiliate Note bore interest at 14.5% per
annum, payable quarterly, and the principal was payable to DeepTech in six
monthly installments which began on January 31, 1997. Interest expense related
to the Affiliate Note totaled $202,000 and $170,000 for the years ended June 30,
1997 and 1996, respectively.
Under a convertible production payment, the holders of such production
payments are entitled in the aggregate to 25% of the proceeds from the
production attributable to a 25% working interest in Viosca Knoll Block 817
(after deducting all leasehold operating expenses, including platform access and
processing fees) until the holders have received the aggregate sum of $16.0
million. At the option of the holders, the unpaid portion of the production
payment may be converted into Tatham Offshore common stock at any time until
September 2000. In March 1998, Mr. Tatham acquired one-half of this convertible
production payment. At June 30, 1998, the unpaid portion of the convertible
production payment obligation totaled $11.3 million.
Effective July 1, 1995, DeepTech established three deferred
compensation arrangements: (i) a mandatory arrangement for DeepTech's Chief
Executive Officer (the "DeepTech CEO"), (ii) a mandatory arrangement for certain
senior executives of DeepTech and (iii) an optional arrangement for all other
employees of DeepTech. Pursuant to the terms of each arrangement, participants
deferred all or a portion of their cash salary until no later than July 1, 1996.
During each month in the deferral period, each participant was entitled to
receive options to purchase a number of shares of either DeepTech or Tatham
Offshore or Preference Units of the Partnership equal to a percentage (ranging
from 100% to 300% of their cash salary) divided by the lesser of the closing
price on June 30, 1995 (DeepTech - $4.00, Tatham Offshore - $3.50 and the
Partnership - $11.875) or the average closing price for the applicable month.
Options were exercisable only by cancellation of the participant's cash salary.
Each participant earned credits equal to a multiple, based on the option
elected, of their deferred cash salary. Any participant except the DeepTech CEO
could have received all or a portion of their salary in cash if they did not
elect to exercise any options. To the extent that Tatham Offshore issued its
common stock pursuant to the exercise of options granted under these
arrangements, it received an offsetting credit against its management fees
payable to DeepTech. In November 1995, DeepTech terminated the deferred
compensation arrangement for all but three employees of DeepTech. In November
1995 and June 1996, Tatham Offshore issued 12,095 shares and 12,423 shares,
respectively, of its common stock in connection with the mandatory arrangement
for certain senior executives of DeepTech and received a $360,000 credit against
its management fees payable to DeepTech.
The Partnership
Tatham Offshore Canada Limited ("Tatham Offshore Canada"), a
wholly-owned subsidiary of Tatham Offshore, is the Canadian representative of
North Atlantic Pipeline Partners, L.P. ("North Atlantic Partners"), the sponsor
of a proposal to build an approximately 2,500 kilometer pipeline from offshore
Newfoundland and Nova Scotia to the eastern seaboard of the United States. The
Partnership has entered into a letter agreement with Tatham Offshore Canada
regarding participation in the North Atlantic pipeline project. Under such
agreement, Tatham Offshore Canada is responsible for the development costs of
the project. Such agreement contains certain termination rights, contemplates
the negotiation, execution and delivery of definitive agreements and provides
that the Partnership would hold a pro rata partnership interest of up to 20% in
North Atlantic Partners. The Partnership has no financial commitment to the
project until and unless an application is approved by the appropriate Canadian
and United States regulatory authorities. In the event the Partnership was to
terminate its participation in North Atlantic Partners after the date North
Atlantic Partners receives regulatory approval of an application but prior to
the in-service date of the first phase of the North Atlantic pipeline, the
Partnership, under certain conditions, would be obligated to pay Tatham Offshore
Canada an amount equal to 150% of the Partnership's pro rata share of the
"success fee" earned by Tatham Offshore Canada related to the first phase of
construction. For a period of one year after the effective date of the Merger,
the Partnership shall have the right to terminate this agreement without
23
<PAGE> 26
incurring the liability for the above-mentioned "success fee". Tatham Offshore
Canada is seeking additional participants on the same basis as that offered to
the Partnership.
The Partnership charged Tatham Offshore $1,827,000, $1,995,000 and
$1,722,000 for the years ended June 30, 1998, 1997 and 1996, respectively, for
commodity and platform access fees associated with the Viosca Knoll 817 lease in
accordance with certain agreements between the parties. Commodity charges are
based on the volume of oil and gas transported or processed.
Other
During the years ended June 30, 1998, 1997 and 1996, Tatham Offshore
sold 99% of its production to Offshore Gas Marketing, Inc. ("Offshore
Marketing"), an 80%-owned subsidiary of DeepTech. Through October 1995, the
sales prices were based upon contractually agreed-upon posted prices. In
November 1995, Tatham Offshore renegotiated its agreement with Offshore
Marketing to provide Offshore Marketing fees equal to 2% of the sales value of
crude oil and condensate and $0.015 per dekatherm of natural gas for selling the
Company's production.
Dover Technology, Inc. ("Dover"), a 50%-owned subsidiary of DeepTech,
charged Tatham Offshore $160,000 and $601,000 for the years ended June 30, 1997
and 1996, respectively, for services related to the acquisition, development,
exploration or evaluation of oil and gas properties. Tatham Offshore's payable
to Dover for these services in the amount of $1,734,000 at November 1, 1995 was
converted into the Affiliate Note.
During the year ended June 30, 1996, the Company forgave a $90,000
advance to an officer of DeepTech who is also a stockholder of Tatham Offshore
in exchange for consulting fees rendered by the officer/stockholder to Tatham
Offshore.
The Company is a guarantor of a $5.0 million loan from NationsBank,
N.A. to Tatham Brothers, which proceeds were used by DeepFlex to fund certain
improvements to the Rigs. The loan bears interest at the rate of Prime plus
1 1/2% per annum and is due on January 19, 1999 or on demand. Mr. Tatham is
also a co-guarantor of this loan.
The Standby Agreement (the "Standby Agreement"), dated as of February
27, 1998, was executed in connection with the Merger and related transactions
and is by and among the Company, DeepTech, Mr. Tatham and El Paso. Pursuant to
the Standby Agreement, to the extent that any of the Company's Common Stock or
Series A Preferred Stock was not subscribed for by holders of DeepTech common
stock in the Rights Offering, Tatham Brothers committed to purchase such number
of unsubscribed shares in order for DeepTech to receive net proceeds from the
Rights Offering of not less than $75 million (the "Standby Commitment"). In
addition, Tatham Brothers had the right to purchase any shares which DeepTech
held after the Rights Offering and the satisfaction of the Standby Commitment.
Mr. Tatham unconditionally guaranteed Tatham Brothers' performance of the
Standby Commitment, which guarantee is backed by a letter of credit from
NationsBank, N.A. In consideration of Mr. Tatham's guarantee of the Standby
Commitment, under the terms of a Repayment Agreement between Mr. Tatham and
Tatham Brothers, dated February 27, 1998, (i) Tatham Brothers granted to Mr.
Tatham an option to purchase up to a one-third membership interest in Tatham
Brothers for $1,000 through the issuance of new membership units, and (ii) Mr.
Tatham had the right, but not the obligation, to lend to Tatham Brothers all
sums necessary for Tatham Brothers to fulfill its obligations under the Standby
Commitment.
Pursuant to the Purchase Commitment Agreement, dated as of February 27,
1998 by and between Tatham Brothers and the Company, in consideration of the
Standby Commitment, the Company agreed to pay to Tatham Brothers a fee ranging
from $5.8 million to $7.5 million depending upon the date of closing of the
Rights Offering. Such fee was payable by the Company in cash, or at Tatham
Brothers' election in shares of
24
<PAGE> 27
Common Stock. In connection with the Standby Commitment, the Company has agreed
to grant Tatham Brothers certain registration rights with respect to such
shares, including three demand registrations and unlimited piggyback
registration rights for five years. The terms of the Purchase Commitment
Agreement were negotiated by Tatham Brothers and the Company and were approved
by the Company's Conflict Committee and Board of Directors. In August 1998,
Tatham Brothers elected to take their $6.9 million fee in the form of a
short-term note, as discussed below.
In connection with the Merger, the Company entered into a short term
financing arrangement with Tatham Brothers to provide for funds to (i) satisfy
approximately $1.6 million of cash requirements with respect to the Redemption
Agreement with the Partnership, (ii) pay $1.4 million to DeepTech in connection
with the Management Agreement between Tatham Offshore and DeepTech, (iii) pay
approximately $6.9 million to TB Securities with respect to obligations under
the Rights Offering, (iv) fund a $7.5 million letter of credit for potential tax
liabilities, (v) refinance $5.1 million in existing loans to DeepFlex and (vi)
pay fees and expenses associated with the short term financing. Tatham Brothers
is an affiliate of Thomas P. Tatham and the parent company of TB Securities. The
short term financing bears interest at the rate of 12% per annum and is due on
January 15, 1999. It is secured by a pledge of DeepFlex of its interest in a
certain payment-in-kind Subordinated Promissory Notes issued by RIGCO North
America, L.L.C. and FPS V, Inc., both subsidiaries of the Company, which has a
current outstanding balance of approximately $70.0 million. The Company
anticipates that it will refinance the short term financing with Tatham Brothers
upon its maturity or pay off the facility with proceeds from the refinancing of
the Credit Facility.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Tatham Offshore's officers
and directors, and persons who beneficially own more than 10% of Common Stock
("10% Stockholders"), to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("the Commission") and the regulations of
the Securities and Exchange Commission require such officers, directors and 10%
Stockholders to furnish the Company with copies of all such reports that they
file. Based solely upon a review of the Forms 3, 4 and 5 and amendments thereto
provided to the Company, and certain written representations furnished to the
Company, the Company believes that, during the fiscal year ended June 30, 1998,
its executive officers, directors and greater than 10% beneficial owners
complied with all applicable filing requirements.
25
<PAGE> 28
COMPARATIVE STOCK PERFORMANCE
As required by applicable rules of the Commission, the performance
graph was prepared based upon the following assumptions:
1. $100 was invested in Common Stock, the Standard & Poor's 500 Stock
Index (the "S&P 500 Index") and the Dow Jones Oil -- Secondary
Index (the "Peer Group") on February 9, 1994 (the date the Common
Stock commenced trading on The Nasdaq National Market).
2. Dividends are reinvested on the ex-dividend dates.
COMPARATIVE TOTAL RETURNS
TATHAM OFFSHORE, INC., THE S&P 500 INDEX AND THE PEER GROUP
(PERFORMANCE RESULTS FEBRUARY 9, 1994 TO JUNE 30, 1998)
<TABLE>
<CAPTION>
------------- ------------- -------------- --------------- -------------- --------------
9-FEB-94 30-JUN-94 30-JUN-95 30-JUN-96 30-JUNE-97 30-JUN-98
------------- ------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
TATHAM OFFSHORE 100.00 153.75 35.00 8.75 5.67 3.00
------------- ------------- -------------- --------------- -------------- --------------
S&P 500 INDEX 100.00 94.90 119.64 150.75 203.05 264.30
------------- ------------- -------------- --------------- -------------- --------------
PEER GROUP 100.00 98.41 101.25 117.38 126.76 129.64
------------- ------------- -------------- --------------- -------------- --------------
</TABLE>
26
<PAGE> 29
STOCKHOLDER PROPOSALS
PROPOSALS FOR 1999 ANNUAL MEETING
Pursuant to various rules promulgated by the Commission and the
provisions of Tatham Offshore's Restated Certificate of Incorporation and
By-laws, each as amended, any proposals of holders of Common Stock of Tatham
Offshore intended to be presented at the Annual Meeting of Stockholders of
Tatham Offshore to be held in 1999 must be received by Tatham Offshore addressed
to the Secretary, 7400 Chase Tower, 600 Travis Street, Houston, Texas 77002, no
later than June 28, 1999 in order to be included in Tatham Offshore's proxy
statement and form of proxy relating to that meeting and considered at such
meeting.
PROPOSALS FOR 1998 ANNUAL MEETING
With respect to business to be brought before the Annual Meeting,
Tatham Offshore has not received any notices from stockholders that it is
required to include in this Proxy Statement. If, however, any other matters
should come before the Annual Meeting, all proxies which have signed and
returned without further instruction will give the persons designated thereon
discretionary authority to vote according to their best judgement.
27
<PAGE> 30
GENERAL
As of the date of this Proxy Statement, the management of Tatham
Offshore has no knowledge of any business to be presented for consideration at
the Annual Meeting other than that described above. If any other business should
properly come before the Annual Meeting, it is intended that the shares
represented by proxies will be voted with respect thereto in accordance with the
judgment of the persons named in such proxies.
The cost of any solicitation of proxies by mail will be borne by Tatham
Offshore. Arrangements may be made with brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of material to and solicitation of
proxies from the beneficial owners of Common Stock held of record by such
persons, and Tatham Offshore will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out of pocket expenses incurred by them
in connection therewith. In addition, Tatham Offshore has retained ChaseMellon
Shareholder Services, L.L.C. to perform a proxy search to determine the
beneficial owners of the Common Stock as of the record date and will pay a fee
to such firm of approximately $400 plus reimbursement of expenses.
The information contained in this Proxy Statement in the section
entitled "Comparative Stock Performance" shall not be deemed incorporated by
reference by any general statement incorporating by reference any information
contained in this Proxy Statement into any filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, except to the
extent that Tatham Offshore specifically incorporates by reference the
information contained in such sections, and shall not otherwise be deemed filed
under the Securities Act or the Exchange Act.
By Order of the Board of Directors,
THOMAS P. TATHAM
Chairman of the Board
Houston, Texas
November 23, 1998
28
<PAGE> 31
[FRONT SIDE OF PROXY]
PROXY
TATHAM OFFSHORE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Thomas P. Tatham and Dennis A. Kunetka as
Proxies, with the power of substitution, and authorizes them to represent and to
vote at the Annual Meeting of Stockholders to be held December 15, 1998, or any
adjournment thereof, all the shares of Common Stock of Tatham Offshore, Inc.
held of record by the undersigned on October 15, 1998, as designated below, and
with discretionary authority as to any other matters that may properly come
before the Annual Meeting, including substitute nominees if any of the named
nominees for Director should be unavailable to serve for election, in accordance
with and as described in the Notice Meeting of Stockholders and Proxy
Statements.
1. Election of directors -- director nominees:
Kenneth E. Beeney, James G. Niven, Thomas P. Tatham, Roger B. Vincent,
Sr., Don W. Wilson
| | FOR all nominees listed above | | WITHHOLD AUTHORITY
(except as indicated below) to vote for all nominees
Instruction: to withhold authority to vote for any of the above
nominees, write the nominee's name(s) on this line.
--------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as
independent accountants.
| | FOR | | AGAINST | | ABSTAIN
3. The Proxies are authorized to vote in their best judgment upon
such other business as may properly come before the Annual
Meeting.
[REVERSE SIDE OF PROXY]
This Proxy, when properly executed, will be voted in the manner
directed by the undersigned stockholder. Please refer to the Proxy Statement for
a discussion of each of these matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE PROPOSALS. As to any other matter, said Proxies shall vote in
accordance with their best judgment.
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. If acting as attorney, executor, trustee, or in
any other representative capacity, sign name and title.
Dated , 1998
----------------------
--------------------------------------------
Signature
-------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
