<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NO. 0-22892
TATHAM OFFSHORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0269967
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 TRAVIS
SUITE 7400
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 224-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
AS OF MAY 11, 1998, THERE WERE OUTSTANDING 30,001,026 SHARES OF COMMON
STOCK, PAR VALUE $0.01 PER SHARE, OF THE REGISTRANT.
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<PAGE> 2
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION...................................................................1
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 1998 (unaudited) and June 30, 1997................1
Unaudited Consolidated Statement of Operations for the Three and Nine Months
Ended March 31, 1998 and 1997, respectively...............................................2
Unaudited Consolidated Statement of Cash Flows for the Nine Months
Ended March 31, 1998 and 1997.............................................................3
Consolidated Statement of Stockholders' Equity (Deficit) for the
Nine Months Ended March 31, 1998 (unaudited)..............................................4
Notes to Consolidated Financial Statements...................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................10
PART II. OTHER INFORMATION.....................................................................15
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES.......................................................................................16
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,309 $ 7,887
Accounts receivable from joint venture partners 213 201
Receivable from affiliates 703 1,350
Prepaid assets 116 --
------------ ----------
Total current assets 3,341 9,438
------------ -----------
Oil and gas properties:
Oil and gas properties, at cost, using
successful efforts method 51,919 81,081
Less - accumulated depreciation, depletion,
amortization and impairment 24,374 50,329
------------ -----------
Oil and gas properties, net 27,545 30,752
------------ -----------
Deferred costs 10,428 1,317
------------ -----------
Total assets $ 41,314 $ 41,507
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 2,016 $ 1,385
Accounts payable to affiliates 1,511 155
------------ -----------
Total current liabilities 3,527 1,540
Long-term debt to affiliate -- 60,000
Other noncurrent liabilities 7,229 7,663
------------ -----------
10,756 69,203
------------ -----------
Stockholders' equity (deficit) (Note 4):
Preferred stock, $0.01 par value, 110,000,000 shares
authorized as of March 31, 1998 and June 30, 1997,
18,026,294 shares and 24,343,931 shares issued and outstanding
at March 31, 1998 and June 30, 1997, respectively 180 243
Common stock, $0.01 par value, 250,000,000 shares authorized
as of March 31, 1998 and June 30, 1997, 29,982,808 shares
and 2,735,573 shares issued and outstanding
at March 31, 1998 and June 30, 1997, respectively 300 274
Additional paid-in capital 146,520 84,225
Accumulated deficit (116,442) (112,438)
------------ -----------
30,558 (27,696)
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 41,314 $ 41,507
============ ===========
</TABLE>
The accompanying notes are an integral part
of this financial statement.
1
<PAGE> 4
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
--------------------------- --------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales $ 2,117 $ 6,206 $ 9,276 $ 16,508
----------- ----------- ----------- -----------
Costs and expenses:
Production and operating expenses 1,129 2,609 4,228 6,037
Exploration expenses -- 47 25 375
Depreciation, depletion and amortization 1,086 1,359 3,125 3,500
Management fee 1,210 756 3,305 2,305
General and administrative expenses 190 656 1,059 1,645
----------- ----------- ----------- -----------
3,615 5,427 11,742 13,862
----------- ----------- ----------- -----------
Operating (loss) income (1,498) 779 (2,466) 2,646
Interest income 27 176 205 422
Interest expense - affiliate (23) (2,075) (1,743) (6,314)
----------- ----------- ----------- -----------
Net loss (1,494) (1,120) (4,004) (3,246)
Preferred stock dividends (864) (970) (2,829) (2,944)
----------- ----------- ----------- -----------
Net loss available to common shareholders $ (2,358) $ (2,090) $ (6,833) $ (6,190)
=========== =========== =========== ===========
Weighted average number of shares outstanding
(Note 1) 29,742 2,689 13,083 2,644
=========== =========== =========== ===========
Basic and diluted loss per common share (Note 5) $ (0.08) $ (0.78) $ (0.52) $ (2.34)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of this financial statement.
2
<PAGE> 5
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
-------------------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,004) $ (3,246)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization 3,125 3,500
Costs and expenses settled by issuance of common stock 389 --
Noncash interest expense related to conversion of debt
into common stock 1,709 --
Other -- 1,859
Changes in operating working capital:
(Increase) decrease in accounts receivable from joint
venture partners (12) 475
Decrease (increase) in receivable from affiliates 647 (807)
(Increase) decrease in prepaid expenses (116) 29
Increase (decrease) in accounts payable and accrued
liabilities 631 (2,987)
Increase (decrease) in accounts payable to affiliates 1,356 (2,753)
--------- ---------
Net cash provided by (used in) operating activities 3,725 (3,930)
--------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (352) (2,912)
Deferred costs (9,111) --
--------- ---------
Net cash used in investing activities (9,463) (2,912)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of Series A Preferred Stock -- 12,242
Proceeds from issuance of Series B Preferred Stock -- 74
Proceeds from issuance of Series C Preferred Stock -- 1,339
Proceeds from the issuance of common stock related to
the exercise of Exchange Warrants 2,656 --
Redemption of Mandatory Redeemable Preferred Stock (2,496) --
Repayment of note payable to affiliate -- (867)
--------- ---------
Net cash provided by financing activities 160 12,788
--------- ---------
Net (decrease) increase in cash and cash equivalents (5,578) 5,946
Cash and cash equivalents at beginning of year 7,887 4,764
--------- ---------
Cash and cash equivalents at end of period $ 2,309 $ 10,710
========= =========
</TABLE>
Supplemental disclosures to the statement of cash flows - see Note 7.
The accompanying notes are an integral part
of this financial statement.
3
<PAGE> 6
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ------------------------
Number of Number of
Shares Par Value Shares Par Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, June 30, 1997 24,344 $ 243 27,356 $ 274
Reverse stock split (Note 1)
(unaudited) -- -- (24,620) (246)
Conversion of debt into common
stock (unaudited) -- -- 26,667 266
Issuance of common stock
(unaudited) -- -- 90 1
Conversion of Series A Preferred
Stock into common stock
(unaudited) (310) (3) 83 1
Conversion of Series C Preferred
Stock into Exchange Warrants
(unaudited) (1,017) (10) -- --
Issuance of common stock
related to the exercise of
Exchange Warrants
(unaudited) -- -- 407 4
Redemption of Mandatory
Redeemable Preferred Stock
(unaudited) (4,991) (50) -- --
Net loss for the nine months
ended March 31, 1998
(unaudited) -- -- -- --
--------- --------- --------- ---------
Balance, March 31, 1998
(unaudited) 18,026 $ 180 29,983 $ 300
========= ========= ========= =========
<CAPTION>
Additional
Exchange paid-in Accumulated
Warrants capital deficit Total
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, June 30, 1997 $ -- $ 84,225 $(112,438) $ (27,696)
Reverse stock split (Note 1)
(unaudited) -- 246 -- --
Conversion of debt into common
stock (unaudited) -- 61,443 -- 61,709
Issuance of common stock
(unaudited) -- 388 -- 389
Conversion of Series A Preferred
Stock into common stock
(unaudited) -- 2 -- --
Conversion of Series C Preferred
Stock into Exchange Warrants
(unaudited) 1,474 (1,464) -- --
Issuance of common stock
related to the exercise of
Exchange Warrants
(unaudited) (1,474) 4,126 -- 2,656
Redemption of Mandatory
Redeemable Preferred Stock
(unaudited) -- (2,446) -- (2,496)
Net loss for the nine months
ended March 31, 1998
(unaudited) -- -- (4,004) (4,004)
--------- --------- --------- ---------
Balance, March 31, 1998
(unaudited) $ -- $ 146,520 $(116,442) $ 30,558
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of this financial statement.
4
<PAGE> 7
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Tatham Offshore, Inc. ("Tatham Offshore"), a Delaware corporation, is an
independent energy company currently pursuing energy related opportunities in
Atlantic Canada, including offshore contract drilling services, substantial
natural gas gathering and transmission facilities and related energy
infrastructure. Historically, Tatham Offshore was engaged in the development,
exploration and production of oil and gas reserves located primarily offshore
the United States in the Gulf of Mexico (the "Gulf"). Currently, Tatham Offshore
is an approximately 94%-owned subsidiary of DeepTech International Inc.
("DeepTech"), a diversified energy company, which, through its affiliates, is
engaged in offshore contract drilling services and the acquisition, development,
production, processing, gathering, transportation and marketing of, and the
exploration for, oil and gas located offshore in the Gulf and offshore eastern
Canada. See Note 2.
Tatham Offshore Canada Limited, a wholly-owned subsidiary of Tatham Offshore,
pursues certain opportunities offshore eastern Canada and is the Canadian
representative of North Atlantic Pipeline Partners, L.P. ("North Atlantic").
North Atlantic is the sponsor of a proposal to construct a natural gas pipeline
offshore Newfoundland and Nova Scotia to the eastern seaboard of the United
States. Through March 31, 1998, Tatham Offshore Canada Limited has incurred
$10.4 million in pre-development costs associated with the North Atlantic
project and related infrastructure projects. Such costs include engineering,
survey, legal, regulatory and other costs associated with the project.
Tatham Offshore Development, Inc. ("Tatham Development"), a Delaware corporation
and a wholly-owned subsidiary of Tatham Offshore, holds interests in the Ewing
Bank Blocks 958, 959, 1002 and 1003, the Sunday Silence prospect.
The accompanying consolidated financial statements include the accounts of
Tatham Offshore and those 50% or more owned subsidiaries controlled by Tatham
Offshore (collectively referred to as the "Company").
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Accordingly, the statements reflect all normal
recurring adjustments which are, in the opinion of management, necessary for a
fair statement of the results of operations for the period covered by such
statements. These interim consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997. All number of shares of Tatham Offshore common stock and per share
disclosures have been restated to reflect a ten-for-one common share reverse
stock split approved by the Board of Directors of Tatham Offshore on November
13, 1997 for the shareholders of record as of the close of business on November
24, 1997.
NOTE 2 - RECENT EVENTS:
On March 2, 1998, DeepTech announced that its Board of Directors and holders of
a majority of its outstanding stock had approved the execution of an Agreement
and Plan of Merger (the "Merger Agreement") pursuant to which DeepTech would
merge (the "Merger") with El Paso Natural Gas Company ("El Paso") or, under
certain circumstances, one of its subsidiaries.
As a result of the Merger, some of the assets of the Company and DeepTech will
be restructured so that DeepFlex Production Services, Inc. ("DeepFlex"),
currently a wholly-owned subsidiary of DeepTech, will become a wholly-owned
subsidiary of Tatham Offshore and the Company will transfer its interest in the
Sunday Silence prospect to DeepTech. Pursuant to the Redemption Agreement
(discussed below), Tatham Offshore has agreed to transfer all of its remaining
assets located in the Gulf to Leviathan Gas Pipeline Partners, L.P. (the
"Partnership"), an affiliate of the Company. Further, DeepTech will divest
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 (Note 4)
currently held by DeepTech to the stockholders of DeepTech in a Rights Offering
(discussed below). Both the Merger and the transactions contemplated by the
Redemption Agreement are subject to customary regulatory approvals, the
satisfaction of certain conditions and the consummation of certain related
transactions and are anticipated to be completed in June or July 1998.
5
<PAGE> 8
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Following the asset restructuring, the Company's business will consist of the
operation of two semisubmersible drilling rigs, the FPS Bill Shoemaker and the
FPS Laffit Pincay, currently owned by DeepFlex. In addition, the Company 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. See
Item 2. "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
The material terms of the Merger and the transactions contemplated by the Merger
Agreement, Redemption Agreement (discussed below) and other agreements as these
agreements relate to the Company are as follows:
(a) DeepTech will contribute all of the outstanding shares of capital stock
of DeepFlex to Tatham Offshore. As a result of this contribution by
DeepTech, the Company, through DeepFlex, will assume certain
indebtedness due to DeepTech and approximately $60.0 million of
third-party debt.
(b) Tatham Offshore will convey to DeepTech all of the outstanding shares
of capital stock of Tatham Development and will cancel its reversionary
interests in certain oil and gas properties in payment of the
indebtedness owed to DeepTech discussed above.
(c) Tatham Offshore will transfer its remaining assets located in the Gulf
to the Partnership in consideration of the redemption by Tatham
Offshore of its Senior Preferred Stock (discussed in Note 4) 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 has
agreed to exchange 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 will
pay to/receive from the Partnership an amount equal to the net cash
generated from/required by such properties from January 1, 1998 through
the closing date. In addition, the Partnership agreed to assume all
abandonment and restoration obligations associated with the platform
and leases. This transaction is expected to close on the later of July
1, 1998 or one business day after the closing of the Rights Offering
discussed below. If the transactions contemplated by the Redemption
Agreement are consummated, the management fees charged to Tatham
Offshore by DeepTech will be reduced by 50% effective retroactively to
January 1, 1998 and the balance owed to DeepTech will be paid at the
closing of the Merger. See (f) below.
(d) On April 10, 1998, Tatham Offshore filed a Registration Statement on
Form S-1 with the Commission, which is currently under review, 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"). Tatham Offshore will receive proceeds from the
Rights Offering if the total net proceeds exceed the total of (i) $75.0
million and (ii) the amount of certain estimated tax payments of the
Company. An affiliate of Mr. Thomas P. Tatham, Chairman of the Board
and Chief Executive Officer of the Company, has committed to purchase a
sufficient number of unsubscribed shares as to result in DeepTech
receiving net proceeds from the Rights Offering of not less than $75.0
million. In exchange, the affiliate will receive a fee of up to $7.5
million, which will be payable in cash or common stock of Tatham
Offshore at the election of Tatham Offshore. Such purchase commitment
is secured by a guarantee from Mr. Tatham and a letter of credit issued
by a bank. To the extent any shares remain unsubscribed, Tatham
Offshore has agreed to purchase such shares and DeepTech will
contribute the proceeds from such purchase to the Company. Upon
completion of this offering, DeepTech will not own any of Tatham
Offshore's capital stock.
(e) Tatham Offshore will enter into a tax sharing agreement (the "Tax
Sharing Agreement") with DeepTech and DeepFlex in which Tatham Offshore
will pay (i) all taxes attributable to Tatham Offshore and its
subsidiaries, including under certain circumstances, taxes arising from
the conveyance to Tatham Offshore
6
<PAGE> 9
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
by DeepTech of the two semisubmersible drilling rigs, (ii) taxes of
Tatham Development to DeepTech pursuant to the Merger and related
transactions, and (iii) taxes of DeepTech attributable to the Merger
and related transactions and the Rights Offering (but not to the extent
such taxes exceed the sum of $7.0 million and any taxes attributable to
the value of Tatham Offshore being in excess of a notional amount to be
determined according to a formula set forth in the Tax Sharing
Agreement).
(f) Upon completion of the Merger, DeepTech will no longer operate Tatham
Offshore under its management agreement discussed in Note 3. Tatham
Offshore will hire a management team and support personnel required to
conduct its contract drilling services business and implement its
Atlantic Canada strategy. See Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
NOTE 3 - RELATED PARTY TRANSACTIONS:
Management Agreement
The management agreement between Tatham Offshore and DeepTech provides for an
annual management fee which is intended to reimburse DeepTech for the estimated
costs of its operational, financial, accounting and administrative services
provided to the Company. Effective July 1, 1997, the management agreement was
amended to provide for an annual management fee of 26% of DeepTech's overhead
expenses. During the nine months ended March 31, 1998, DeepTech charged Tatham
Offshore $3.3 million under this agreement. The management agreement will be
terminated upon the closing of the Merger. See Note 2.
Notes Payable to DeepTech
As of June 30, 1997, Tatham Offshore had $60.0 million 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 $1.7 million 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 outstanding debt.
7
<PAGE> 10
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY:
The following table summarizes Tatham Offshore's outstanding equity as of March
31, 1998:
<TABLE>
<CAPTION>
Conversion/
Shares Liquidation Dividend Dividends Exchange
Equity Outstanding Preference Rate In Arrears Features
<S> <C> <C> <C> <C> <C>
Senior Preferred Stock (a) 7,500 $1,000 per share 9% $ 1,462,500 (a) (c)
Series A Preferred Stock (b) 17,623,210 $1.50 per share 12% $ 5,551,311 (d)(e)
Series B Preferred Stock 74,379 $1.00 per share 8% $ 8,925 (d)(e)
Series C Preferred Stock 321,205 $0.50 per share 4% $ 8,030 (d)(e)
Common Stock (Notes 2 and 3) 29,982,808 -- -- $ -- --
</TABLE>
- -------------------
(a) In March 1998, Tatham Offshore eliminated its 9% Senior Convertible
Preferred Stock and replaced this stock with Series B 9% Senior
Convertible Preferred Stock ("Senior Preferred Stock"). Each share of the
Senior Preferred Stock is senior to all other classes of Tatham Offshore
preferred and common stock in the case of liquidation, dissolution or
winding up of Tatham Offshore. The Partnership holds all outstanding
shares. In connection with the Redemption Agreement, the Senior Preferred
Stock and all related unpaid dividends will be redeemed in full. See Note
2.
(b) In March 1998, DeepFlex conveyed its 4,670,957 shares of Series A
Preferred Stock to DeepTech. See Note 2.
(c) The Senior Preferred Stock shall be convertible into Series A Preferred
Stock using a conversion ratio equal to (i) the liquidation preference
amount plus accumulated unpaid dividends divided by (ii) $0.9375, the
closing price of the Series A Preferred Stock on February 27, 1998.
(d) At any time until December 31, 1998, each share may be exchanged for 0.4
Exchange Warrants. Each full Exchange Warrant entitles the holder thereof
to purchase one share of Tatham Offshore common stock at $6.53 per share.
The Exchange Warrants expire on July 1, 1999. Alternatively, at any time,
the holder of any shares may convert the liquidation value and accrued
and unpaid dividends into shares of Tatham Offshore common stock at $6.53
per share.
(e) Redeemable at the option of Tatham Offshore on or after July 1, 1997.
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 $2.7 million in proceeds to Tatham Offshore. Tatham Offshore used
$2.5 million 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.
NOTE 5 - EARNINGS PER SHARE:
During the three months ended December 31, 1997, Tatham Offshore adopted
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 establishes new guidelines for computing earnings per share
("EPS") and requires dual presentation of basic and diluted EPS for entities
with complex capital structures. Basic EPS excludes dilution and is computed by
dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects potential dilution and is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period increased by the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued. All prior period EPS data has been restated to conform with the
provisions of SFAS No. 128.
Tatham Offshore excluded from its computation of diluted EPS the effect of
antidilutive securities related to its outstanding convertible exchangeable
preferred stocks discussed in Note 3 and its convertible production payment
related to 25% of the net operating cash flow from Viosca Knoll Block 817.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
The Nasdaq National Market
The Nasdaq Stock Market, Inc. ("Nasdaq") listing criteria requires a company
listed on The Nasdaq National Market to have a minimum dollar value associated
with the public float of its listed stock. On February 23, 1998, the Nasdaq
8
<PAGE> 11
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
minimum public float requirement increased from $1.0 million to $5.0 million.
Pursuant to an exception granted by Nasdaq, Tatham Offshore has until May 26,
1998 to meet the minimum public float requirement. Since the market value of
Tatham Offshore's public float (i) has exceeded $5 million from time to time
since February 23, 1998 and (ii) is expected to be well in excess of $5 million
when the Rights Offering is consummated, Tatham Offshore has requested that
Nasdaq either (i) agree that the public float requirement has been met or (ii)
agree to extend the exception period until the earlier to occur of September 30,
1998 or the date on which the Rights Offering is consummated. However, no
assurance can be given regarding Nasdaq's position, and in the event Tatham
Offshore is unable to comply with the new public float requirement, Tatham
Offshore's common stock will immediately be delisted from The Nasdaq National
Market. In the event that The Nasdaq National Market delists Tatham Offshore's
common stock, the holders thereof could suffer a decrease in marketability of
their shares and the liquidity of their investment in Tatham Offshore's common
stock and its preferred stocks which are convertible into common stock, which
may have a material adverse effect on the market value of Tatham Offshore's
common stock and Tatham Offshore's ability to access equity markets in the
future.
Other
In the ordinary course of business, the Company is subject to various laws and
regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position or operations of
the Company. Various legal actions have arisen in the ordinary course of
business. Management believes that the outcome of such proceedings will not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.
The Company anticipates substantial future capital expenditures associated with
the development and implementation of the North Atlantic pipeline project and
related opportunities in Atlantic Canada. Realization of the potential of the
North Atlantic pipeline project and related opportunities in Atlantic Canada is
dependent upon the ability of the Company to obtain sufficient additional
capital or project financing.
NOTE 7 - SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
Cash paid, net of amounts capitalized
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1998 1997
(in thousands)
<S> <C> <C>
Interest $ 9 $ 5,470
Taxes $ -- $ --
</TABLE>
Supplemental disclosures of noncash investing and financing activities
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1998 1997
(in thousands)
<S> <C> <C>
Conversion of long-term debt to
common stock $ 60,000 $ --
Conversion of preferred stock to
common stock $ 445 $ 1,065
Assignment of oil and gas properties and
abandonment obligations $ 1,200 $ --
</TABLE>
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in Item 1.
"Consolidated Financial Statements" and is intended to assist in the
understanding of the Company's financial condition and results of operations for
the three and nine months ended March 31, 1998.
GENERAL
Tatham Offshore is an independent energy company currently pursuing energy
related opportunities in Atlantic Canada, including offshore contract drilling
services, the North Atlantic pipeline project, related gas processing
facilities, a facility for the generation of electricity and other related
investments. Historically, Tatham Offshore was engaged in the development,
exploration and production of oil and gas reserves located primarily in the
flextrend and deepwater areas of the Gulf. Currently, Tatham Offshore has
entered into contracts and other agreements which, if consummated, will allow
the Company to (i) divest itself of its oil and gas properties and related
assets located in the Gulf, (ii) operate independently of DeepTech, (iii)
acquire two semisubmersible drilling rigs and (iv) redeem its Senior Preferred
Stock. See "-- Liquidity and Capital Resources -- Liquidity Outlook" and Item 1.
"Consolidated Financial Statements -- Notes to Consolidated Financial Statements
- -- Note 2 -- Recent Events."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
Revenue from oil and gas sales totaled $2.1 million for the three months ended
March 31, 1998 as compared with $6.2 million for the three months ended March
31, 1997. During the three months ended March 31, 1998, the Company produced and
sold 1,016 million cubic feet ("MMcf") of gas and 1,775 barrels of oil at
average prices of $2.06 per thousand cubic feet ("Mcf") and $14.28 per barrel,
respectively. During the same period in 1997, the Company produced and sold
2,075 MMcf of gas and 45,000 barrels of oil at average prices of $2.51 per Mcf
and $22.39 per barrel, respectively. The decrease in oil and gas sales is
primarily a result of the cessation of oil and gas production in May 1997 from
the Ewing Bank 914 #2 well, decreased gas production from the Viosca Knoll Block
817 lease and substantially lower realized oil and gas prices.
Production and operating expenses for the three months ended March 31, 1998
totaled $1.1 million as compared with $2.6 million for the same period in 1997.
The decrease of $1.5 million is primarily comprised of a decrease of $0.8
million in transportation, production, operating and workover expenses and a
$0.7 million decrease related to a production payment equal to 25% of the net
operating cash flow from the Company's working interest in Viosca Knoll Block
817.
Exploration expenses totaled $47,000 for the three months ended March 31, 1997.
Exploration expenses primarily included delay rentals and minimum royalties.
Depreciation, depletion and amortization totaled $1.1 million for the three
months ended March 31, 1998 as compared with $1.4 million for the three months
ended March 31, 1997. The decrease of $0.3 million is primarily a result of
reduced production from the Viosca Knoll Block 817 and the Ewing Bank 914 #2
well.
General and administrative expenses, including the management fee allocated from
DeepTech, totaled $1.4 million for each of the three months ended March 31, 1998
and 1997. These expenses included staff and overhead costs allocated to the
Company under its management agreement with DeepTech of $1.2 million and $0.8
million for the three months ended March 31, 1998 and 1997, respectively. Tatham
Offshore amended its management agreement with DeepTech effective July 1, 1997
to provide for a 26% overhead allocation as compared to a 24% overhead
allocation during the three months ended March 31, 1997. See "-- Liquidity and
Capital Resources -- Uses of Cash" and "-- Liquidity Outlook."
Operating loss for the three months ended March 31, 1998 was $1.5 million as
compared with operating income of $0.8 million for the three months ended March
31, 1997. The change was due to the items discussed above.
10
<PAGE> 13
Interest income totaled $27,000 for the three months ended March 31, 1998 as
compared with $0.2 million for the three months ended March 31, 1997 and
included interest income from available cash.
Interest expense for the three months ended March 31, 1998 totaled $23,000 as
compared with $2.1 million for the three months ended March 31, 1997. Interest
expense for the three months ended March 31, 1997 primarily relates to interest
under the Subordinated Notes which were converted into shares of Tatham Offshore
common stock in December 1997. See Item 1. "Consolidated Financial Statements --
Notes to Consolidated Financial Statements -- Note 3 -- Related Party
Transactions -- Notes Payable to DeepTech."
After taking into account $0.9 million of preferred stock dividends in arrears,
the Company's net loss available to common shareholders for the three months
ended March 31, 1998 was $2.4 million, or $0.08 per share, as compared with net
loss available to common shareholders for the three months ended March 31, 1997
of $2.1 million, or $0.78 per share, after taking into account $1.0 million of
preferred stock dividends in arrears. The weighted average shares outstanding
for purposes of calculating loss per share for the three months ended March 31,
1998 and 1997 were 29,741,639 shares and 2,689,219 shares, respectively. See
Item 1. "Consolidated Financial Statements -- Notes to Consolidated Financial
Statements -- Note 5 -- Earnings Per Share."
NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1997
Revenue from oil and gas sales totaled $9.3 million for the nine months ended
March 31, 1998 as compared with $16.5 million for the nine months ended March
31, 1997. During the nine months ended March 31, 1998, the Company produced and
sold 3,739 MMcf of gas and 14,795 barrels of oil at average prices of $2.41 per
Mcf and $17.02 per barrel, respectively. During the same period in 1997, the
Company produced and sold 5,354 MMcf of gas and 153,000 barrels of oil at
average prices of $2.43 per Mcf and $22.86 per barrel, respectively. The
decrease in oil and gas sales is primarily a result of the cessation of oil and
gas production in May 1997 from the Ewing Bank 914 #2, decreased gas production
from the Viosca Knoll Block 817 lease and substantially lower realized oil and
gas prices.
Production and operating expenses for the nine months ended March 31, 1998
totaled $4.2 million as compared with $6.0 million for the same period in 1997.
The decrease of $1.8 million is primarily comprised of a decrease of $2.1
million in transportation, production, operating and workover expenses offset by
an increase of $0.3 million related to a production payment equal to 25% of the
net operating cash flow from the Company's working interest in Viosca Knoll
Block 817.
Exploration expenses for the nine months ended March 31, 1998 totaled $25,000 as
compared with $0.4 million for the nine months ended March 31, 1997. Exploration
expenses primarily included delay rentals and minimum royalties.
Depreciation, depletion and amortization totaled $3.1 million for the nine
months ended March 31, 1998 as compared with $3.5 million for the nine months
ended March 31, 1997. The decrease of $0.4 million is primarily a result of a
$0.8 million net reduction in abandonment expense as a result of the Company
assigning its working interest in Ship Shoal Block 331 to a third party for the
assumption of the abandonment obligations offset by additional depletion at
Viosca Knoll Block 817 and West Delta Block 35 of $0.1 million and abandonment
accruals related to West Delta Block 35, Viosca Knoll Blocks 817 and 818 of $0.3
million.
General and administrative expenses, including the management fee allocated from
DeepTech, for the nine months ended March 31, 1998 totaled $4.4 million as
compared with $4.0 million for the same period in 1997. The increase reflected
an increase in staff and overhead expenses allocated to the Company under its
management agreement with DeepTech of $1.0 million offset by a decrease in
direct general and administrative expenses of $0.6 million. Tatham Offshore
amended its management agreement with DeepTech effective July 1, 1997 to provide
for a 26% overhead allocation as compared to a 24% overhead allocation during
the nine months ended March 31, 1997. See "-- Liquidity and Capital Resources --
Uses of Cash" and "-- Liquidity Outlook."
Operating loss for the nine months ended March 31, 1998 was $2.5 million as
compared with operating income of $2.6 million for the nine months ended March
31, 1997. The change was due to the items discussed above.
11
<PAGE> 14
Interest income totaled $0.2 million for the nine months ended March 31, 1998 as
compared with $0.4 million for the same period in 1997 and included interest
income from available cash.
Interest expense for the nine months ended March 31, 1998 totaled $1.7 million
as compared with $6.3 million for the nine months ended March 31, 1997 and
primarily relates to interest under the Subordinated Notes which were converted
into shares of Tatham Offshore common stock in December 1997. See Item 1.
"Consolidated Financial Statements -- Notes to Consolidated Financial Statements
- -- Note 3 -- Related Party Transactions -- Notes Payable to DeepTech."
After taking into account $2.8 million of preferred stock dividends in arrears,
the Company's net loss available to common shareholders for the nine months
ended March 31, 1998 was $6.8 million, or $0.52 per share, as compared with net
loss available to common shareholders for the nine months ended March 31, 1997
of $6.2 million, or $2.34 per share, after taking into account $2.9 million of
preferred stock dividends in arrears. The weighted average shares outstanding
for the purposes of calculating loss per share for the nine months ended March
31, 1998 and 1997 were 13,082,609 shares and 2,644,396 shares, respectively. See
Item 1. "Consolidated Financial Statements -- Notes to Consolidated Financial
Statements -- Note 5 -- Earnings Per Share."
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash. The Company intends to satisfy its immediate capital
requirements and other working capital needs primarily from cash on hand and
cash generated from existing operations. At March 31, 1998, the Company had $2.3
million of cash and cash equivalents. See "-- Liquidity Outlook."
Cash from continuing operations is derived primarily from production from the
Company's working interest in Viosca Knoll Block 817, which is currently
producing a total of approximately 49 MMcf of gas per day. The Company's current
25% working interest in the Viosca Knoll Block 817 is subject to a production
payment equal to 25% of the net operating cash flow from such working interest.
For the nine months ended March 31, 1998, the Company's net revenue from this
property was reduced by $1.2 million of production payment obligations.
Tatham Offshore also has producing wells at its West Delta Block 35 which
contribute to cash from continuing operations. The Company owns a 38% working
interest in West Delta Block 35, which is currently producing at a rate of
approximately 8 MMcf of gas and 16 barrels of oil per day.
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 $2.7 million in proceeds to Tatham Offshore. Tatham Offshore used
$2.5 million 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.
Revenue from currently producing properties will need to be replaced by revenue
from other sources. Tatham Offshore will receive proceeds from the Rights
Offering, if consummated, if the net proceeds exceed the total of (i) $75.0
million and (ii) the amount of certain estimated tax payments of the Company.
See "-- Liquidity Outlook."
Uses of Cash. The Company's primary uses of cash consist of (i) expenses
associated with operating its producing properties, including its leasehold
abandonment liabilities, (ii) capital expenditures necessary to fund its portion
of the development costs attributable to its working interests, (iii) platform
access fees and processing and commodity charges payable to the Partnership,
(iv) payments due under the management agreement with DeepTech and (v)
expenditures related to its Atlantic Canada projects. See "-- Liquidity
Outlook."
The management fee agreement between Tatham Offshore and DeepTech provides for
an annual management fee which is intended to reimburse DeepTech for the
estimated costs of its operational, financial, accounting and administrative
services provided to Tatham Offshore. Effective July 1, 1997, the management
agreement was amended to provide for an annual management fee of 26% of
DeepTech's overhead expenses. For the nine months ended March 31, 1998, DeepTech
charged Tatham Offshore $3.3 million in management fees pursuant to this
12
<PAGE> 15
agreement. If the transactions contemplated by the Redemption Agreement are
consummated, the management fees charged to Tatham Offshore by DeepTech will be
reduced by 50% effective retroactively to January 1, 1998. See "-- Liquidity
Outlook."
North Atlantic is the sponsor of a proposal to construct a natural gas pipeline
from offshore Newfoundland and Nova Scotia to Seabrook, New Hampshire. Through
March 31, 1998, Tatham Offshore Canada Limited, the Canadian representative of
North Atlantic, has incurred $10.4 million of pre-developmental costs in
connection with such project and related infrastructure projects. The Company
anticipates that pre-developmental costs associated with the North Atlantic
pipeline project could reach approximately $12.0 million by late 1998 and the
ultimate capital costs of the project, if approved, could be in excess of
several billion dollars. See "-- Liquidity Outlook."
Liquidity Outlook. In order to improve liquidity and partially address its
current capital requirements, Tatham Offshore entered into the Restructuring
Agreement with DeepTech whereby DeepTech 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's 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 outstanding debt.
The Company currently intends to fund its immediate cash requirements with cash
on hand and cash from current operations. The Company generated approximately
$0.9 million in positive operating cash flow for the nine months ended March 31,
1998.
The Company is refocusing its business from the development, exploration and
production of oil and gas in the Gulf to an integrated frontier investment
strategy targeting Atlantic Canada with initial emphasis on the offshore
contract drilling business. Currently, Tatham Offshore has entered into
contracts and other agreements which, if consummated, will allow the Company to
(i) divest itself of its oil and gas properties and related assets located in
the Gulf, (ii) operate independently of DeepTech, (iii) acquire two
semisubmersible drilling rigs and (iv) redeem its Senior Preferred Stock. See
Item 1. "Consolidated Financial Statements -- Notes to Consolidated Financial
Statements -- Note 2 -- Recent Events." The Company believes that the Atlantic
Canada region offers significant investment opportunities and the Company plans
to expand the number of drilling rigs it will own as well as diversify its
business to include the North Atlantic pipeline project, related gas processing
facilities, a facility for the generation of electricity and other related
investments.
Prospectively, Tatham Offshore's material assets will consist primarily of stock
of and notes receivable from its subsidiaries. The Company expects to be
dependent upon cash on hand and cash generated from its drilling services
operations to pay its operating expenses, service its debt and satisfy its other
obligations.
The Company's primary uses of cash after the consummation of the Merger and
Rights Offering will consist of (i) expenses associated with operating its
offshore drilling services business, (ii) acquisition, operating and other
expenditures with potential opportunities, including the North Atlantic pipeline
project, (iii) expenditures required to service debt, including the
approximately $60.0 million of rig related debt the Company will assume in
connection with the Merger related transactions and (iv) general and
administrative costs, including the costs of hiring and maintaining a management
team and support personnel.
Additionally, Sedco Forex Division of Schlumberger Technology Corporation
("Sedco Forex") currently markets, manages, mans and operates the two
semisubmersible drilling rigs that are being conveyed to Tatham Offshore under
management agreements. However, if the management agreement(s) with Sedco Forex
are not renewed or extended or are terminated by Sedco Forex, the Company does
not currently have the ability to operate the rigs and would be required to
engage a new operator. There can be no assurances that the Company could find,
within a reasonable period of time, an alternate company to manage and operate
the rigs for a reasonable fee.
After the Merger, Atlantic Canada opportunities, if realized, will require the
Company to raise substantial capital (equity, debt or both) or enter into other
arrangements (such as joint ventures) to allow the Company to generate operating
cash flow to fund on-going activities and operations. The ability of the Company
to satisfy its future capital needs with respect to its planned Atlantic Canada
strategy will depend upon its ability to raise additional capital and to
implement its business strategy successfully. The Company does not currently
possess the capital necessary to implement its Atlantic Canada
13
<PAGE> 16
business strategy completely, and there can be no assurances the Company will be
able to obtain sufficient capital for any or all of its planned projects.
Further, there can be no assurances that these projects and other opportunities
will prove to be economical or that they will occur. Many of the Atlantic Canada
projects will require government approvals, almost all of which the Company has
yet to receive. Moreover, if there are developments that the Company determines
to be indicative of a lack of reasonable opportunity to realize benefits for the
Company's stockholders, then the Company will pursue other opportunities,
wherever located, as the Company determines to be in its best interests.
In the event that The Nasdaq National Market delists Tatham Offshore's common
stock, the holders thereof could suffer a decrease in marketability of their
shares and the liquidity of their investment in Tatham Offshore's common stock
and its preferred stocks which are convertible into common stock, which may have
a material adverse effect on the market value of Tatham Offshore's common stock
and Tatham Offshore's ability to access equity markets in the future. See Item
1. "Consolidated Financial Statements -- Notes to the Consolidated Financial
Statements -- Note 6 -- Commitments and Contingencies -- The Nasdaq National
Market."
Tatham Offshore has never declared or paid dividends on its common or preferred
stock. Tatham Offshore expects to retain all available earnings generated by its
operations for the growth and development of its business.
UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION
This quarterly report contains certain forward looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. Such statements are
typically punctuated by words or phrases such as "anticipate," "estimate,"
"project," "should," "may," "management believes," and words or phrases of
similar import. Although management believes that such statements and
expressions are reasonable and made in good faith, it can give no assurance that
such expectations will prove to have been correct. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Among the key factors that may have a direct bearing on the
Company's results of operations and financial condition are: (i) competitive
practices in the industry in which the Company competes, (ii) the impact of
current and future laws and government regulations affecting the industry in
general and the Company's operations in particular, (iii) environmental
liabilities to which the Company may become subject in the future that are not
covered by an indemnity or insurance, (iv) the impact of oil and natural gas
price fluctuations, (v) the production rates and reserve estimates associated
with the Company's producing oil and gas properties and (vi) significant changes
from expectations of capital expenditures and operating expenses and
unanticipated project delays. The Company disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
14
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Certificate of Designation Establishing the Series B
Senior Convertible Preferred Stock.
10.1 Redemption Agreement dated February 27, 1998 between
Tatham Offshore, Inc. and Flextrend Development
Company, L.L.C.
10.2 Purchase Commitment Agreement dated February 27,
1998, by and between Tatham Offshore, Inc. and Tatham
Brothers, LLC
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TATHAM OFFSHORE, INC.
Date: May 14, 1998 By: /s/ DENNIS A. KUNETKA
-----------------------------------
Dennis A. Kunetka
Chief Financial Officer and Secretary
(Signing on behalf of the Registrant
and as Principal Accounting Officer)
16
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.1 Certificate of Designation Establishing the Series B Senior
Convertible Preferred Stock.
10.1 Redemption Agreement dated February 27, 1998 between Tatham
Offshore, Inc. and Flextrend Development Company, L.L.C.
10.2 Purchase Commitment Agreement dated February 27, 1998, by
and between Tatham Offshore, Inc. and Tatham Brothers, LLC
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
FIRST AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION OF
PREFERENCES AND RIGHTS OF
9% SENIOR CONVERTIBLE PREFERRED STOCK
OF
TATHAM OFFSHORE, INC.
(PURSUANT TO SECTIONS 151, 242 AND 245 OF
THE DELAWARE GENERAL CORPORATION LAW)
The First Amended and Restated Certificate of Designation of the
Preferences and Rights of the 9% Senior Convertible Preferred Stock (this
"Amendment") is executed by the Board of Directors (the "Board") of TATHAM
OFFSHORE, INC., a corporation organized and existing under the General
Corporation Law of the state of Delaware ("DGCL") pursuant to the authority
conferred on the Board by the Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation"), as amended. This Amendment
amends, supersedes and restates in its entirety that certain original
Certificate of Designation of the Preference and Rights of the 9% Senior
Convertible Preferred Stock filed with the Secretary of State of the State of
Delaware on May 15, 1996, (the "Original Designation").
WHEREAS, that pursuant to the authority granted and vested in
the Board in accordance with the provisions of its Certificate of
Incorporation, as amended to date, the Board authorized 7,500 shares
of 9% Senior Convertible Preferred Stock, par value $0.01 per share
(the "Senior Preferred") in the Original Designation;
WHEREAS, that the designation and amount of the Senior
Preferred and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of the
Senior Preferred, and the qualifications, limitations or restrictions
thereof, were set forth in Exhibit B to the Original Designation.
WHEREAS, the Company now wishes to amend the Original
Designation to provide for convertibility of the Senior Preferred
Stock;
NOW, THEREFORE, the Company hereby certifies that the
following Amendment was duly adopted by the Board as required by
Section 242 of the Delaware General Corporation Law and is identical
in form to that which was presented for adoption.
SECTION 1. DEFINITIONS. As used herein, the following terms shall
have the following meanings:
"Affiliate" means as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person. For the purposes of this definition, the term "control" means
with respect to any Person the power, directly or
1
<PAGE> 2
indirectly, to (i) vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person or (ii) direct or cause the
direction of the management and policies of such Person. "Controlled" has a
meaning correlative to the foregoing.
"Business Day" means a day which is not a Saturday, Sunday or a day on
which banking institutions are legally authorized to close in the City of New
York.
"Common Stock" means the Company's common stock, $0.01 par value per
share.
"Conversion Date" means the date on which a holder of Senior Preferred
Stock converts the Liquidation Preference, plus accrued and unpaid dividends
thereon, of all or any portion of such holder's shares of Senior Preferred
Stock into shares of Series A Preferred Stock.
"Conversion Ratio" shall have the meaning set forth in Section 7(a).
The Conversion Ratio is subject to adjustment in the manner set forth in
Section 7(b).
"Exchange Warrant" means a warrant that is issued in exchange for
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock (including all accrued and unpaid dividends thereon) at the
rate of four Exchange Warrants for each share of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, and which entitles the
holder thereof to purchase one share of Common Stock at the Trading Reference
Price, subject to adjustment.
"Junior Dividend Securities" means the Junior Securities and any class
of capital stock or series of preferred stock established by the Board, the
terms of which expressly provide that such class or series ranks junior and
subordinate to the Senior Preferred Stock with respect to dividends or
distributions.
"Junior Securities" shall have the meaning set forth in Section 2.
"Liquidation Preference" means $1000.00 per share of Senior Preferred
Stock.
"Mandatory Redeemable Preferred Stock" means the Mandatory Redeemable
Preferred Stock, $0.01 par value per share, of the Company, each share of which
has a liquidation preference of $0.50 and is mandatorily redeemable by the
Company under certain circumstances.
"Parity Dividend Securities" means any class of capital stock or
series of preferred stock established by the Board, the terms of which
expressly provide that such class or series ranks on a parity with the Senior
Preferred Stock with respect to dividends or distributions.
"Parity Securities" shall have the meaning set forth in Section 2.
"Person" shall mean any individual or any corporation, partnership
(general or limited), joint stock company, business trust, limited liability
company or any other type of entity, organization or association.
2
<PAGE> 3
"Senior Dividend Securities" means any class of capital stock or
series of preferred stock established by the Board, the terms of which
expressly provide that such class or series ranks senior to the Senior
Preferred Stock with respect to dividends or distributions.
"Senior Preferred Stock" means the 9% Senior Convertible Preferred
Stock, $0.01 par value per share, of the Company, each share of which shall
accrue dividends at a rate of 9% on the Liquidation Preference.
"Senior Securities" shall have the meaning set forth in Section 2.
"Series A Preferred Stock" means the Series A 12% Convertible
Exchangeable Preferred Stock, $0.01 par value per share, of the Company, each
share of which shall accrue dividends at a rate of 12% per annum on the
liquidation preference of $1.50 per share.
"Series B Preferred Stock" means the Series B 8% Convertible
Exchangeable Preferred Stock, $0.01 par value per share, of the Company, each
share of which shall accrue dividends at a rate of 8% per annum on the
liquidation preference of $1.00 per share.
"Series C Preferred Stock" means the Series C 4% Convertible
Exchangeable Preferred Stock, $0.01 par value per share, of the Company, each
share of which shall accrue dividends at a rate of 4% per annum on the
liquidation preference of $0.50 per share.
"Trading Reference Price" means the closing price of the Series A
Preferred Stock on the Nasdaq National Market on February 27, 1998. The Trading
Reference Price may be adjusted from time to time as provided in Section 7.
Capitalized terms used herein but not otherwise defined in this
Section 1 shall have the meanings ascribed to them throughout this Amendment.
Furthermore, all defined terms contained herein shall be equally applicable to
both singular and plural forms of each such defined term.
SECTION 2. DESIGNATION; RANK. This series of preferred stock shall be
designated "9% Senior Convertible Preferred Stock," par value $.01 per share.
The Senior Preferred Stock will rank, upon liquidation, winding-up and
dissolution, (i) senior to the Common Stock, the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Mandatory
Redeemable Preferred Stock and each other class of capital stock or series of
preferred stock established by the Board the terms of which do not expressly
provide that such class or series ranks on a parity with the Senior Preferred
Stock as to rights upon liquidation, winding-up and dissolution (collectively
referred to as "Junior Securities"); (ii) on a parity with each other class of
capital stock or series of preferred stock established by the Board the terms
of which expressly provide that such class or series will rank on a parity with
the Senior Preferred Stock as to rights upon liquidation, winding-up and
dissolution (collectively referred to as "Parity Securities"); and (iii) junior
to each class of capital stock or series of preferred stock established by the
Board the terms of which expressly provide that such class or series will rank
senior to the Senior Preferred Stock. With respect to dividends or
distributions, the Senior Preferred Stock will rank (i) senior to the Junior
Securities and any other Junior
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<PAGE> 4
Dividend Securities; (ii) on parity with any Parity Dividend Securities; and
(iii) junior to the Senior Dividend Securities. The Company will have the right
to issue shares of Junior Securities and Junior Dividend Securities without the
approval or consent of the holders of Senior Preferred Stock. The Company will
not have the right to issue shares of Senior Securities, Parity Securities,
Parity Dividend Securities or Senior Dividend Securities without the prior
written consent of a majority of the holders of Senior Preferred Stock.
SECTION 3. AUTHORIZED NUMBER. The number of shares constituting the
Senior Preferred Stock shall be 7,500 shares.
SECTION 4. DIVIDENDS. Holders of shares of the Senior Preferred Stock
will be entitled to receive, when, as and if declared by the Board out of funds
of the Company legally available for payment, cash dividends at an annual rate
of 9% of the Liquidation Preference (or $90.00 per share, subject to
adjustment), payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year, commencing June 30, 1996. Each dividend will be
payable to holders of record as they appear on the stock register of the
Company on a record date, not more than 60 nor less than 10 days before the
payment date, fixed by the Board. Dividends will accumulate and be cumulative
from and after February 1, 1996. Dividends payable on the Senior Preferred
Stock for each full dividend period will be computed by annualizing the
dividend rate and dividing by four. Dividends payable for the first dividend
period and any period less than a full dividend period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. The Senior
Preferred Stock will not be entitled to any dividend, whether payable in cash,
property or stock, in excess of full cumulative dividends. No interest, or sum
of money in lieu of interest, will be payable in respect of any accrued and
unpaid dividends.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Dividend Securities for any period unless
full cumulative dividends shall have been paid or set apart for such payment on
the Senior Preferred Stock. If full dividends are not so paid, the Senior
Preferred Stock shall share dividends pro rata with the Parity Dividend
Securities so that in all cases the amount of dividends declared per share on
the Senior Preferred Stock and Parity Dividend Securities bear to each other
the same ratio that the accumulated dividends per share on the shares of Senior
Preferred Stock and Parity Dividend Securities bear to each other. No dividends
may be paid or set apart for such payment on Junior Dividend Securities (except
dividends on Junior Dividend Securities in additional shares of Junior Dividend
Securities) and no Junior Dividend Securities may be repurchased, redeemed or
otherwise acquired nor may funds be set apart for payment with respect thereto,
if full dividends have not been paid on the Senior Preferred Stock.
Notwithstanding the foregoing, the Company may redeem, purchase or otherwise
acquire Junior Dividend Securities (a) by conversion into, exchange for, or out
of the cash proceeds from the exercise of Exchange Warrants or the
substantially concurrent offering of, Junior Dividend Securities or (b) in the
ordinary course of business pursuant to the terms of any employee stock
incentive plan adopted by the Board.
SECTION 5. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, before any
payment or distribution of assets is made on any Junior Securities, the holders
of Senior Preferred Stock shall receive an
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<PAGE> 5
amount equal to the Liquidation Preference per share plus an amount equal to
all accrued and unpaid dividends thereon through the date of distribution, and
the holders of any Parity Securities shall be entitled to receive an amount
equal to the full respective liquidation preferences (including any premium) to
which they are entitled. If, upon such a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets of the Company are
insufficient to pay in full the amounts described above as payable with respect
to the Senior Preferred Stock and any Parity Securities, the holders of the
Senior Preferred Stock and such Parity Securities will share ratably in any
such distribution of assets of the Company first in proportion to their
respective liquidation preference amounts until such amounts are paid in full.
After payment of any such liquidation preference amounts, the shares of Senior
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company. Neither the sale, lease, exchange or
transfer of all or substantially all of the assets of the Company for cash,
securities or other property, nor the merger, consolidation or other business
combination of the Company into or with any other corporation or entity, will
be deemed to be a liquidation, dissolution or winding up of the Company.
SECTION 6. VOTING RIGHTS. The holders of record of Senior Preferred
Stock shall not be entitled to any voting rights except as required by law.
SECTION 7. CONVERSION.
(a) Right to Convert. Beginning on February 27, 1998, each
outstanding share of Senior Preferred Stock may be converted by the record
holder thereof, at any time and from time to time, into such number of whole
shares of Series A Preferred Stock as is equal to (i) the Liquidation
Preference plus any accrued and unpaid dividends thereon through the Conversion
Date divided by (ii) the Trading Reference Price (the "Conversion Ratio").
(b) Adjustments. The Conversion Ratio and Trading Reference Price
(as appropriate) are subject to adjustment from time to time as follows:
(i) In case the Company shall (A) pay a dividend or make a
distribution on Series A Preferred Stock in shares of Series A
Preferred Stock, (B) subdivide its outstanding shares of Series A
Preferred Stock into a greater number of shares or (C) combine its
outstanding shares of Series A Preferred Stock into a smaller number
of shares, the Conversion Ratio in effect immediately prior to such
action shall be adjusted so that the holder of any share of Senior
Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Series A Preferred Stock
which such holder would have been entitled to receive immediately
following such action had such share of Senior Preferred Stock been
converted immediately prior thereto.
(ii) (A) In case the Company shall issue rights, warrants or
options to all holders of Series A Preferred Stock entitling them (for
a period expiring within 45 days after the record date therefor) to
subscribe for or purchase shares of Series A Preferred Stock at a
price per share less than the current market price per share (as
determined pursuant to subsection (iv) below) of the Series A
Preferred Stock on the record date mentioned below, the Trading
Reference Price shall be adjusted to a price, computed to
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<PAGE> 6
the nearest cent, so that the same shall equal the price determined by
multiplying the Trading Reference Price by a fraction, of which (1)
the numerator shall be the sum of (a) the number of shares of Series A
Preferred Stock (excluding treasury shares, if any) outstanding on the
record date for the issuance of such rights, warrants or options, plus
(b) the number of shares that the aggregate offering price of the
total number of shares so offered for subscription or purchase would
purchase at such current market price (determined by multiplying such
total number of shares by the sum of the exercise price of such
rights, warrants or options plus the fair market value of any
consideration paid to the Company for such rights, warrants or options
and dividing the product so obtained by such current market price),
and of which (2) the denominator shall be the sum of (a) the number of
shares of Series A Preferred Stock (excluding treasury shares, if any)
outstanding on the record date for the issuance of such rights,
warrants or options, plus (b) the number of additional shares of
Series A Preferred Stock that are so offered for subscription or
purchase.
(B) If at any time the Company shall (except as hereinafter
provided) issue or sell, any rights, warrants or options to subscribe
for or purchase shares of Series A Preferred Stock at a price per
share less than the current market price (as determined pursuant to
subsection (iv) below) of the Series A Preferred Stock in effect
immediately prior to the time of such issuance, then the Trading
Reference Price shall be adjusted as provided in Section 7(b)(ii)(A)
on the basis that (1) the maximum number of shares of Series A
Preferred Stock issuable pursuant to all such rights, warrants or
options shall be deemed to be outstanding immediately following such
issuance, (2) the price per share for such shares of Series A
Preferred Stock shall be deemed to be the lowest possible price per
share in any range of prices per share at which such shares of Series
A Preferred Stock are available to such holders, (3) the number of
shares of Series A Preferred Stock outstanding for purposes of
calculating the adjustment as set forth in Section 7(b)(ii)(A) shall
be the number of shares of Series A Preferred Stock outstanding as of
the date of issuance of such rights, warrants or options, and (4) the
Company shall be deemed to have received all of the consideration
payable therefor, if any, as of the date of the actual issuance of
such rights, warrants or options. No further adjustments of the
Trading Reference Price shall be made upon the actual issuance of such
Series A Preferred Stock or upon exercise of such warrants, options or
other rights. In addition, no adjustment of the Trading Reference
Price shall be made under this Section 7(b)(ii)(B), if any such
adjustment shall previously have been made upon the issuance of such
rights, warrants or options pursuant to Section 7(b)(ii)(A).
(C) If at any time the Company shall (except as hereinafter
provided) issue or sell, any rights, warrants or options to subscribe
for or purchase shares of Common Stock at price per share less than
the current market price (as determined pursuant to subsection (iv)
below) of the Common Stock in effect immediately prior to the time of
such issuance, then the Trading Reference Price shall be adjusted to a
price, computed to the nearest cent, so that the same shall equal the
price determined by multiplying the Trading Reference Price by a
fraction, of which (1) the numerator shall be the sum of (a) the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of the issuance of such rights, warrants or
options plus (b) the number of shares
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<PAGE> 7
that the aggregate offering price of the total number of shares so
offered for subscription or purchase would purchase as at the current
market price (determined by multiplying such total number of shares by
the sum of the exercise price of such rights, warrants or options plus
the fair market value of any consideration paid to the Company for
such rights, warrant or options plus the fair market value of any
consideration paid to the Company for such rights, warrants or options
and dividing the product so obtained by the current market price for
the Common Stock) and of which (2) the denominator shall be the sum of
(a) the number of shares of Common Stock (excluding treasury shares,
if any) outstanding on the date of issuance of such rights, warrants
or options, plus (b) the number of additional shares of Common Stock
that are so offered for subscription or purchase. Such adjustment
shall be computed on the basis that (X) the maximum number of shares
of Common Stock issuable pursuant to all such rights, warrants or
options shall be deemed to be outstanding immediately following such
issuance, (Y) the price per share for such shares of Common Stock
shall be deemed to be the lowest possible price per share in any range
of prices per share at which such shares of Common Stock are available
to such holders and (Z) the Company shall be deemed to have received
all of the consideration payable therefor, if any, as of the date of
the actual issuance of such rights, warrants or options.
(D) The adjustments provided for in this subsection (ii)
shall become effective immediately (except as provided in subsection
(v) below) after the record date for the determination of holders
entitled to receive such rights, warrants or options in the case of
adjustments made pursuant to subsection (ii)(A) or after the issuance
of such rights, options or warrants in the case of adjustments made
pursuant to subsection (ii)(B) or (C). However, upon the expiration of
any right, warrant or option to purchase Series A Preferred Stock or
Common Stock, as applicable, the issuance of which resulted in an
adjustment in the Trading Reference Price pursuant to this subsection
(ii), if any such right, warrant or option shall expire and shall not
have been exercised, the Trading Reference Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Trading Reference Price made
pursuant to the provisions of this Section after the issuance of such
rights, warrants or options) had the adjustment of the Trading
Reference Price made upon the issuance of such rights, warrants or
options been made on the basis of offering for subscription or
purchase only that number of shares of Series A Preferred Stock or
Common Stock, as applicable, actually purchased upon the exercise of
such rights, warrants or options actually exercised.
(iii) In case the Company shall distribute to all holders of
Series A Preferred Stock evidences of indebtedness or other assets
(other than cash dividends paid out of earned surplus of the Company
or, if there shall be no earned surplus, out of net profits for the
fiscal year in which the dividend is made and/or the preceding fiscal
year) or rights, warrants or options to subscribe to securities (other
than those referred to in subsection (ii) above), then in each such
case the Trading Reference Price shall be adjusted so that the same
shall equal the price determined by multiplying the Trading Reference
Price in effect immediately prior to the record date of such
distribution by a
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<PAGE> 8
fraction of which the numerator shall be the current market price per
share (determined as provided in subsection (iv) below) of the Series
A Preferred Stock on the record date mentioned below less the then
fair market value (as determined by the Board in good faith, whose
determination shall be conclusive) of the portion of the assets and
evidences of indebtedness so distributed or of such subscription
rights, warrants or options applicable to one share of Series A
Preferred Stock, and of which the denominator shall be such current
market price per share of the Series A Preferred Stock. For the
purposes of this subsection (iii), in the event of a distribution of
shares of capital stock or other securities of any subsidiary as a
dividend on shares of Series A Preferred Stock, the then fair market
value of the shares or other securities so distributed shall be deemed
to be the market value of such shares or other securities. Such
adjustment shall become effective immediately, except as provided in
subsection (v) below, after the record date for the determination of
stockholders entitled to receive such distribution.
(iv) For the purpose of any computation under subsections
(ii) and (iii) above, the current market price per share of Series A
Preferred Stock or Common Stock, as applicable, on any date shall be
deemed to be (1) if there shall then be a public market for the Series
A Preferred Stock or Common Stock, as applicable, the average of the
daily closing prices of a share of Series A Preferred Stock or Common
Stock for the 20 consecutive trading days ending on the last trading
day prior to the date of determination. The closing price for each day
shall be the last closing price of the Series A Preferred Stock or
Common Stock on the Nasdaq National Market or, if the Series A
Preferred Stock or Common Stock is not listed on the Nasdaq National
Market, the principal stock exchange on which the Series A Preferred
Stock or Common Stock is then listed or admitted for trading;
provided, however, that if no sales take place on any such day on the
Nasdaq National Market or any such exchange, the closing price shall
be deemed to be the average of the last reported closing bid and asked
prices on such day as officially quoted on the Nasdaq National Market
or any such exchange, if such bid and asked prices are officially
quoted, or if the Series A Preferred Stock or Common Stock is not
listed or admitted to trading on the Nasdaq National Market or any
stock exchange, the average of the last reported closing bid and asked
prices on such day in the over-the-counter market, as furnished by the
Nasdaq Stock Market or the National Quotation Bureau, Inc. or, if
neither such entity at the time is engaged in the business of
reporting such prices, as furnished by any similar firm then engaged
in such business or (2) if there shall then be no public market for
the Series A Preferred Stock or Common Stock, as applicable, the fair
market value per share of the Series A Preferred Stock or Common Stock
on such date as determined reasonably and in good faith by the board
of directors of the Company, such fair market value to be determined
by reference to the cash price that would be paid between a fully
informed buyer and seller under no compulsion to buy or sell.
(v) In any case in which this Section shall require that an
adjustment be made immediately following a record date, the Company
may elect to defer the effectiveness of such adjustment (but in no
event until a date later than the effective time of the event giving
rise to such adjustment), in which case the Company shall, with
respect to any security converted after such record date and before
such adjustment shall have become
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<PAGE> 9
effective (A) defer making any cash payment or issuing to the holder
of such security the number of shares of Series A Preferred Stock and
other capital stock of the Company issuable upon such conversion in
excess of the number of shares of Series A Preferred Stock and other
capital stock of the Company issuable thereupon only on the basis of
the Trading Reference Price prior to adjustment, and (B) not later
than five Business Days after such adjustment shall have become
effective, pay to such holder the appropriate cash payment and issue
to such holder the additional shares of Series A Preferred Stock and
other capital stock of the Company issuable on such conversion.
(vi) No adjustment in the Trading Reference Price shall be
required if holders of Senior Preferred Stock are to participate in
the transaction on a basis and with notice that the Board determines
in good faith to be fair and appropriate in light of the basis and
notice on which holders of Series A Preferred Stock or Common Stock
participate in the transaction. All calculations under this Section
shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Notwithstanding anything in this Section 7
to the contrary, the Trading Reference Price shall not be reduced to
less than the then existing par value of the Series A Preferred Stock
or Common Stock, as applicable, as a result of any adjustment made
hereunder.
(vii) Whenever the Conversion Ratio and/or Trading Reference
Price are adjusted or are required to be adjusted as herein provided,
the Company shall promptly mail or cause to be mailed to each holder
of Senior Preferred Stock at such holder's address as the same appears
on the stock register of the Company a notice setting forth the
Conversion Ratio and/or, if determinable, the Trading Reference Price
after such adjustment and setting forth in reasonable detail the facts
requiring such adjustment and the calculations on which the adjustment
is based, which notice shall be conclusive evidence of the correctness
of such adjustment.
(viii) To the extent permitted by law, the Company from time
to time may reduce the Trading Reference Price by any amount for any
period of at least 20 days (or such other period as may then be
required by applicable law). No reduction in the Trading Reference
Price pursuant to this Section 7(b)(viii) shall become effective
unless the Company shall have mailed a notice, at least 15 days prior
to the date on which such reduction is scheduled to become effective,
to each holder of shares of the Senior Preferred Stock. Such notice
shall be given by first class mail, postage prepaid, at such holder's
address as the same appears on the stock register of the Company.
(ix) At its option, the Company may make such reduction in
the Trading Reference Price, in addition to those otherwise required
by this Section 7, as the Board deems advisable to avoid or diminish
any income tax to holders of Series A Preferred Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or
from any event treated as such for income tax purposes; provided,
however, that any such reduction shall not be effective until written
evidence of the action of the Board authorizing such reduction shall
be filed with the secretary of the Company and notice thereof shall
have been given by first class mail, postage prepaid, to each holder
of shares
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<PAGE> 10
of the Senior Preferred Stock at such holder's address as the same
appears on the stock register of the Company.
(x) Upon determination of the Trading Reference Price, the
Company shall make any adjustments thereto as required by Sections
7(ii) and (iii), including, without limitation, any adjustments which
became effective prior to the date such Trading Reference Price was
determined, and shall promptly mail or cause to be mailed to each
holder of Senior Preferred Stock notice thereof as set forth in
subsection (vii).
(c) Consolidation, Merger or Sale of Assets. If any transaction shall
occur, including without limitation (i) any recapitalization or
reclassification of shares of Series A Preferred Stock (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination of the Series A Preferred
Stock), (ii) any consolidation or merger of the Company with or into another
person or any merger of another person into the Company (other than a merger
that does not result in a reclassification, conversion, exchange or
cancellation of Series A Preferred Stock), (iii) any sale or transfer of all or
substantially all of the assets of the Company (other than a sale-leaseback,
farm-out, collateral assignment, mortgage or other similar financing
transaction), or (iv) any compulsory share exchange, pursuant to any of which
holders of Series A Preferred Stock shall be entitled to receive other
securities, cash or other property, then there shall be no adjustment in the
Conversion Ratio or Trading Reference Price but appropriate provision shall be
made so that the holder of each share of Senior Preferred Stock then
outstanding shall have the right thereafter to convert such shares only into
the kind and amount of the securities, cash or other property that would have
been receivable upon such recapitalization, reclassification, consolidation,
merger, sale, transfer, or share exchange by a holder of the number of shares
of Series A Preferred Stock issuable upon conversion of such share of Senior
Preferred Stock immediately prior to such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange assuming such holder of
Series A Preferred Stock failed to exercise such holder's rights of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange (provided that if the kind or amount of
securities, cash or other property receivable upon such reclassification,
consolidation, merger, sale, transfer or share exchange is not the same for
each non-electing share, then the kind and amount of securities, cash or other
property receivable upon such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange for each non-electing
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). The Company shall not enter into any
such merger, consolidation or sale unless the company formed by such
consolidation or resulting from such merger or that acquires such assets or
that acquires the Company's shares, as the case may be, shall make provisions
in its certificate or articles of incorporation or other constituent document
to establish such right. Such certificate or articles of incorporation or other
constituent document shall provide for adjustments that, for events subsequent
to the effective date of such certificate or articles of incorporation or other
constituent document, shall be as nearly equivalent as may be practicable to
the relevant adjustments provided for in this Section 7.
(d) Accrued Dividends and Fractional Shares. Dividends shall cease to
accrue on shares of Senior Preferred Stock surrendered for conversion into
Series A Preferred Stock. No
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<PAGE> 11
fractional shares of Series A Preferred Stock shall be issued upon conversion
of Senior Preferred Stock. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company, at its option and in its sole
discretion, shall either (i) aggregate all fractional share interests held by a
holder and pay cash equal to such remaining fractional interest multiplied by
the fair market value of such share at the time of conversion or (ii) round
such fractional interest up to the next whole share.
(e) Mechanics of Conversion. Before any holder of Senior Preferred
Stock shall be entitled to convert the same into shares of Series A Preferred
Stock and to receive a certificate therefor, such holder shall (i) surrender
the certificate or certificates for the Senior Preferred Stock to be converted,
duly endorsed, at the office of the Company or of any transfer agent for the
Senior Preferred Stock, (ii) give written notice to the Company at such office
that such holder elects to convert the same and (iii) provide the Company with
such other transfer instruments as may be required by the Company. The Company
shall as promptly as practicable after receipt of such deliveries, issue and
cause to be delivered to such holder of Senior Preferred Stock (or to any other
person specified in the notice delivered by such holder), a certificate or
certificates for the number of shares of Series A Preferred Stock to which such
holder shall be entitled as aforesaid and a check, if applicable, payable to
the holder for the cash amounts, if any, payable as the result of a conversion
into fractional shares of Series A Preferred Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Senior Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Series A Preferred
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Series A Preferred Stock on such
date. In case any certificate for shares of Senior Preferred Stock shall be
surrendered for conversion of only a part of the shares represented thereby,
the Company shall as promptly as practicable deliver to or upon the written
order of the holder thereof, a certificate or certificates for the number of
shares of Senior Preferred Stock represented by such surrendered certificate
which are not being converted. Notwithstanding the foregoing, the Company shall
not be obligated to issue certificates evidencing the shares of Series A
Preferred Stock issuable upon such conversion unless the certificates
evidencing the Senior Preferred Stock are either delivered to the Company or
its transfer agent or the Company or its transfer agent shall have received
evidence satisfactory to it evidencing that such certificates have been lost,
stolen or destroyed and the holder of such Senior Preferred Stock executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with such certificates. The issuance of
certificates of shares of Series A Preferred Stock issuable upon conversion of
shares of Senior Preferred Stock shall be made without charge to the converting
holder for any tax imposed in respect of the issuance thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable with respect to any transfer involved in the issue and delivery of any
certificate in a name other than that of the holder of the shares of Senior
Preferred Stock being converted.
SECTION 8. STATUS OF REACQUIRED SHARES. If shares of the Senior
Preferred Stock are converted pursuant to Section 7 hereof, the shares so
converted shall, upon compliance with any statutory requirements, assume the
status of authorized but unissued shares of preferred stock of the Company.
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SECTION 9. RESERVED SHARES. So long as any shares of Senior Preferred
Stock remain outstanding, the Company covenants and agrees (i) upon
determination of the number of shares of Series A Preferred Stock issuable upon
conversion of the Senior Preferred Stock, to keep reserved for issuance in
connection with the conversion of the Senior Preferred Stock a number of
authorized but unissued shares of Series A Preferred Stock at least equal to
the number of shares of Series A Preferred Stock issuable upon conversion of
all of the Senior Preferred Stock outstanding from time to time and (ii) upon
determination of the number of shares of Common Stock issuable upon conversion
of the Series A Preferred Stock into which the Senior Preferred Stock is
convertible, to keep reserved for issuance in connection with the conversion of
such Series A Preferred Stock a number of authorized but unissued shares of
Common Stock at least equal to the number of shares of Common Stock issuable
upon conversion of (a) all of the Series A Preferred Stock outstanding from
time to time and (b) all of the shares of Series A Preferred Stock issuable
upon conversion of the Senior Preferred Stock.
SECTION 10. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class mail, postage prepaid and addressed
as follows: (i) in the case of a holder of the Senior Preferred Stock, to such
holder's address of record, and (ii) in the case of the Company, to the
Company's principal executive offices to the attention of the Company's
secretary.
SECTION 11. AMENDMENTS AND WAIVERS. Any right, preference, privilege
or power of, or restriction provided for the benefit of, the Senior Preferred
Stock set forth herein may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the vote or consent
of the holders of a majority of the shares of Senior Preferred Stock then
outstanding, and any amendment or waiver so effected shall be binding upon the
Company and all holders of the Senior Preferred Stock.
SECTION 12. PREEMPTIVE RIGHTS. The Senior Preferred Stock is not
entitled to any preemptive rights with respect of any securities of the
Company.
SECTION 13. SEVERABILITY OF PROVISIONS. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by
or invalid under applicable law, such provision shall be ineffective only the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid
under applicable law.
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IN WITNESS WHEREOF, Tatham Offshore, Inc. has caused this Amendment to
be duly executed by its duly authorized officer and attested by its secretary
this ____ day of March, 1998.
TATHAM OFFSHORE, INC.
By:
-----------------
Printed Name:
-----------------
Title:
-----------------
ATTEST:
- ---------------------------------
Printed Name:
--------------------
Title:
--------------------
13
<PAGE> 1
EXHIBIT 10.1
===============================================================================
REDEMPTION AGREEMENT
by and between
TATHAM OFFSHORE, INC.,
And
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
FEBRUARY 27, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Transfer of the Properties........................................1
2. Delivery of Senior Preferred Stock................................1
3. Representations and Warranties of the Company.....................1
3.1. Organization.............................................1
3.2. Authority and Conflicts..................................1
3.3. Authorization............................................2
3.4. Enforceability...........................................2
3.5. Title....................................................2
3.6. Contracts................................................2
3.7. Litigation and Claims....................................2
3.8. Approvals and Preferential Rights........................3
3.9. Compliance with Law and Permits..........................3
3.10. Status of Contracts.....................................3
3.11. Production Burdens, Taxes, Expenses and Revenues........3
3.12. Production Balances.....................................3
3.13. Expenditure Commitments.................................3
3.14. Payout Balances.........................................4
3.15. Qualification...........................................4
3.16. Absence of Certain Changes..............................4
3.17. Disclaimer..............................................4
4. Representations and Warranties of Flextrend.......................4
4.1. Organization.............................................4
4.2. Authority and Conflicts..................................4
4.3. Authorization............................................5
4.4. Enforceability...........................................5
4.5. Qualification............................................5
4.6. Senior Preferred Stock...................................5
5. Closing...........................................................5
5.1. The Closing..............................................5
5.2. Deliveries by Company at Closing.........................6
5.3. Possession...............................................7
5.4. Deliveries by Flextrend At Closing.......................7
6. Assumption by Flextrend...........................................7
7. Production, Proceeds, Expenses and Taxes..........................7
7.1. Division of Substances...................................7
7.2. Division of Expenses.....................................7
7.3. Division of Proceeds.....................................8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
7.4. Property Tax Prorations..................................8
7.5. Adjustments..............................................8
8. Negative Covenants................................................8
9. Survival and Indemnification......................................9
9.1. Survival and Notice......................................9
9.2. The Company's Indemnification............................9
9.3. Flextrend's Indemnification.............................10
10. Further Assurances..............................................10
11. Notice..........................................................10
12. Assignment......................................................11
13. Governing Law...................................................11
14. Expenses and Fees...............................................12
15. Integration.....................................................12
16. Waiver or Modification..........................................12
17. Headings........................................................12
18. Invalid Provisions..............................................12
19. Multiple Counterparts...........................................13
20. Termination.....................................................13
21. Guarantee.......................................................13
22. Certain Definitions.............................................13
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
Exhibit 1 - Oil and Gas Properties
Exhibit 3.6 - Contracts
Exhibit 3.7 - Litigation and Claims
Exhibit 3.8 - Approvals and Preferential Rights
Exhibit 3.13 - Commitments
Exhibit 3.14 - Payout Balances
Exhibit 21 - Form of Guarantee
ANNEXES
Annex IA - Assignment of Leases and Bill of Sale [State
Filing Form]
Annex IB - Assignment of Leases and Bill of Sale [MMS Filing
Form]
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<PAGE> 5
REDEMPTION AGREEMENT
This Redemption Agreement is made and entered into on this the 27th
day of February, 1998, by and between Tatham Offshore, Inc., a Delaware
corporation (the "Company"), and Flextrend Development Company, L.L.C., a
Delaware limited liability company ("Flextrend").
1. TRANSFER OF THE PROPERTIES . Subject to the terms and conditions herein set
forth, in consideration of (i) redemption of the 7,500 shares of 9% Senior
Convertible Preferred Stock, par value $0.01 per share, of the Company (the
"Senior Preferred Stock"), owned or beneficially owned by the Partnership and
(ii) all accrued and unpaid dividends on the shares of Senior Preferred Stock
due to the Partnership, the Company agrees to sell, assign, convey and deliver
to Flextrend, and Flextrend agrees to acquire from the Company, effective as of
7:00 a.m. at the location of each of the Oil and Gas Properties on the date of
Closing (as defined in Section 5.1(a)) all of the interest of the Company in
and to the Properties as they exist on such date as such Properties are more
specifically described on Exhibit 1.
2. DELIVERY OF SENIOR PREFERRED STOCK . In consideration for the transfer of
the Properties to Flextrend, Flextrend shall cause the Partnership to agree
that all accrued and unpaid dividends on the shares of Senior Preferred Stock
shall conclusively be deemed to have been satisfied and paid in full, and the
shares of Senior Preferred Stock owned or beneficially owned by the Partnership
shall be redeemed, and Flextrend shall cause the Partnership to deliver to the
Company the shares of Senior Preferred Stock, free and clear of all
Encumbrances.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company represents and
warrants to Flextrend as follows:
3.1. ORGANIZATION . The Company is a corporation validly existing and in
good standing under the laws of the State of Delaware and is qualified to do
business in and is in good standing under the laws of Texas, Louisiana and
Alabama.
3.2. AUTHORITY AND CONFLICTS . The Company has full corporate power and
authority to carry on its business as presently conducted, to enter into this
Agreement and any agreements contemplated hereby to which it is a party and to
perform its obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and any agreement contemplated hereby does not,
and the consummation of the transactions contemplated hereunder and thereunder
shall not, (a) violate or be in conflict with, or require the consent of any
person or entity under, any provision of the Company's governing documents, (b)
conflict with, result in a breach of, constitute a default (or an
<PAGE> 6
event that with the lapse of time or notice, or both would constitute a
default) under, or require any consent, authorization or approval under any
agreement or instrument to which the Company is a party or to which any of the
Properties or the Company is bound, except as disclosed in Exhibit 3.8, (c)
violate any provision of or require any consent, authorization or approval
under any judgment, decree, judicial or administrative order, award, writ,
injunction, statute, rule or regulation applicable to the Company, or (d)
result in the creation of any Encumbrance on any of the Properties other than
those contemplated by either this Agreement or any related agreements and
documents.
3.3. AUTHORIZATION . The execution and delivery of this Agreement and the
agreements contemplated hereby have been, and the performance of this Agreement
and the agreements contemplated hereby and the transactions contemplated hereby
and thereby shall be at the time required to be performed hereunder, duly and
validly authorized by all requisite corporate action on the part of the
Company.
3.4. ENFORCEABILITY . This Agreement has been duly executed and delivered on
behalf of the Company and constitutes the legal, valid and binding obligation
of the Company enforceable in accordance with its terms, except as
enforceability may be limited by Equitable Limitations. All documents and
instruments required hereunder to be executed and delivered by the Company
shall be duly executed and delivered and shall constitute legal, valid and
binding obligations of the Company enforceable in accordance with their terms,
except as enforceability may be limited by Equitable Limitations.
3.5. TITLE . The Company has (i) Marketable Title to the Oil and Gas
Properties and (ii) defensible title to all of the Properties other than the
Oil and Gas Properties.
3.6. CONTRACTS . Exhibit 3.6 contains a complete list of all contracts that
constitute a part of the Properties or by which the Properties are bound or
subject (collectively, the "Contracts").
3.7. LITIGATION AND CLAIMS . Except as set forth on Exhibit 3.7, no claim,
demand, filing, cause of action, administrative proceeding, lawsuit or other
litigation is pending or, to the best knowledge of the Company, threatened that
could now or hereafter adversely affect the ownership, development or operation
of any of the Properties, other than proceedings relating to the industry
generally and as to which the Company is not a named party. No written or oral
notice from any governmental body or any other person has been received by the
Company (i) claiming any violation or repudiation of the Oil and Gas Properties
or any violation of any law, ordinance, code, rule or regulation with respect
to the Oil and Gas Properties or (ii) requiring, or calling attention to, the
need for any work, repairs, construction, alterations or installations on or in
connection with the Properties with which the Company has not complied.
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<PAGE> 7
3.8. APPROVALS AND PREFERENTIAL RIGHTS . Exhibit 3.8 contains a complete and
accurate list of all approvals required to be obtained by the Company for the
assignment of the Properties to Flextrend and all preferential purchase rights
that affect the Properties.
3.9. COMPLIANCE WITH LAW AND PERMITS . The Properties have been operated in
compliance with the provisions and requirements of all laws, orders,
regulations, rules and ordinances issued or promulgated by all governmental
authorities having jurisdiction with respect to the Properties, noncompliance
with which reasonably may be expected to have a material adverse effect on the
Properties. All necessary governmental authorizations with regard to the
ownership, development or operation of the Properties have been obtained where
the failure to obtain such authorizations reasonably may be expected to have a
material adverse effect on the Properties, and no material violations exist in
respect of such licenses, permits or authorizations.
3.10. STATUS OF CONTRACTS . (i) To the Company's knowledge, all of the
Contracts and the rights and obligations of the Company thereunder are in full
force and effect, and (ii) the Company is not in breach of or default, or with
the lapse of time or the giving of notice, or both, would be in breach or
default, with respect to any of its obligations thereunder to the extent that
such breaches or defaults reasonably may be expected to have a material adverse
effect on the Properties.
3.11. PRODUCTION BURDENS, TAXES, EXPENSES AND REVENUES . All rents,
royalties, excess royalty, overriding royalty interests and other payments due
under or with respect to the Oil and Gas Properties have been properly and
timely paid; and all ad valorem, property, production, severance and other
taxes based on or measured by the ownership of the Properties or the production
of Substances therefrom, have been properly and timely paid. All expenses due
and payable as of the date hereof under the terms of the Contracts have been
properly and timely paid. All of the proceeds from the sale of Substances have
been properly and timely paid to the Company by the purchasers of production
without suspense or indemnity other than standard division order indemnities.
3.12. PRODUCTION BALANCES . None of the purchasers under any production
sales contracts are entitled to "make-up" or otherwise receive deliveries of
Substances at any time on or after January 1, 1998, without paying at such time
the full contract price therefor. No person is entitled to receive any portion
of the interest of the Company in any Substances or to receive cash or other
payments to "balance" any disproportionate allocation of Substances under any
operating agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, or other similar agreements.
3.13. EXPENDITURE COMMITMENTS . Exhibit 3.13 contains a complete and
accurate list of (i) all authorities for expenditures ("AFE") to drill, rework
or plug and
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<PAGE> 8
abandon Wells or for other capital expenditures pursuant to any of the
Contracts that have been proposed by any person on or after January 1, 1998,
whether or not accepted by the Company or any other person, and (ii) all AFE
and oral or written commitments to drill, rework or plug and abandon Wells or
for other capital expenditures pursuant to any of the Contracts for which all
of the activities anticipated in such AFE or commitments have not been
completed by the date of this Agreement.
3.14. PAYOUT BALANCES . Exhibit 3.14 contains a complete and accurate list
of the status of cost recovery or other "payout" balance, as of the dates shown
in Exhibit 3.14, for each Well that is subject to a reversion or other
adjustment at some level of cost recovery or payout.
3.15. QUALIFICATION . To the extent required with respect to the ownership,
development and operation of the Properties, the Company is properly qualified
by the MMS to own and operate the Properties.
3.16. ABSENCE OF CERTAIN CHANGES . Since January 1, 1998, the Properties
have not suffered any material destruction, damage or loss; provided that no
representation or warranty is made in this Section 3.16 relating to Viosca
Knoll Block 817.
3.17. DISCLAIMER . Except as set forth herein, the Properties are being
transferred to Flextrend hereunder "as is", "where is" and "with all faults"
without any representations or warranties of any kind, including, without
limitation, those relating to merchantability, fitness for purpose, quality,
condition, value or otherwise.
4. REPRESENTATIONS AND WARRANTIES OF FLEXTREND . Flextrend represents and
warrants to the Company that:
4.1. ORGANIZATION . Flextrend is a limited liability company validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business in and is in good standing under the laws of Texas,
Louisiana, and Alabama.
4.2. AUTHORITY AND CONFLICTS . Flextrend has full limited liability company
power and authority to carry on its business as presently conducted, to enter
into this Agreement and any agreements contemplated hereby to which it is a
party, and to perform its obligations hereunder and thereunder. Flextrend has
full corporate or similar power and authority to purchase the Properties on the
terms described in this Agreement. The execution and delivery of this Agreement
by the Company and any agreement contemplated hereby does not, and the
consummation of the transactions contemplated hereunder and thereunder shall
not, (a) violate or be in conflict with, or require the consent of any person
or entity under, any provision of Flextrend's governing documents, (b) conflict
with, result in a breach of, constitute a default (or an event that with the
lapse of time or notice, or both, would constitute a default) under, or require
any consent,
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<PAGE> 9
authorization or approval under any agreement or instrument to which Flextrend
is a party or is bound, (c) violate any provision of or require any consent
(except for qualifying with and filing the appropriate bonds and transfer
documents with the MMS), authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule or
regulation applicable to Flextrend, or (d) result in the creation of any
Encumbrance on the Senior Preferred Stock.
4.3. AUTHORIZATION . The execution and delivery of this Agreement and the
agreements contemplated hereby have been and the performance of this Agreement
and the transactions contemplated thereby shall be at the time required to be
performed hereunder, duly and validly authorized by all requisite partnership
action on the part of Flextrend.
4.4. ENFORCEABILITY . This Agreement has been duly executed and delivered on
behalf of Flextrend and constitutes a legal, valid and binding obligation of
Flextrend enforceable in accordance with its terms, except as enforceability
may be limited by Equitable Limitations. All documents and instruments required
hereunder to be executed and delivered by Flextrend shall be duly executed and
delivered and shall constitute legal, valid and binding obligations of
Flextrend enforceable in accordance with their terms, except as enforceability
may be limited by Equitable Limitations.
4.5. QUALIFICATION . To the extent required with respect to the ownership,
development and operation of the Properties, Flextrend is properly qualified by
the MMS to own and, upon the MMS' acceptance of the required bond from
Flextrend, operate the Properties.
4.6. SENIOR PREFERRED STOCK . The shares of Senior Preferred Stock are owned
by the Partnership free and clear of all Encumbrances.
5. CLOSING.
5.1. THE CLOSING . (a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil Place, South Tower, 711 Louisiana
Street, Suite 1900, Houston, Texas 77002 on the later of (i) July 1, 1998 or
(ii) such later date which shall be one business day following the Completion
Date (as defined in the Contribution Agreement); provided that, should the
Completion Date fall on or after October 1, 1998, the Company may, at its
option, elect to close the transactions contemplated by this Agreement on any
date on or after October 1, 1998, with ten (10) days' prior notice to
Flextrend, in which case, the Closing shall be deemed to occur on a date
specified by the Company. Time shall be of the essence in this Agreement.
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<PAGE> 10
(b) The obligation of each of the parties hereto to effect the
transactions contemplated hereby is subject to the satisfaction or waiver of
the following conditions: (i) the representations and warranties made by the
other party in this Agreement shall be true and correct on and as of the date
hereof (unless stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date), but only if the failure to be true would,
after giving effect to any indemnification rights, have a material adverse
effect on the value or operation of the Properties and the other party shall
have performed its covenants and agreements herein to be performed prior to the
Closing, except where the failure to perform such covenants and agreements
would not, individually or in the aggregate, have a material adverse effect on
the value or operation of any of the Properties or the ability of such other
party to consummate the transactions contemplated hereby, and an executive
officer of the other party shall have provided a certificate to such effect,
dated the date hereof; (ii) all material consents and filings required in
connection with the transactions contemplated hereby shall have been obtained
or made; and (iii) the other party shall have made the deliveries required to
be made by it pursuant to this Section 5.
5.2. DELIVERIES BY COMPANY AT CLOSING . The Company shall have delivered to
Flextrend the following instruments, properly executed and acknowledged:
5.2.1. Counterparts of the following: (i) State Assignment; and (ii)
MMS Assignment.
5.2.2. Such other instruments as are necessary to effectuate the
conveyance of the Properties to Flextrend.
5.2.3. With respect to any leases in which the Company owns less than
all of the operating rights or leasehold interests and is designated as the
operator under the applicable operating or other similar agreement, (i) letters
to all working interest owners in which the Company resigns as the operator and
recommends Flextrend or an affiliate of Flextrend as the successor operator and
(ii) any forms promulgated by the appropriate governmental authority and
necessary for the resignation by the Company as operator, which forms shall be
completed and executed by the Company and shall designate Flextrend or an
affiliate of Flextrend as the operator under the applicable operating or other
similar agreement. With respect to any leases in which the Company owns all of
the leasehold interests or operating rights and is designated as the operator,
any forms promulgated by the appropriate governmental authority and necessary
for the resignation by the Company as operator, which forms shall be completed
and executed by the Company and shall designate Flextrend or an affiliate of
Flextrend as the operator under the applicable operating or other similar
agreement.
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<PAGE> 11
5.3. POSSESSION . At the Closing, the Company shall deliver to Flextrend at
Flextrend's offices all of the Data and shall deliver to Flextrend possession
of the other Properties.
5.4. DELIVERIES BY FLEXTREND AT CLOSING. Against delivery of the documents
and materials described in Section 5.2, Flextrend shall cause the Partnership
to deliver to the Company, free and clear of all Encumbrances, a duly executed
certificate or certificates representing the 7,500 shares of Senior Preferred
Stock owned or beneficially owned by the Partnership, together with transfer
powers endorsed in blank relating to such certificates.
6. ASSUMPTION BY FLEXTREND . At Closing, Flextrend shall assume all of the
costs, obligations and liabilities of the Company relating to the Properties
that arise from or relate to (i) the period beginning on January 1, 1998, (ii)
plugging, abandonment or similar restoration operations relating to any Wells,
platforms or other facilities on or related to the Properties necessary or
appropriate to comply with all contracts, and any rules, laws, regulations or
orders of any governmental authority relating to such plugging, abandonment and
similar restoration operations and (iii) that certain (a) Production Payment
Agreement dated September 19, 1995 between the Company and J. Ray McDermott
Properties, Inc. and (b) Production Payment Agreement dated September 19, 1995
between the Company and F-W Oil Interests, Inc. Except to the extent provided
in clause (ii) and (iii) of the immediately preceding sentence, Flextrend shall
not assume any costs, obligations or liabilities (including negligence and
strict liability) that relate to the Properties and arise from or relate to the
period ending prior to January 1, 1998; or any obligation of the Company or any
other person to pay and discharge any refunds, including interest and
penalties, if any, that may be imposed by any governmental agency arising from
the sale of the Substances prior to January 1, 1998. Notwithstanding anything
to the contrary herein, the Company expressly reserves and retains any and all
of its rights and interests in and to that certain (a) Exchange Agreement dated
September 19, 1995 between the Company and J. Ray McDermott Properties, Inc.
and (b) Exchange Agreement dated September 19, 1995 between the Company and F-W
Oil Interests, Inc.
7. PRODUCTION, PROCEEDS, EXPENSES AND TAXES.
7.1. DIVISION OF SUBSTANCES . After the Closing, all Substances produced
from the Oil and Gas Properties on or after January 1, 1998 shall be owned by
Flextrend. All Substances produced and sold from the Oil and Gas Properties
prior to January 1, 1998 shall be owned by the Company.
7.2. DIVISION OF EXPENSES . Subject to Section 9 hereof, all costs, expenses
incurred and other expenditures incurred in connection with the Properties and
attributable to the period ending prior to January 1, 1998 shall be borne by
the Company.
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<PAGE> 12
Subject to Section 9 hereof, all costs, expenses and other expenditures
incurred in connection with the Properties and attributable to the period
beginning on January 1, 1998 other than costs and expenses not assumed by
Flextrend under Section 6 shall be borne by Flextrend.
7.3. DIVISION OF PROCEEDS . All net proceeds earned in connection with the
Properties attributable to the period ending prior to January 1, 1998 shall be
deemed to be owned by the Company. All proceeds earned in connection with the
Properties attributable to the period beginning on January 1, 1998 shall be
deemed to be owned by Flextrend.
7.4. PROPERTY TAX PRORATIONS . Real and personal property taxes for the
Properties for the year in which Closing occurs shall be prorated between
Flextrend and the Company as of January 1, 1998. If the actual taxes are not
known as of the Closing Date, the Company's share of such taxes shall be
determined by using (i) the rates and mileages for the year prior to the year
in which the Closing occurs, with appropriate adjustments for any known and
verifiable changes thereto, and (ii) the assessed values for the year in which
Closing occurs.
7.5. ADJUSTMENTS . At the Closing, the Company or Flextrend, as appropriate,
shall make a cash payment to the other to give effect to the provisions of
Section 7 to the extent then determinable and promptly after such amount is
finally determinable, the Company or Flextrend shall make such payments as may
be necessary to make final settlement. If, after the Closing, the Company
receives any proceeds that pursuant to this Section 7 belong to Flextrend, then
the Company shall deliver such proceeds to Flextrend within five Business Days
after receipt of such proceeds. If, after the Closing, Flextrend receives any
proceeds that pursuant to this Section 7 belong to the Company, then such
proceeds shall be returned to the Company within five Business Days after
receipt of such proceeds. If after Closing either party hereto receives
invoices for costs or expenses that pursuant to the terms of this Section 7 are
the responsibility of the other party, the party receiving such invoices shall
immediately deliver them to the other party.
8. NEGATIVE COVENANTS.
Except as Flextrend may otherwise consent in writing, between the date of
this Agreement and the date of Closing and except as contemplated by this
Agreement, the Company shall not:
(a) sell, transfer, assign, convey or otherwise dispose of any Properties
other than (i) oil, gas and other hydrocarbons produced, saved and sold in
the ordinary course of business, and (ii) personal property and equipment
which is replaced with
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<PAGE> 13
property and equipment of comparable or better value and utility in the
ordinary and routine maintenance and operation of the Properties;
(b) create or permit the creation of any Encumbrance on the Properties,
other than Permitted Encumbrances;
(c) grant any preferential right to purchase or similar right or agree to
require the consent of any party to the transfer and assignment of the
Properties to Flextrend;
(d) designate any Person, other than Flextrend, as an operator of the
Properties;
(e) incur or agree to incur any contractual obligation or liability,
whether absolute, contingent, matured or unmatured, which would constitute
an assumed liability by Flextrend as provided in Section 6 above; provided
that, the Company may incur such obligations or liabilities in the ordinary
course of business or in the ordinary and routine maintenance and operation
of the Properties with the consent of Flextrend which consent shall not be
unreasonably withheld or delayed; provided that any such obligation or
liability would not, either individually or in the aggregate, have a
material adverse effect on any of the Properties;
(f) enter into any transaction the effect of which, considered as a
whole, would be to cause the Company's ownership interest in any of the
Working Interests to be altered from its ownership interest as of the date
hereof; or
(g) agree or commit to do any of the foregoing.
9. SURVIVAL AND INDEMNIFICATION.
9.1. SURVIVAL AND NOTICE . The liability of Flextrend and the Company under
each of their respective representations, warranties and covenants contained in
this Agreement shall survive the Closing and execution and delivery of the
assignments contemplated hereby. Any assertion by any party to this Agreement
that any party is liable for the inaccuracy of any representation or warranty
or the breach of any covenant (except in Section 7.5, which shall survive until
the closing of the applicable statute of limitations) must be made in writing
and must be given to the other party not later than the first Business Day
occurring eighteen months after the date of Closing. The notice shall state the
facts known to the person providing such notice that give rise to such notice
in sufficient detail to allow the receiving person to evaluate the claim.
9.2. THE COMPANY'S INDEMNIFICATION . To the extent permitted by law, the
Company, from and after Closing, shall defend, indemnify and hold Flextrend
harmless
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<PAGE> 14
from and against any and all damage, loss, cost, expense, obligation, claim or
liability, including reasonable counsel fees and reasonable expenses of
investigating, defending arid prosecuting litigation (collectively, the
"Liability"), suffered by Flextrend as a result of (i) any cost, liability or
obligation that was not assumed by Flextrend pursuant to Section 6 (other than
Liability resulting from the inaccuracy of any representation or warranty or
the breach of a covenant by Flextrend contained in this Agreement); (ii) the
failure of the Company to comply with the bulk sales laws of Texas or any other
jurisdiction in connection with the transactions provided for in this
Agreement; (iii) any brokers' or finders' fees or commissions arising with
respect to brokers or finders retained or engaged by the Company and resulting
from or relating to the transactions contemplated in this Agreement; (iv) the
inaccuracy of any representation or warranty of the Company set forth in this
Agreement; and (v) the breach of, or failure to perform or satisfy, any of the
covenants of the Company set forth in this Agreement.
9.3. FLEXTREND'S INDEMNIFICATION . To the extent permitted by law,
Flextrend, from and after Closing, shall defend, indemnify and hold the Company
harmless from and against any and all Liability suffered by the Company as a
result of (i) any cost, liability or obligation that was assumed by Flextrend
pursuant to Section 6 (other than Liability resulting from the inaccuracy of
any representation or warranty or the breach of a covenant of the Company
contained in this Agreement); (ii) the failure of Flextrend to comply with the
bulk sales laws of Texas or any other jurisdiction in connection with the
transactions provided for in this Agreement; (iii) any brokers or finders' fees
or commissions arising with respect to brokers or finders retained or engaged
by Flextrend and resulting from or relating to the transactions contemplated in
this Agreement; (iv) the inaccuracy of any representation or warranty of
Flextrend set forth in this Agreement; and (v) the breach of, or failure to
perform or satisfy any of the covenants of Flextrend set forth in this
Agreement.
10. FURTHER ASSURANCES . After the Closing, the Company and Flextrend shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document, certificate or other instrument delivered pursuant hereto.
The Company and Flextrend, as applicable, shall cooperate and use their best
efforts to obtain all approvals and consents required by or necessary for the
transactions contemplated by this Agreement that are customarily obtained after
Closing.
11. NOTICE . All notices required or permitted under this Agreement shall be in
writing and, (a) if by air courier, shall be deemed to have been given one
Business Day after the date deposited with a recognized carrier of overnight
mail, with all freight or other charges prepaid, (b) if by telegram, shall be
deemed to have been given one Business Day after delivered to the wire service,
(c) if by telex, provided a confirmation is received and
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<PAGE> 15
such notice is also sent by U.S. mail, shall be deemed to have been given when
such telex is sent, (d) if mailed, shall be deemed to have been given three
Business Days after the date when sent by registered or certified mail, postage
prepaid, and (e) if sent by telecopier, provided a confirmation is received and
such notice is also sent by U.S. mail, shall be deemed to have been given when
such telecopy is sent, addressed as follows:
The Company: Tatham Offshore, Inc.
7400 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: Chief Executive Officer
Telecopier: (713) 224-7574
with a copy to: Rick L. Burdick
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Flextrend: Flextrend Development Company, L.L.C.
7200 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Attention: President
Telecopier: (713) 547-5151
or to such other address as either party hereto may from time to time designate
by notice in writing to the other.
12. ASSIGNMENT . This Agreement and any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the other party;
provided that, in the case of any assignment as described above, no such
assignment shall relieve the assigning party of any of its obligations under
this Agreement and the non-assigning party shall have the right to seek
remedies directly from the assigning party without seeking the same from the
assignee. Subject to the preceding sentence, this Agreement will be binding
upon and inure to the benefit of, and be enforceable by, the parties and their
respective successors and permitted assigns.
13. GOVERNING LAW . This Agreement shall be governed and construed in
accordance with the laws of the State of Texas without giving effect to any
principles of conflicts of laws. The validity of the various conveyances
affecting the title to real property shall be governed by and construed in
accordance with the laws of the jurisdiction in which such
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<PAGE> 16
property is situated. The representations and warranties contained in such
conveyances and the remedies available because of a breach of such
representations and warranties shall be governed by and construed in accordance
with the laws of the State of Texas without giving effect to the principles of
conflict of laws.
14. EXPENSES AND FEES . (i) Each of the parties hereto shall pay the fees and
expenses of their respective counsel, accountants and other experts incident to
the negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby, (ii) Flextrend and the Company shall each pay
one half of (x) the cost of all fees for the recording of transfer documents
described in Section 5.2 and (y) any sales, transfer, stamp or other excise
taxes resulting from the transfer of the Properties to Flextrend, and (iii) all
other costs shall be borne by the party incurring such costs.
15. INTEGRATION . This Agreement, the exhibits hereto and the other agreements
to be entered into by the parties under the provisions of this Agreement set
forth the entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersede all prior agreements, prior
arrangements and prior understandings relating to the subject matter hereof.
16. WAIVER OR MODIFICATION . This Agreement may be amended, modified,
superseded or cancelled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of Flextrend and the Company, or, in the
case of a waiver or consent, by or on behalf of the party or parties waiving
compliance or giving such consent. No waiver by any party of any condition, or
of any breach of any covenant, agreement, representation or warranty contained
in this Agreement, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
waiver of any other condition or of any breach of any other covenant,
agreement, representation or warranty.
17. HEADINGS . The Section headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. INVALID PROVISIONS . If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance from
this Agreement.
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<PAGE> 17
19. MULTIPLE COUNTERPARTS . This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed as
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
20. TERMINATION . This Agreement may be terminated by mutual written consent of
the parties hereto.
21. GUARANTEE . All obligations of Flextrend hereunder shall be unconditionally
guaranteed by the Partnership pursuant to that certain form of Guarantee
attached hereto as Exhibit 21.
22. CERTAIN DEFINITIONS . As used in this Agreement, the following terms shall
have the following meanings:
"AFEs" shall have the meaning set out in Section 3.13 above.
"Agreement" shall mean this Redemption Agreement, as the same may from time
to time be amended or supplemented.
"Business Day" shall mean a day other than the days that banking
institutions are required or permitted to be closed under the laws of the State
of Texas.
"Closing" shall have the meaning set out in Section 5.1(a) above.
"Contracts" shall have the meaning set out in Section 3.6.
"Contribution Agreement" shall mean the Contribution and Distribution
Agreement made as of the date hereof among DeepTech International Inc., a
Delaware corporation, the Company, DeepFlex Production Services, Inc., a
Delaware corporation, and El Paso Natural Gas Company, a Delaware corporation.
"Data" shall mean all (i) abstracts, title opinions, title reports, title
policies, lease and land files, surveys, analyses, compilations,
correspondence, filings with regulatory agencies, other documents and
instruments that relate to the Properties; (ii) geological, engineering,
exploration, production, and other technical data, magnetic field recordings,
digital processing tapes, field prints, summaries, reports and maps, whether
written or in an electronically reproducible form, that are in the possession
or control of the Company, and relate to the Oil and Gas Properties; and (iii)
all other books, records, files and magnetic tapes containing financial, title
or other information that are in the possession or control of the Company, or
any affiliate of the Company (excluding Flextrend), and in any manner relate to
the Properties; provided that "Data" shall not include any of the
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<PAGE> 18
foregoing to the extent such Data is subject to a licensing agreement that does
not permit access to Flextrend.
"Employee" shall mean any current, former, or retired employee, consultant
or director of the Company whose duties relate or related to the business
conducted with the Properties.
"Encumbrances" shall refer to each and all of the following items:
mortgages, claims, charges, security interests, liens, obligations,
encumbrances, imperfections of title or other matters affecting title, and any
rights of third parties whatsoever.
"Equipment" shall mean all equipment, fixtures, physical facilities or
interests therein of every type and description to the extent that the same are
used or held for use in connection with the ownership, development or operation
of the Properties, whether located on or off the Properties.
"Equitable Limitations" shall mean applicable bankruptcy, reorganization or
moratorium statutes, equitable principles or other similar laws affecting the
rights of creditors generally.
"Laws" shall refer to each and all of the following: domestic (federal,
state or local) or foreign laws, statutes, ordinances, rules, regulations,
decrees or orders.
"Liability" shall have the meaning set out in Section 9.2.
"Liens" shall mean all encumbrances, liens, claim, easements, rights,
agreements, instruments, obligations, burdens or defects.
"Marketable Title" shall mean such title as (i) will enable Flextrend, as
the Company's successor in title, to receive from a particular Oil and Gas
Property at least the Net Revenue Interests for the leases identified in
Exhibit 1, without reduction, suspension or termination throughout the term of
such lease, except for any reduction, suspension or termination (a) caused by
Flextrend, any of its affiliates (other than the Company), successors in title
or assigns, (b) caused by orders of the appropriate regulatory agency having
jurisdiction over such Oil and Gas Property that are promulgated after January
1, 1998 and that concern pooling, unitization, communitization or spacing
matters affecting such Oil and Gas Property, (c) or otherwise set forth in
Exhibit 1; (ii) will obligate Flextrend, as the Company's successor in title,
to bear no greater Working Interests other than the Working Interests for each
of the leases identified in Exhibit 1, without increase throughout the term of
such lease, except for any increase (a) caused by Flextrend, any of its
affiliates (other than the Company), successors in title or assigns, (b) that
also results in the Net Revenue Interests associated with such lease being
proportionately increased, (c) caused by contribution requirements provided for
under provisions similar to those
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<PAGE> 19
contained in Article VII.B. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement, (d) caused by orders of the appropriate regulatory agency having
jurisdiction over an Oil and Gas Property that are promulgated after January 1,
1998, and that concern pooling, unitization, communitization or spacing matters
affecting a particular Oil and Gas Property, or (e) otherwise set forth in
Exhibit 1; and (iii) is free and clear of all Liens except for Permitted
Encumbrances.
"MMS" shall mean the Minerals Management Service.
"MMS Assignment" shall mean both the Assignment of Leases and Bill of Sale
for filing with the MMS in the form of Annex IB.
"Net Revenue Interest" shall mean that interest in the gross production of
oil and gas and other minerals from the Properties subject to the oil, gas and
mineral leases to which Flextrend will be entitled to by virtue of its
acquisition of the Working Interests after deducting all landowner royalties,
overriding royalties and similar burdens attributable to the Working Interest.
"Oil and Gas Properties" shall mean all properties described in Exhibit 1
whether such properties are in the nature of fee interests, leasehold
interests, working interests, farmout rights, royalty, overriding royalty or
other non-working or carried interests, operating rights or other mineral
rights of every nature and any rights that arise by operation of law or
otherwise in all properties and lands pooled, unitized, communitized or
consolidated with such properties.
"Partnership" shall mean Leviathan Gas Pipeline Partners, L.P. and any
affiliate or subsidiary thereof.
"Payment Rights" shall mean all (i) accounts, instruments and general
intangibles (as such terms are defined in the Uniform Commercial Code of Texas)
attributable to the Properties with respect to any period of time on or after
January 1, 1998 and (ii) liens and security interests in favor of the Company,
whether choate or inchoate, under any law, rule or regulation or under the
Contracts (a) arising from the ownership, operation, sale or other disposition
on or after January 1, 1998 of any of the Properties and (b) arising in favor
of the Company as the operator of certain of the Oil and Gas Properties.
"Permitted Encumbrances" shall mean (i) liens for taxes not yet delinquent,
(ii) lessors' royalties, overriding royalties, division orders, reversionary
interests, and similar burdens that do not operate to reduce the net revenue
interests of the Company in any of the Oil and Gas Properties to less than the
amount set forth therefor in Exhibit 1, (iii) the consents and rights described
in Exhibit 3.8, (iv) the Contracts, (v) except to the extent any amounts
related thereto are due and payable, any mechanic and materialmen, operator,
non-operator, contractor and subcontractor or similar liens created by the
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<PAGE> 20
Contracts or operation of law, and (vi) the Liens created by the documents
contemplated hereby.
"Person" shall include an individual, a partnership, a limited liability
company, a corporation, a trust, an unincorporated organization, a government
or any department or agency thereof and any other entity.
"Properties" shall mean the Oil and Gas Properties, Wells, Substances,
Equipment, Data, Contracts and Payment Rights. "Properties" shall include any
additional interests acquired by Flextrend in a particular operation as a
result of one or more working interest owners electing to go non-consent under
the applicable operating agreements.
"State Assignment" shall mean an Assignment of Leases and Bill of Sale for
recordation in the appropriate real property records of the appropriate
parishes and/or counties in Louisiana, Alabama and Mississippi where the
Assignment needs to be recorded in the form of Annex IA.
"Substances" shall mean all severed crude oil, natural gas, casinghead gas,
drip gasoline, natural gasoline, petroleum, natural gas liquids, condensate,
products, liquids and other hydrocarbons and other minerals or materials of
every kind and description produced from the Oil and Gas Properties on or after
January 1, 1998.
"Wells" shall mean all oil, condensate or natural gas wells, water source
wells, and water and other types of injection wells either located on the Oil
and Gas Properties or held for use in connection with the Oil and Gas
Properties, whether producing, operating, shut-in or temporarily abandoned.
"Working Interest" shall mean the interest that Flextrend will be acquiring
pursuant to the terms of this Agreement upon which will be calculated
Flextrend's proportionate share of the costs, expenses and liabilities
attributable to the oil, gas and mineral leases described herein.
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<PAGE> 21
This Agreement has been executed as of the date first set forth above.
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By:
---------------------------------
Name:
Title:
TATHAM OFFSHORE, INC.
By:
---------------------------------
Name:
Title:
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<PAGE> 22
EXHIBIT 1
PROPERTIES
A. Any and all interests presently shown to be owned by Company by instruments
recorded in the official records of the Parishes of the State of Louisiana, the
Counties of Mississippi and Alabama or the United States of America, together
with all other right, title and interest of Company of whatever kind or
character, whether legal or equitable, vested or contingent, in and to the oil
and gas leases described below:
1. OCS-G 13631, BLOCK 331, SHIP SHOAL AREA, OFFSHORE LOUISIANA
Overriding Royalty Interest in Oil and Gas Lease dated September 1, 1992,
between the United States of America, as Lessor, and Company, as Lessee,
covering all of Block 331, Ship Shoal Area, South Addition, containing
approximately 5277.82 acres.
Overriding Royalty Interest: 2.49962%
2. OCS-G 13641, BLOCK 35, WEST DELTA AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1992, between the United States of America, as
Lessor, and Company, as Lessee, covering that portion of Block 35, West Delta
Area, OCS Leasing Map, Louisiana Map No. 8, seaward of the 1975 Supreme Court
Decree Line, containing approximately 4984.81 acres.
Working Interest: 38% Net Revenue Interest: 29.76666%
Overriding Royalty Interest: 1%
3. (a) OCS-G 9743, BLOCK 817, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA1
Oil and Gas Lease dated August 1, 1988, between the United States of America,
as Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Block 817,
Viosca Knoll Area, containing approximately 5, 760 acres. All of Block 817
from the seafloor down to the stratigraphic equivalent of the base of the Tex
X-6 Sand as encountered in the Viosca Knoll 817 Sohio #1 Well at a log depth of
4,450 feet:
Working Interest: 25% Net Revenue Interest: 18.75%
Overriding Royalty Interest: 1.25%
__________________________________
1 The interest owned by Company in Block 817, Viosca Knoll Area, is subject to
that certain (a) Production Payment Agreement, dated September 19, 1995,
between Company and J. Ray McDermott Properties, Inc. and (b) Production
Payment Agreement, dated September 19, 1995, between Company and F-W Oil
Interests, Inc.
<PAGE> 23
All of Block 817 below the base of the Tex X-6 Sand as encountered in the
Viosca Knoll 817 Sohio #1 Well at a log depth of 4,450 feet, SAVE AND EXCEPT
the E/2 of the E/2 and the E/2 of the E/2 of the W/2 of the E/2 of said Block
817 below the stratigraphic equivalent of the top of the Tex (L) Formation as
encountered in the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
The E/2 of the E/2 and the E/2 of the E/2 of the W/2 of the E/2 of Block 817
below the stratigraphic equivalent of the top of the Tex (L) Formation as
encountered in the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
(b) OCS-G 10939, BLOCKS 772/773, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1989, between the United States of America, as
Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Blocks
772/773, Viosca Knoll Area, containing approximately 5,304 acres. Working
Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
(c) OCS-G 10940, BLOCK 774, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1989, between the United States of America, as
Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Block 774,
Viosca Knoll Area, containing approximately 4,239 acres.
The N/2 of Block 774 and from the seafloor down to the stratigraphic equivalent
of the top of the Tex (L) Formation in the S/2 of Block 774 as encountered in
the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
The S/2 of Block 774 below the stratigraphic equivalent of the top of the Tex
(L) Formation as encountered in the OCS-G 13063 #1 Well at a depth of 12,150
feet:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
<PAGE> 24
(d) OCS-G 13063, BLOCK 818, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated May 1, 1991 between the United States of America, as
Lessor, and Fina Oil and Chemical Company, as Lessee, covering all of Block
818, Viosca Knoll Area, containing approximately 5, 760 acres.
All of Block 818, less and except the wellbore and all production from the
OCS-G 13063 #1 Well:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
The wellbore and all production from the OCS-G 13063 #1 Well:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
(e) OCS-G 10945, BLOCK 861, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated June 1, 1989, between the United States of America, as
Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Block 861,
Viosca Knoll Area, containing approximately 5, 760 acres.
All of Block 861 from the seafloor down to the stratigraphic equivalent of the
top of the Tex (L) Formation as encountered in the OCS-G 13063 #1 Well at a
depth of 12,150 feet:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
All of Block 861 below the stratigraphic equivalent of the top of the Tex (L)
Formation as encountered in the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
4. (a) OCS-G 5804, BLOCK 914, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 914, Ewing
Bank Area, containing approximately 5, 760 acres.
Working Interest: 100% Net Revenue Interest: 73.567%
<PAGE> 25
(b) OCS-G 5805, BLOCK 915, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 915, Ewing
Bank Area, containing approximately 5, 760 acres.
W/2 of Block 915:
Working Interest: 100% Net Revenue Interest: 73.567%
E/2 of Block 915:
Working Interest: 100% Net Revenue Interest: 73.667%
(c) OCS-G 5806, BLOCK 916, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 916, Ewing
Bank Area, containing approximately 5, 760 acres.
Working Interest: 100% Net Revenue Interest: 75%
(d) OCS-G 5801, BLOCK 871, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 871, Ewing
Bank Area, containing approximately 5, 760 acres.
Working Interest: 100% Net Revenue Interest: 75%
B. A four pile platform located on the oil and gas lease OCS-G 13631 which
covers Block 331 of the Ship Shoal Area, offshore Louisiana. The platform is
located at the following coordinates: x = 2,182,617 y = -188, 358. The
four pile platform has an 89', 10 3/4" by 78' drilling deck and a 99', 10 3/4"
by 78' production deck.
<PAGE> 26
EXHIBIT 3.6
CONTRACTS
OCS-G 9743, BLOCK 817, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
1. To the extent, but only to the extent, related to the Properties,
Company's rights in that Letter Agreement dated July 2, 1993 between
Fina Oil and Chemical Company and Petrofina Delaware, Inc. and Company
concerning the drilling and development of Viosca Knoll Area, Blocks
772/773, 774, 817, 818 and 861, as amended by Amendment Letter of
December 6, 1993 between Fina Oil and Chemical Company and Petrofina
Delaware, Inc. (collectively, "PDI") and Company. The rights
acquired by Flextrend in the foregoing Letter Agreement, as amended,
shall include, without limitation, all of Company's right to acquire
the override retained by PDI, which acquisition rights are subject to
the terms of that certain Agreement to Purchase and Sale Oil and Gas
Properties between ELF Exploration, Inc., and Company, J. Ray
McDermott Properties, Inc., J. Ray McDermott, Inc. and F-W Oil
Interest, Inc., effective April 12, 1995. Company shall retain all
rights and obligations established pursuant to the Letter Agreement,
as amended, that do not pertain to the Properties.
2. To the extent, but only to the extent, related to the Properties,
Company's rights in that Unit Agreement For Outer Continental Shelf
Exploration, Development and Production Operations on Viosca Knoll
Block 817 Unit, Blocks 772/773, 774, 817, 818 and 861 Viosca Knoll
Area, Offshore Louisiana, Contract No. 754393018, approved by the
Regional Supervisor Production and Development, Minerals Management
Service, Gulf of Mexico OCS Region on July 26, 1993 and accepted by
Company, Unit Operator, on July 7, 1993, and Petrofina Delaware, Inc.
and Fina Oil and Chemical Company on July 7, 1993.
3. To the extent, but only to the extent, related to the Properties,
Company's rights in that Farmout Agreement dated October 31, 1994
between Company, as Operator, and F-W Oil Interests, Inc. and O.P.I.
International, Inc. and J. Ray McDermott Properties, Inc., as
Non-Operators, pertaining to Viosca Knoll Block 817 Unit Area, Blocks,
772/773, 774, 817, 818 and 861, Viosca Knoll Area, Gulf of Mexico
("Farmout Agreement"). The rights acquired by Flextrend in the
Farmout Agreement shall include, without limitation, (i) the
reimbursement rights granted to Company pursuant to Section 4.2 of the
Farmout Agreement; and (ii) the right and obligation to file the Joint
Operating Agreement with the MMS as provided for in Section 6.2. The
interests received by Flextrend in the Properties are free and clear
of any conveyance obligations provided for in the Farmout Agreement.
Company shall retain all rights and obligations established pursuant
to the Farmout Agreement that do not pertain to the Properties. In
addition, Company shall retain all rights to the Initial Payment (as
defined in the Farmout Agreement), and shall be solely responsible, as
between Company and Flextrend, as to all costs, expenses and indemnity
obligations relating to the Initial Earning Well (as defined in the
Farmout Agreement) or any substitute well.
<PAGE> 27
4. Platform Limited Right of Use and Processing Agreement dated June 30,
1995 between VK-Main and Company pertaining to platform use and
processing of Viosca Knoll Area Block 817 production with demand
payments due thereunder to commence on July 1, 1995.
5. Service Agreement between VK-Main and Company dated June 30, 1995.
6. Letter from the United States Department of the Interior, Minerals
Management Service dated January 7, 1994 addressed to Company.
7. Gas Dedication Agreement dated April 21, 1995 between Flextrend, as
successor in interest to a portion of Company's interest, Company,
Leviathan, F-W Oil Interests, Inc., J. Ray McDermott Properties, Inc.,
J. Ray McDermott, Inc. and ELF Exploration, Inc.
8. Agreement for Purchase and Sale between Company and Flextrend and
related agreements dated June 30, 1995.
9. Oil and Condensate Purchase Agreement dated October 1, 1995 between
OGM and Company.
10. Gas and Purchase Agreement dated October 1, 1995 between OGM and
Company.
11. Master Gas Dedication Agreement between Company and Leviathan dated
December 10, 1993.
12. Agreement to Purchase and Sale Oil and Gas Properties, effective April
12, 1995, between ELF Exploration, Inc., and Company, J. Ray McDermott
Properties, Inc., J. Ray McDermott, Inc. and F-W Oil Interest, Inc.
OCS-G 13631, BLOCK 331, SHIP SHOAL AREA, OFFSHORE LOUISIANA
1. Master Gas Dedication Agreement dated December 10, 1993, as amended
between Company and Leviathan.
2. Platform Use Agreement dated December 31, 1997 between Offshore, Pogo
Producing Company, Samedan Oil Corporation, Seagull Energy E&P Inc.,
and Manta Ray Gathering Company, L.L.C.
OCS-G 5804, BLOCKS 871, 914, 915, 916, EWING BANK AREA, OFFSHORE, LOUISIANA
1. Gathering Agreement, as amended, dated July 1, 1992 between Company,
DeepTech International, Inc. and Ewing Bank Gathering Co., L.L.C.
2. Oil and Condensate Purchase Agreement dated October 1, 1992 between
OGM and Company.
3. Gas Purchase Agreement dated October 1, 1995 between OGM and Company.
<PAGE> 28
4. Condensate Separation Agreement dated July 1, 1993 between Trunkline
Gas Company and Company.
5. Facility Sharing Agreement dated October 21, 1992 between BP
Exploration Inc. and Company.
6. Gathering Agreement dated May 6, 1988 between Trunkline Gas Company
and Standard Gas Marketing Co., Mobil Natural Gas Inc., Mobil Oil E&P
Southeast Inc., Kerr-McGee Corporation and Kerr-McGee Federal Limited
Partnership I - 1981.
7. Unit Agreement, effective June 1, 1988, No. 754388019, issued by the
United States Department of the Interior, Minerals Management Service
in favor of Mobil Oil E&P Southeast Inc., Sohio Petroleum Company, and
Kerr-McGee Corporation, and Kerr-McGee Federal Limited Partnership
I-1981 conditioned to cover Blocks 871, 914, 915, 996, and one-half of
Blocks 958 and 959, Ewing Banks Area.
MASTER GAS DEDICATION AGREEMENT RELATING TO OCS-G 13362, 12631 AND OCS-G 9743,
AMONG OTHER PROPERTIES:
To the extent, but only to the extent, related to the Properties, Company's
rights in that Master Gas Dedication Agreement dated December 10, 1993 between
Leviathan and Company, as amended by (i) letter of November 8, 1994, between
Leviathan and Company, F-W Oil Interests, Inc., O.P.I. International, Inc. and
J. Ray McDermott Properties, Inc. and (ii) Amendment to Master Gas Dedication
Agreement effective April 21, 1995 between Leviathan and Company, F-W Oil
Interests, Inc., J. Ray McDermott Properties, Inc. and J. Ray McDermott, Inc.
<PAGE> 29
EXHIBIT 3.7
LITIGATION AND CLAIMS
<TABLE>
<CAPTION>
STYLE JURISDICTION CASE NO.
----- ------------ --------
<S> <C> <C>
1. Gerard Quirk, et ux. v. Mustang Engineering, U.S. District Court, CV94-1030
Inc. and Deepwater Production Systems, Inc. Western District of
and Tatham Offshore, Inc. Louisiana
2. Kenneth W. Fanguy v. Ambar, Inc., Water 32nd Judicial District 116380
Ways, Inc., Trico Marine Operators, Inc. and Court, Parish of
Flextrend Development Company, L.L.C. Terrebonne, State of
Louisiana
3. Roch Baillargeon v. Schlumberger Technology U.S. District Court, CV96-2403
Corporation, Flextrend Development Company, Western District of
L.L.C., Deepwater Port Services, Inc., Deep Louisiana
Tech International, Inc. d/b/a Deepwater
Production Systems, Inc., and Sedco-Forex.
4. Rickie Thompson v. Trico Marine Assets, Inc. 32nd Judicial District No. 119646
Court, Parish of
Terrebonne, State of
Louisiana
5. David Wade Lavergne v. Pool Company, Pool U.S. District Court, No. 97-3216
Energy Services Company Eastern District of
Louisiana
</TABLE>
<PAGE> 30
EXHIBIT 3.8
APPROVALS AND PREFERENTIAL RIGHTS
Except for certain governmental consents which cannot be obtained prior to
Closing, the following is, to the best of Company's knowledge, a complete and
accurate list of all approvals required to be obtained by Company for the
assignment of the Properties to Flextrend and all preferential rights that
affect the Properties:
CONSENTS:
1. Consent to assignment is required from VK-Main under the terms
of that certain Service Agreement effective June 30, 1995 between VK-Main and
Company pertaining to Viosca Knoll Area, Block 817, Offshore Louisiana.
2. Consent to assignment is required from VK-Main under the terms
of that certain Platform Limited Right of Use and Processing Agreement dated
June 30, 1995, between VK-Main on the one hand, and Company, F-W Oil Interests,
Inc., J. Ray McDermott, Inc. and J. Ray McDermott Properties, Inc., on the
other hand.
3. Consent to assignment is required from Pogo Producing Company,
Samedan Oil Corporation, and Seagull Energy E&P, Inc. under the terms of that
certain Platform Use Agreement (SS Block 331, MRY-2-2022) dated December 31,
1997, between Pogo Producing Company, Samedan Oil Corporation and Seagull
Energy E&P, Inc., on the one hand, and Company, on the other hand.
4. Consent to assignment is required from ELF Exploration, Inc. under
the terms of that certain Agreement to Purchase and Sale Oil and Gas
Properties, effective April 12, 1995, between ELF Exploration, Inc., and
Company, J. Ray McDermott Properties, Inc., J. Ray McDermott, Inc. and F-W Oil
Interest, Inc.
PREFERENTIAL RIGHTS:
NONE
<PAGE> 31
EXHIBIT 3.13
COMMITMENTS
1. AFE for workover of Well A-1
Total commitment: $625,000
Company's share of commitment: $156,250
2. AFE for plugging back of Well A-6
Total commitment: $15,500
Company's share of commitment: $3,878
<PAGE> 32
EXHIBIT 3.14
PAYOUT BALANCES
<TABLE>
<S> <C>
1) Production Payment Agreement dated $5,721,114.45
September 19, 1995 between Company and
J. Ray McDermott Properties, Inc.
2) Production Payment Agreement dated $5,721,114.45
September 19, 1995 between Company and F-
W Oil Interests, Inc.
</TABLE>
<PAGE> 33
EXHIBIT 21
GUARANTY
THIS GUARANTY (this "Guaranty") dated February 27, 1998, but effective as
of January 1, 1998, is issued by LEVIATHAN GAS PIPELINE PARTNERS, L.P., a
Delaware limited partnership (the "Guarantor"), in favor and for the benefit
of TATHAM OFFSHORE, INC., a Delaware corporation ("TOFF").
WHEREAS, Flextrend Development Company, L.L.C. (("Flextrend"), a wholly
owned subsidiary of Guarantor, and TOFF have entered into that certain
Redemption Agreement dated February 27, 1998 ("Redemption Agreement"); and
WHEREAS, Guarantor believes it is in its best interest for Flextrend and
TOFF to enter into the Redemption Agreement; and
WHEREAS, TOFF desires for Guarantor to guarantee the performance of
Flextrend under the Redemption Agreement and Guarantor is willing to do so
as an inducement for TOFF entering into such Agreement; and
WHEREAS, the obligations of Guarantor hereunder are being incurred
concurrently with the obligations of Flextrend under the Redemption
Agreement.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), subject to the terms and conditions of this Guaranty,
Guarantor hereby unconditionally and absolutely guarantees the punctual and
complete performance of all of the terms, covenants and conditions to be
complied with or performed by Flextrend (but not its assignees or other
transferees) under the Redemption Agreement (herein collectively the
"Obligations"), whether arising heretofore or hereafter.
This Guaranty shall be a continuing Guaranty and shall remain in full
force and effect until such time as all of the Obligations have been
performed.
This Guaranty shall be enforceable upon notice by TOFF and without prior
resort to any demands, possessory remedies or proceedings for collection of
any nature against Flextrend or any other entity. Notwithstanding anything
to the contrary contained herein, the Guarantor shall be entitled to raise
as a defense to its performance hereunder any defense that Guarantor would
be entitled to raise under the Redemption Agreement if the Guarantor was the
party executing and delivering the Redemption Agreement in lieu of
Flextrend.
-1-
<PAGE> 34
This Guaranty shall be deemed to be a contract under, and shall be
construed, interpreted and governed by and according to, the laws of the
State of Texas, excluding any conflict of laws principles which, if applied,
might permit or require the application of the laws of another jurisdiction.
The parties further agree that the jurisdiction and venue for any dispute or
claim arising out of or related to this Guaranty shall be brought and remain
in the federal or state courts located in the State of Texas. Guarantor
shall be liable to TOFF for all attorneys' fees and costs incurred by TOFF
in enforcing the provisions of this Guaranty and in collecting any amounts
due hereunder.
If any provision of this Guaranty or the application thereof to any
person or circumstances shall for any reason and for any extent be invalid
or unenforceable, neither the remainder of this Guaranty nor the application
of such provisions to any other persons or circumstances shall be affected
thereby but shall be enforced to the extent permitted by applicable law.
This writing is intended by the parties to be an integrated and final
expression of this Guaranty. No course of prior dealing between the parties,
no usage of trade, and no parol or extrinsic evidence of any nature shall be
used to supplement, modify or vary any of the terms hereof. There are no
conditions to the effectiveness of this Guaranty.
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the
date first set forth in the preamble.
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By:
-----------------------------------
Name:
Title:
-2-
<PAGE> 1
EXHIBIT 10.2
PURCHASE COMMITMENT AGREEMENT
This Purchase Commitment Agreement (this "Agreement") dated as of
February 27, 1998, is by and between Tatham Offshore, Inc. ("Offshore"), a
Delaware corporation, and Tatham Brothers, LLC ("Tatham Brothers"), a Delaware
limited liability company. Offshore and Tatham Brothers may be referred to
herein collectively as the "Parties" or individually as a "Party."
RECITALS
WHEREAS, DeepTech International Inc. ("DeepTech"), El Paso Natural Gas
Company ("El Paso") and El Paso Acquisition Company ("EPAC") have entered into
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of even date
herewith, pursuant to which it is contemplated that DeepTech shall be merged
with either El Paso or EPAC;
WHEREAS, in connection with the transactions contemplated by the
Merger Agreement, Offshore, DeepTech, DeepFlex Production Services, Inc.
("DeepFlex") and El Paso have entered into a Contribution and Distribution
Agreement (the "Contribution Agreement"), dated as of even date herewith,
pursuant to which DeepTech will distribute to the holders of DeepTech common
stock one right (a "Right," collectively, the "Rights") for each share of
DeepTech common stock held by such holder to acquire a proportionate share of
the Offshore Shares (as defined in the Contribution Agreement) held by DeepTech
(the "Rights Offering");
WHEREAS, pursuant to a Standby Agreement (the "Standby Agreement"),
dated as of even date herewith, by and between Thomas P. Tatham, DeepTech,
Tatham Brothers, Offshore and El Paso, dated as of even date herewith, Tatham
Brothers has committed to purchase from DeepTech that number of Remaining
Shares (as defined in the Standby Agreement), if any, which is necessary to
provide DeepTech with net proceeds from the Rights Offering at least equal to
$75 million; and
WHEREAS, Offshore desires to induce Tatham Brothers to enter into the
Standby Agreement by entering into this Agreement to provide consideration to
Tatham Brothers for Tatham Brothers' commitment to purchase such Remaining
Shares.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and other good and valuable
consideration (the receipt and sufficiency of which are hereby confirmed and
acknowledged), the Parties hereto hereby stipulate and agree as follows:
1. Purchase Commitment Fee. Contemporaneous with the closing of the
Rights Offering, Offshore agrees to make a payment (the "Consideration") in an
amount equal to the product of (i) 23,076,923 and (ii) the Rights Price (herein
defined). For purposes of this Agreement, the "Rights Price" shall be, with
respect to the date of the closing of the Rights
<PAGE> 2
Offering, (a) if prior to July 1, 1998, $.25, (b) if on or after July 1, 1998
through July 31, 1998, $.275, (c) if on or after August 1, 1998 through August
31, 1998, $.30 or (d) if on or after September 1, 1998, $.325 (the "Fee
Amount"). Offshore, in its sole discretion, may elect to pay the Consideration
in cash (in immediately available federal funds) (the "Cash Consideration"),
common stock of Offshore (the "Stock") or any combination thereof. The number
of shares of Stock comprising the Consideration shall be equal to the quotient
of (1) the difference between the Fee Amount less the Cash Consideration,
divided by (2) the Stock Price (herein defined). The "Stock Price" shall be the
lower of (i) the closing price per share of the Stock on the trading day
immediately preceding the date of the closing of the Rights Offering or (ii)
the average closing price per share of Stock for the 10 trading day period
immediately preceding, and including, the trading day immediately preceding the
date of the closing of the Rights Offering.
2. Registration Rights. In addition to the Cash Consideration, Tatham
Brothers shall receive from Offshore certain registration rights associated
with the Acquired Stock (the "Registration Rights") as follows:
(a) Demand Registration Rights
(i) Request for Registration. For five (5) years after the date
on which TIME acquires the Acquired Stock, any holder or group of
holders (each a "Holder" and collectively with Tatham Brothers, the
"Holders") of Registrable Securities (herein defined) owning at
least a majority of the shares of Registrable Securities (herein
defined) may make a written request to Offshore for registration
(the "Demand Registration") under the Securities Act of 1933, as
amended from time to time (the "Securities Act") of each such share
of Registrable Securities until the earlier to occur of (i) the
date on which such share of Registrable Securities ceases to be a
Restricted Security (as defined herein) or (ii) the date on which a
Demand Registration is effected pursuant to this Section (the
"Registrable Securities") at any time. The Holders shall be
entitled to three (3) Demand Registrations, which include the right
to require Offshore maintain continuous or shelf registration
statements, with respect to the Registrable Securities, regardless
of the number of shares covered by such Registration; provided
that, if any of the shares that the Holders request to be included
in a Demand Registration is excluded from such Demand Registration
because of Section 2.(a)(iii) of this Agreement, such Holder shall
continue to have the right to a Demand Registration with respect to
such excluded shares. Any request for a Demand Registration must
specify (i) the number of shares of the issue of the Registrable
Securities proposed to be sold and (ii) the intended method of
disposition thereof. Restricted Security means each share evidenced
by any Acquired Stock until the earlier to occur of the date on
which (i) a registration statement covering such share has been
declared effective and it has been disposed of pursuant to such
effective registration statement, (ii) it is sold pursuant to Rule
144 (or any similar provisions then in force) under the Securities
Act, or (iii) it has been otherwise transferred by Tatham Brothers
and Offshore has delivered new certificates or other evidences of
ownership for them not subject to any legal or other restriction
2
<PAGE> 3
on transfer under the Securities Act or under state securities laws
and not bearing a restrictive legend.
(ii) Effective Registration and Expenses. At the request of the
Holders of at least a majority of the Registrable Securities,
Offshore shall use all reasonable efforts to keep any Demand
Registration Statement continuously effective in order to permit
the prospectus forming part thereof to be usable by the Holders for
a period ending one year from the effective time of such
Registration Statement, or for such shorter period that will
terminate when all shares covered by the Registration Statement
have been sold pursuant to such Demand Registration Statement or
otherwise or cease to be outstanding. The offer and sale under any
such Demand Registration Statement or the obligation of Offshore to
file the Demand Registration Statement and to maintain its
effectiveness may be suspended for one or more periods of time not
exceeding 45 calendar days in the aggregate with respect to such
Demand Registration Statement if the Board of Directors of Offshore
shall have determined that the offering and sales under the Demand
Registration Statement, the filing of such Demand Registration
Statement or the maintenance of its effectiveness would require
disclosure of or would interfere in any material respect with any
material financing, acquisition, merger or other transaction
involving Offshore or any of its subsidiaries or would otherwise
require disclosure of nonpublic information that would materially
and adversely affect Offshore. A registration will not count as a
Demand Registration until it has become effective and, with respect
to a shelf registration, unless such registration remains effective
for the period requested not to exceed one year; provided, however,
that if a registration does not become effective solely because of
any act or omission on the part of any other Holder, such
registration shall nevertheless count as a Demand Registration. In
any registration initiated as a Demand Registration, Offshore will
pay all the Registration Expenses (as defined in Section 2(d)) in
connection therewith.
(iii) Priority on Demand Registrations. If the Holders of at
least a majority of shares of an issue of Registrable Securities to
be registered so elect, the offering of such issue of Registrable
Securities shall be in the form of an underwritten offering. In
such event, if the managing underwriter or underwriters of such
offering advise Offshore and the Holders in writing that, in their
opinion, the aggregate amount of Registrable Securities requested
to be included in such offering will materially and adversely
affect the success or offering price of such offering, Offshore
will include in such registration the aggregate amount of such
Registrable Securities which, in the opinion of such managing
underwriter or underwriters, can be sold without any such material
adverse effect. Such securities would then be allocated pro rata
among the Holders on the basis of the number of Registrable
Securities requested to be included in such registration.
(iv) Selection of Underwriters. If any Demand Registration is in
the form of an underwritten offering, Offshore will select and
obtain the investment banker or investment
3
<PAGE> 4
bankers and manager or managers that will administer the offering;
provided that such investment bankers and managers must be
reasonably satisfactory to Tatham Brothers or, if Tatham Brothers
is no longer a Holder, a majority-in-interest of the Holders.
(b) Piggyback Registration. For five years after the date on which
Tatham Brothers acquires the Registrable Stock, if Offshore, at any
time proposes to file on its behalf and/or on behalf of any of its
security holders (the "Registered Security Holders") a registration
statement under the Securities Act on any form (other than a
registration statement on Form S-4 or S-8 or any similar or successor
form or any other registration statement relating to an exchange offer
or offering of securities solely to Offshore's existing security
holders or employees), it will give written notice to each Holder at
least twenty (20) days before the anticipated date of initial filing
with the Commission of such registration statement, which notice shall
set forth Offshore's intention to effect such a registration, the
class or series and number of equity securities proposed to be
registered and the intended method of disposition of the securities
proposed to be registered by Offshore. The notice shall offer to
include in such filing the aggregate number of shares of Registrable
Securities as such Holder may request. Nothing in this Section 2(b)
shall preclude Offshore from discontinuing the registration of its
securities being effected on its behalf under this Section 2(b) at any
time prior to the effective date of the registration relating thereto.
(c) Registration Procedures
(i) For Demand Registration. Offshore will use commercially
reasonable efforts to effect a Demand Registration requested by the
Holders pursuant to Section 2(a)(i) in accordance with the intended
method of disposition thereof as quickly as practicable. Such
efforts by Offshore shall include:
(A) preparing and filing with the Securities and Exchange
Commission (the "Commission"), not later than 60 days after receipt
of a request to file a Demand Registration, a registration
statement on any form that is available for the sale of such issue
of Registrable Securities by Offshore in accordance with the
intended method of distribution thereof and using commercially
reasonable efforts to cause such registration statement to become
effective reasonably promptly thereafter;
(B) preparing and filing with the Commission any amendments and
supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than one
year or such shorter period which will terminate when all
Registrable Securities covered by such registration statement have
been sold (but not before the expiration of the 90-day period
referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable), and comply with the provisions of the
Securities Act with respect to the disposition of all securities
4
<PAGE> 5
covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(C) as soon as reasonably practicable, furnishing to the Holders
a copy of such registration statement as filed and each amendment
and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as
the Holders may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holders;
(D) using commercially reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky
laws of such appropriate jurisdictions and do any and all other
acts and things which may be reasonably necessary to enable the
Holders to consummate the disposition of the Registrable Securities
owned by such Holders in such jurisdictions; provided that Offshore
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this paragraph (D), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in
any such jurisdiction;
(E) using commercially reasonable efforts to cause the
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of Offshore to enable the Holders to consummate the
disposition of such Registrable Securities;
(F) making available for inspection by any underwriter
participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by
any such underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of Offshore (collectively, the "Records"), and cause
Offshore's officers, directors and employees to supply all
information reasonably requested by any such Inspector, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, in connection with such registration statement.
Records or other information which Offshore has determined, in good
faith, to be confidential and which they notify the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records or other information is required to
be disclosed pursuant to the Securities Act or is necessary to
avoid or correct a misstatement or omission in the registration
statement or (ii) the release of such Records or other information
is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. Upon learning that disclosure of such
Records or other information is sought in a court of competent
jurisdiction, the Holder (including its transferees) agrees that it
5
<PAGE> 6
will give notice to Offshore and allow Offshore to undertake
appropriate action to prevent disclosure of the Records or other
information deemed confidential; and
(G) if required by applicable listing requirements, causing all
such Registrable Securities to be listed on each securities
exchange on which similar securities issued by Offshore are then
listed, provided that the applicable listing requirements are
satisfied.
Offshore may require each seller of Registrable Securities under
a Demand Registration to furnish to Offshore information regarding
the distribution of such securities as Offshore may from time to
time request.
(ii) For Piggyback Registration. If a Holder desires to have the
Registrable Securities registered under Section 2 of this
Agreement, such Holder shall advise Offshore in writing within
fifteen (15) days after the date of receipt of such offer from
Offshore, setting forth the amount of the Registrable Securities
for which registration is requested. Offshore shall thereupon
include in such filing the number of shares of Registrable
Securities for which registration is so requested, subject to the
next sentence, and shall use its best efforts to effect
registration of such shares of Registrable Securities under the
Securities Act. If the managing underwriter of a proposed public
offering shall advise Offshore in writing that, in its opinion, the
distribution of the Registrable Securities requested to be included
in the registration concurrently with the securities being
registered by Offshore or any Registered Security Holder would
materially and adversely affect the distribution of such securities
by Offshore or such Registered Security Holders, then the Holders
and the Registered Security Holders shall reduce the number of
securities intended to be distributed through such offering on a
pro rata basis.
(d) Registration Expenses. All expenses incident to Offshore's
performance of or compliance with this Agreement, including without
limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), rating agency fees, printing expenses,
messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the fees and expenses incurred
in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by
Offshore are then listed, and fees and disbursements of counsel for
Offshore and its independent certified public accountants, securities
acts liability insurance (if Offshore elects to obtain such
insurance), and the fees and expenses of any special experts retained
by Offshore in connection with such registration, fees and expenses of
other persons retained by Offshore (but not including any underwriting
discounts or commissions or transfer taxes attributable to the sale of
Registrable Securities) will be borne by Offshore (all such expenses
referred to herein as the "Registration Expenses").
6
<PAGE> 7
(e) Indemnification; Contribution
(i) Indemnification by Offshore. Offshore agrees to indemnify,
to the fullest extent permitted by law, each Holder, the
underwriters and each of their respective officers, directors and
agents and each person who controls each Holder (within the meaning
of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue
statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in case of a
prospectus or preliminary prospectus, in the light of the
circumstances under which they were made) not misleading, except
insofar as the same are caused by or contained in any information
with respect to such Holder furnished in writing to Offshore by
such Holder expressly for use therein.
(ii) Indemnification by Holder of Registrable Securities. In
connection with any Demand Registration in which a Holder is
participating, each such Holder will furnish to Offshore in writing
such information with respect to such Holder as Offshore reasonably
requests for use in connection with any such registration statement
or prospectus and agrees to indemnify, to the extent permitted by
law, Offshore, the underwriters and each of their respective
directors and officers and each person who controls Offshore
(within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue
or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or necessary to make the
statements therein (in the case of a prospectus or preliminary
prospectus, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that
such untrue statement or omission is contained in any information
with respect to such Holder so furnished in writing by such Holder;
provided that no event shall any Holder be liable for any amount in
excess of the net proceeds received from such Holder's sale of its
shares of.
(iii) Conduct of Indemnification Proceedings. Any person
entitled to indemnification hereunder agrees to give prompt written
notice to the indemnifying party after the receipt by such person
of any written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for
which such person will claim indemnification or contribution
pursuant to this Agreement and, unless in the reasonable judgment
of such indemnified party a conflict of interest may exist between
such indemnified party and the indemnifying party with respect to
such claim, permit the indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to
7
<PAGE> 8
such indemnified party. Whether or not such defense is assumed by
the indemnifying party, the indemnifying party will not be subject
to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No indemnifying
party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or
litigation. If the indemnifying party is not entitled to, or elects
not to, assume the defense of a claim, it will not be obligated to
pay the fees and expenses of more than one counsel with respect to
such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to
such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel
or counsels.
(f) Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such
Holder (a) agrees to sell such Holder's securities on the basis
provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (b) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under
the terms of such underwriting arrangements.
(g) Rule 144. Offshore covenants that (i) it will file the reports
required to be filed by it under the Securities Act and the Securities
Exchange Act of 1934, as amended from time to time, and the rules and
regulations adopted by the Commission thereunder and (ii) take such
further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission.
[Remainder of Page Intentionally Left Blank.]
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
TATHAM BROTHERS, LLC
--------------------------
Thomas P. Tatham
President
TATHAM OFFSHORE, INC.
--------------------------
Dennis A. Kunetka
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TATHAM
OFFSHORE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31,
1998 INCLUDED IN ITS FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,309
<SECURITIES> 0
<RECEIVABLES> 916
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,341
<PP&E> 51,919
<DEPRECIATION> 24,374
<TOTAL-ASSETS> 41,314
<CURRENT-LIABILITIES> 3,527
<BONDS> 0
0
180
<COMMON> 300
<OTHER-SE> 30,078
<TOTAL-LIABILITY-AND-EQUITY> 41,314
<SALES> 9,276
<TOTAL-REVENUES> 9,276
<CGS> 4,228
<TOTAL-COSTS> 4,253
<OTHER-EXPENSES> 3,125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,743
<INCOME-PRETAX> (4,004)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,004)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
