<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 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 NUMBER. 0-22892
--------------------------
TATHAM OFFSHORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0269967
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 TRAVIS STREET
SUITE 7400
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 224-7400
--------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
SERIES A 12% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
SERIES B 8% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
SERIES C 4% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
EXCHANGE WARRANTS
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 12 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
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
---
AS OF SEPTEMBER 15, 1998, THERE WERE OUTSTANDING 26,074,280 SHARES OF COMMON
STOCK OF THE REGISTRANT. THE AGGREGATE MARKET VALUE ON SUCH DATE OF THE VOTING
STOCK OF THE REGISTRANT HELD BY NON-AFFILIATES WAS AN ESTIMATED $7.9 MILLION.
DOCUMENTS INCORPORATED BY REFERENCE
ITEMS 10, 11 AND 12 OF PART III HAVE BEEN OMITTED FROM THIS REPORT, SINCE
TATHAM OFFSHORE WILL FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, NOT LATER
THAN 120 DAYS AFTER THE CLOSE OF ITS FISCAL YEAR, A DEFINITIVE PROXY STATEMENT,
PURSUANT TO REGULATION 14A, WHICH INVOLVES THE ELECTION OF DIRECTORS. THE
INFORMATION REQUIRED BY ITEMS 10, 11, 12 AND 13 OF PART III OF THIS REPORT,
WHICH WILL APPEAR IN THE DEFINITIVE PROXY STATEMENT, IS INCORPORATED BY
REFERENCE INTO THIS ANNUAL REPORT.
================================================================================
<PAGE> 2
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
JUNE 30, 1998
INDEX
<TABLE>
<S> <C> <C>
PART I.....................................................................................................1
Items 1 & 2. Business and Properties..................................................................1
Item 3. Legal Proceedings.......................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.....................................15
PART II...................................................................................................16
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters....................16
Item 6. Selected Financial Data.................................................................18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................................20
Item 7A. Quantitative and Qualitative Disclosure About Market Risk...............................24
Item 8. Financial Statements and Supplementary Data.............................................24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................................25
PART III..................................................................................................25
Item 10. Directors and Executive Officers of the Registrant......................................25
Item 11. Executive Compensation..................................................................25
Item 12. Security Ownership of Certain Beneficial Owners and Management..........................25
Item 13. Certain Relationships and Related Transactions..........................................25
PART IV...................................................................................................26
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................26
</TABLE>
i
<PAGE> 3
The following text is qualified in its entirety by reference to the more
detailed information and consolidated financial statements (including the notes
thereto) appearing elsewhere in this Annual Report on Form 10-K (the "Annual
Report"). Unless otherwise indicated, (i) all current and prospective
information in this Annual Report gives effect to the Merger (as defined) and
related transactions completed on or before August 14, 1998, including the sale
of certain of Tatham Offshore's existing assets, the related retirement of
certain amounts of Tatham Offshore's Preferred Stock, the contribution to Tatham
Offshore of two semisubmersible drilling rigs, and the assumption of certain
debt, (ii) all references to "Tatham Offshore" are to Tatham Offshore, Inc. and
its subsidiaries, (iii) all references to the "Company" are to Tatham Offshore,
Inc. and its subsidiaries and DeepFlex Production Services, Inc. and its
subsidiaries ("DeepFlex"), and (iv) all financial information and per share data
in this Annual Report gives effect to the one for ten reverse stock split Tatham
Offshore completed on November 24, 1997.
Historically, Tatham Offshore has been in the oil and gas exploration and
development business, primarily in the Gulf of Mexico (the "Gulf"). The Company
is refocusing its business from the oil and gas exploration and production
business in the Gulf to an integrated frontier investment strategy targeting
Atlantic Canada with an initial emphasis on the offshore contract drilling
business. Accordingly, in connection with DeepTech International Inc.'s
("DeepTech") merger (the "Merger") with a subsidiary of El Paso Energy
Corporation ("El Paso") completed on August 14, 1998, Tatham Offshore (i)
transferred its ownership of Tatham Offshore Development, Inc. ("Tatham
Development"), which owns oil and gas producing properties, to DeepTech and its
remaining oil and gas properties to Leviathan Gas Pipeline Partners, L.P. (the
"Partnership"), a New York Stock Exchange-listed master limited partnership in
which DeepTech owned an effective 23.2% interest on August 14, 1998, and (ii)
acquired from DeepTech ownership of DeepFlex and therefore the FPS Laffit Pincay
(the "Pincay") and the FPS Bill Shoemaker (the "Shoemaker" and, together with
the Pincay, the "Rigs"). For a description of certain items used herein relating
to the oil and gas industry, see Items 1 & 2. "Business and Properties --
Certain Definitions."
PART I
ITEMS 1 & 2. BUSINESS AND PROPERTIES
OVERVIEW
Tatham Offshore, a Delaware corporation and an independent energy company
founded in 1989, provides offshore contract drilling services to the oil and gas
industry in the Gulf and Atlantic Canada and is currently pursuing an integrated
energy related investment strategy in Atlantic Canada. Through August 14, 1998,
Tatham Offshore had been engaged in the development, exploration and production
of oil and gas reserves located primarily in the Gulf focusing principally on
the flextrend and deepwater areas.
RECENT EVENTS
On February 27, 1998, DeepTech entered into an Agreement and Plan of Merger
(the "Merger Agreement") with El Paso and El Paso Acquisition Company ("El Paso
Acquisition"), a wholly-owned subsidiary of El Paso, pursuant to which DeepTech
would merge with El Paso, or under certain circumstances, with El Paso
Acquisition. On August 14, 1998, DeepTech merged with El Paso Acquisition.
As a result of the Merger and related transactions, some of the assets of
Tatham Offshore and DeepTech were restructured so that DeepFlex became a
wholly-owned subsidiary of Tatham Offshore and Tatham Offshore transferred its
working interests in the Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Sunday
Silence Project") to DeepTech. Pursuant to the Redemption Agreement (discussed
below), Tatham Offshore transferred all of its remaining assets located in the
Gulf to the Partnership. Further, DeepTech divested itself of its equity
ownership interest in Tatham Offshore by offering all of the shares of Tatham
Offshore common stock, par value $.01 ("Common Stock"), and Series A 12%
Convertible Exchangeable Preferred Stock ("Series A Preferred Stock") held by
DeepTech to the stockholders of DeepTech in a Rights Offering (discussed below).
Following the asset restructuring, the Company's marine services business
includes the operation of two semisubmersible drilling rigs, the Shoemaker and
the Pincay. 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.
1
<PAGE> 4
The material terms of the Merger, the Redemption Agreement and other
related agreements as they relate to the Company and its subsidiaries are as
follows:
(a) DeepTech sold to the Company approximately $8 million of debt
DeepFlex owed to DeepTech in exchange for Tatham Offshore
conveying to DeepTech all of the outstanding shares of capital
stock of Tatham Development, which owns the Sunday Silence
project, and cancellation of its reversionary interests in certain
oil and gas properties.
(b) In satisfaction of $12 million of debt owed by DeepFlex to
DeepTech, DeepFlex delivered to DeepTech all of the Tatham
Offshore Common and Series A Preferred Stock held by DeepFlex.
(c) The balance of the DeepFlex indebtedness to DeepTech was
contributed to the capital of DeepFlex.
(d) DeepTech contributed all of the outstanding shares of capital
stock of DeepFlex, which owns the Rigs, to Tatham Offshore. As a
result of this contribution by DeepTech, Tatham Offshore, through
DeepFlex, assumed $64,406,000 of third-party and affiliate debt.
(e) Tatham Offshore transferred its remaining assets located in the
Gulf to the Partnership in exchange for 7,500 shares of Preferred
Stock owned by the Partnership (the "Redemption Agreement"). In
addition, the Partnership assumed all abandonment and restoration
obligations associated with the platform and leases. At the
closing of the Merger, Tatham Offshore paid (i) the Partnership
$1.6 million, the amount equal to the net cash generated from such
properties from January 1, 1998 through August 14, 1998, and (ii)
DeepTech $1.5 million, being 50% of the management fees charged to
Tatham Offshore from January 1, 1998 through the closing date.
(f) On July 16, 1998, the Securities and Exchange Commission (the
"Commission") declared effective Tatham Offshore's Registration
Statement on Form S-1 relating to the offering of rights to the
DeepTech stockholders to purchase DeepTech's 28,073,450 shares of
Tatham Offshore Common Stock and 4,670,957 shares of Tatham
Offshore's Series A Preferred Stock (the "Rights Offering"). As a
result of the Rights Offering, unaffiliated parties purchased
3,378,693 shares of Common Stock and 562,148 shares of Series A
Preferred Stock. Tatham Brothers Securities, LLC ("TB
Securities"), an affiliate of Mr. Thomas P. Tatham, Chairman of
the Board and Chief Executive Officer of Tatham Offshore and
DeepFlex, purchased 20,768,011 shares of Common Stock
(approximately 79.6%) and 3,455,440 shares of Series A Preferred
Stock (approximately 20%) which resulted in DeepTech receiving
net proceeds from the Rights Offering of $75.0 million. In
exchange for committing to purchase a specified portion of the
stock underlying any unexercised Rights, TB Securities received a
fee of $6.9 million. To the extent any shares held by DeepTech
were not acquired by the holders of Rights or TB Securities,
Tatham Offshore purchased such shares and DeepTech contributed
the proceeds from such purchase to Tatham Offshore. DeepTech no
longer owns any of Tatham Offshore's capital stock.
(g) Because the management agreement between DeepTech and Tatham
Offshore was terminated in connection with the Merger, Tatham
Offshore has hired a management team and support personnel to
implement its Atlantic Canada strategy and oversee its contract
drilling services business. See "-- Contract Drilling Services --
Rig Management."
CONTRACT DRILLING SERVICES
GENERAL
The Company entered the offshore contract drilling service business through
the acquisition of DeepFlex in connection with the Merger. DeepFlex is engaged
in the contract drilling of offshore oil and gas wells in the Gulf and offshore
eastern Canada. DeepFlex owns two second generation semisubmersible drilling
rigs, the Pincay and the Shoemaker. Pursuant to management and charter
agreements, Sedco Forex Division of Schlumberger Technology Corporation ("Sedco
Forex") markets, manages, mans and operates the Rigs.
2
<PAGE> 5
DESCRIPTION OF THE RIGS
Semisubmersible rigs are floating platforms that consist of an upper
working and living deck resting on vertical columns connected to lower hull
members. These rigs operate in a "semisubmerged" position, remaining afloat, off
bottom in a position in which the lower hull is from about 55 to 90 feet below
the water line and the upper deck protrudes well above the surface. The Rigs are
positioned by chain mooring lines with anchors on the sea floor and remain
stable for drilling in the semisubmerged floating position due in part to their
wave transparency characteristics at the water line. The Rigs are able to change
draft through a water ballasting system that permits them to be submerged to a
predetermined depth so that a portion of the hulls are below the water surface
during drilling operations.
FPS Bill Shoemaker. The Shoemaker is a self-propelled, twin pontoon, eight
column, second generation semisubmersible drilling rig of Aker H-3 design. It
can drill to depths of 25,000 feet, in water depths of up to 1,500 feet and has
a drilling variable load of approximately 3,850 short tons, a VARCO TDS-4S
top-drive drilling system, a 10,000 psi blow-out prevention system, 2,000 barrel
mud pits and eight 80,000 pound riser tensioners. This rig was built in 1976 and
was extensively refurbished, repaired, renovated and upgraded in 1997 at a cost
of approximately $56 million. The upgrades included installing a new heliport,
mud booster line, third mud pump, a third level of personnel accommodations and
a new electrical "SCR" system. In addition, the Shoemaker underwent a complete
winterization program in this upgrade, and, as a result, is again able to
operate year-round in harsh environments, such as the North Sea, offshore
Newfoundland and eastern Canada, where it has operated in the past.
FPS Laffit Pincay. The Pincay is a second generation semisubmersible
drilling rig of Penrod/Reineke design. The Pincay is capable of drilling to
depths of 25,000 feet, in water depths of up to 1,200 feet and has a drilling
variable load of approximately 2,000 short tons, a 10,000 psi blow-out
prevention system, 1,600 barrel mud pits and six 80,000 pound riser tensioners.
This rig was built in 1976 and was refurbished, upgraded and renovated in 1996
with the installation of a VARCO TDS-3S top-drive system and a new electrical
"SCR" system.
Subject to market conditions and obtaining the necessary capital, part of
the Company's strategy is to increase the size and capability of its fleet of
rigs, including building the fifth-generation, state-of-the-art drilling rig
described under "-- Business Strategy."
RIG MANAGEMENT
Sedco Forex has managed and operated the Pincay and the Shoemaker since
1995 and 1996, respectively. Under the charter agreements pursuant to which
Sedco Forex manages the Rigs, Sedco Forex is responsible for not only managing,
maintaining and operating the Rigs, but also for marketing the Rigs worldwide
and thereby increasing their utilization rates. Although Sedco Forex has the
right to negotiate drilling contracts with respect to each Rig, the Company has
the sole right to approve any drilling contracts, the working location of the
Rigs and certain other matters.
Under the charter agreements, Sedco Forex is paid a monthly fee for the
management of each Rig which is comprised of a fixed amount and a variable
amount based on performance. The total amount to be paid to Sedco Forex under
each of these agreements is dependent on the drilling rates received for the
Rigs, the costs of operating and maintaining the Rigs and the utilization rates
of the Rigs, among other things. The charter agreements for the Pincay and the
Shoemaker have five-year terms, subject to mutual termination rights. If either
or both agreements are not renewed or extended by mutual agreement, the Company
believes that it can find, within a reasonable period of time, an alternative
company to manage and operate the Rigs for a reasonable fee.
DRILLING CONTRACTS
Most drilling contracts are structured on a dayrate, footage or turnkey
basis. They usually extend over a period covering either the drilling of a
single well, a group of wells (a "well-to-well contract") or a stated term (a
"term contract") and are terminable if the drilling unit is destroyed or lost,
drilling operations are suspended for a specified time because of a breakdown of
major equipment or other events occur which are beyond either party's control.
In many instances, the customer may extend the contract term upon exercising
options to drill additional wells at fixed or mutually agreed upon terms. Most
of the Company's drilling contracts are obtained through
3
<PAGE> 6
competitive bids or negotiations with customers and their terms and conditions
vary depending on the specific facts and circumstances.
To date, the Company has entered only into dayrate contracts, although the
Company may enter into non-dayrate contracts in the future, depending on market
conditions, profit potential and risk exposure, among other things.
A dayrate drilling contract generally provides for a basic drilling rate
based on a fixed rate per day. Under such a contract, the customer usually bears
a major portion of out-of-pocket costs of drilling and assumes most of the risk
associated with drilling operations such as risk of blowout, loss of hole, stuck
drill stem, machinery breakdowns, abnormal drilling conditions and risks
associated with subcontractors' services, supplies and personnel. In contrast,
the risks to the contractor on non-dayrate contracts could be substantially
greater than on a dayrate drilling contract because the contractor may, and
often does, assume more of those risks associated with drilling operations
generally assumed by the operator in a dayrate contract.
The duration of offshore drilling contracts is generally determined by
market demand and the respective management strategy of the offshore drilling
contractor and its customers. During periods of rising demand for offshore rigs,
contractors typically prefer well-to-well contracts since such contracts provide
them the flexibility to profit from increasing dayrates. In contrast, during
such periods, customers with reasonably definite drilling programs typically
prefer longer-term contracts to maintain prices at the lowest level possible.
FPS Bill Shoemaker. After completion of the upgrade and refurbishment in
July 1997, the Shoemaker was mobilized to the Grand Banks area offshore
Newfoundland where it completed drilling an exploratory well for Amoco Canada
Petroleum Company Ltd. in the West Bonne Bay Field. The Shoemaker is currently
under contract to Shell Offshore Inc. ("Shell") in the Gulf of Mexico. The
contract with Shell extends through at least January 1999. Sedco Forex has
entered into a contract for the mobilization of the Shoemaker to the Grand Banks
area in Atlantic Canada to conduct a two-well (with three options permitting up
to seven additional wells) program at predetermined rates for Husky Oil
Operations Limited. Husky has agreed to mobilize the Shoemaker immediately
following the termination of the contract with Shell. During the year ended June
30, 1998, the Shoemaker generated $39.3 million in revenue.
FPS Laffit Pincay. Following the completion of a refurbishment and upgrade
program in February 1996, the Pincay was placed under contract with the
Partnership to complete a previously drilled well and drill a new well in Garden
Banks Block 117. Following the completion of the well for the Partnership, the
Pincay was committed to Phillips Petroleum Company to drill one well at Garden
Banks Block 70 in the Gulf with options to drill and/or complete three
additional wells at various Gulf locations. This contract was completed in late
September 1997 after Phillips drilled one of its "option" wells. Pennzoil
Exploration and Production Company entered into an agreement to drill two wells
following the completion of the two Phillips wells. Pennzoil drilled one of its
wells with the Pincay. Following the termination of the Pennzoil agreement in
March 1998, the Pincay was taken out of service for approximately six weeks to
complete scheduled maintenance and certain upgrades. From April 23, 1998 through
July 18, 1998, the Pincay was not under contract due to the softening of market
conditions for similar rigs in the Gulf. From July 19, 1998 through August 11,
1998, the Pincay was under contract with Ocean Energy, Inc. to conduct a one
well program. From August 12, 1998 to date, the Pincay has not been under
contract. Sedco Forex and the Company are currently marketing the Pincay for use
in the Gulf and evaluating international locations for possible deployment.
During the year ended June 30, 1998, the Pincay generated $22.2 million in
revenue. However, no assurance can be made as to when and for what term the
Pincay will be under contract in the future. See "-- Competition" and " --
Industry Conditions."
CUSTOMERS
The Company provides offshore drilling services to a market that is
comprised of major and independent oil and gas companies. During the year ended
June 30, 1998, the Rigs were deployed to several companies as discussed above,
through contracts with Sedco Forex. Management believes the Company will
continue to enhance its client base through its arrangement with Sedco Forex and
through continued services to its current customers. The inability of the
Company and Sedco Forex to attract customers for the Rigs would, and the loss of
any customer could, have a material adverse impact on the Company's operations
for such period of time as may be required to find other users, if any, for the
Rigs.
4
<PAGE> 7
COMPETITION
The contract drilling industry is an intensely competitive industry where
no one competitor is dominant. The Company's ability to continue to generate
business is dependent primarily on the level of domestic oil and gas exploration
and development activity and, in part on its ability to adapt to new technology
and drilling techniques as they become available. The Company, through Sedco
Forex, competes with numerous other drilling contractors, some of whom are
substantially larger than the Company and possess appreciably greater financial
and other resources.
During the last three years, there have been several business
consolidations that have reduced the drilling industry's fragmented nature.
Although this has decreased the total number of competitors, the Company
believes that competition for drilling contracts will remain intense in the
foreseeable future. Companies generally compete on the basis of price, workforce
experience, equipment suitability and availability, reputation, expertise,
technology and financial capability. While competition is primarily on a
regional basis, rigs can be moved from one region to another, as well as between
water depths, in response to changes in levels of drilling activity, subject to
crew availability and mobilization expenses.
Moreover, increases in dayrates during 1997 and early 1998 and prospects
for the offshore contract drilling industry as a whole has led to increased rig
activation, enhancement and construction programs by the Company's competitors.
Furthermore, the Company understands that there are currently numerous new rigs
on order at various shipyards worldwide. A significant increase in the supply of
technologically-advanced rigs capable of drilling in deepwater, including
drillships, may have an adverse effect on the average operating rates and
utilization levels for the Rigs. In addition, there is a general shortage in the
industry of drill pipe and other equipment, and, therefore, the cost and time
required to obtain replacement drill pipe and other equipment are substantially
greater than in prior periods and both are currently escalating.
Increases in worldwide drilling demand during the past two years and the
corresponding increase in the number of offshore rigs working has resulted in a
shortage of qualified rig personnel in the industry. To date, the Company
understands that Sedco Forex has not experienced significant problems with
personnel in the Rigs' areas of operation; however, if Sedco Forex is unable to
continue to attract and retain sufficient qualified personnel, its operations
could be adversely affected and its ability to keep the Rigs operating could be
impaired. A Sedco Forex shortage of personnel could also result in wage
increases which could, without offsetting increases in revenue, adversely affect
the Company's profitability and cash flow.
INDUSTRY CONDITIONS
The demand for offshore drilling services, and thus the Company's revenues
and earnings, are directly affected by the worldwide level of oil and gas
exploration and development activity. From the mid-1980s through the early
1990s, demand for offshore drilling rigs was declining or flat, and the industry
fleet of offshore drilling rigs was reduced. In recent years, demand for
offshore rigs has improved, but the supply of rigs is only now beginning to
increase. The industry has emphasized upgrading and refurbishing existing rigs,
due to the high capital costs and long lead times associated with new
construction. In the last year, several competitors have announced new-build
deepwater drillships and semisubmersible rigs in response to increased demand
for rigs with deepwater capabilities.
Technological advances such as extended reach drilling, multilateral
drilling techniques and new offshore development and production applications
have reduced the costs of developing oil and gas fields. As a result, previously
uneconomic discoveries, particularly in deeper water, have become viable, and
the industry has placed increasing emphasis on exploiting existing resources
using new applications. The development of three-dimensional seismic surveys has
reduced exploration risks, thus placing increased emphasis on selective
exploratory drilling. However, oil prices have declined substantially during
1998, which has caused drilling budgets to decline. Although temporary downturns
in oil prices do not generally have an impact on the demand for deepwater
drilling rigs, such declines have caused dayrates to decline. In addition to the
Pincay, there are several similarly equipped semisubmersibles currently deployed
in the Gulf that do not have current drilling contracts or commitments.
5
<PAGE> 8
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the services and expertise provided to
it by the Company's Chairman of the Board and Chief Executive Officer, Mr.
Thomas P. Tatham, the loss of which could substantially impair the Company's
operations. The Company has not entered into an employment contract with Mr.
Tatham, nor has it obtained "key man" life insurance on his life.
YEAR 2000
While the Company believes that all of its software and equipment is year
2000 compliant, it is substantially dependent on vendor compliance. In addition
to its own computer systems, in connection with its business activities, the
Company interacts with suppliers, customers, creditors and financial service
organizations which use computer systems. Although the Company intends to
interact only with those third parties that have year 2000 compliant computer
systems, it is impossible for the Company to monitor all such systems. There can
be no assurances that such third party systems are year 2000 compliant. If not,
such lack of compliance may have an adverse material impact on the Company's
business and operations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Year 2000."
MAINTENANCE
The Rigs require continuous and significant maintenance to remain
operational, competitive and economically efficient. In addition to daily
repairs and maintenance and planned monthly or annual maintenance, which may
constitute as much as 15% to 20% of the aggregate operating expenditures of a
properly maintained rig, semisubmersible rigs require periodic major
maintenance, reworking and refurbishment, and replacement of major drilling
equipment, power generation equipment, mooring systems and drill pipe. Because
such major maintenance results in significant expenditures as well as the loss
of revenue associated with the required downtime, it usually is scheduled over a
rolling five year period and coordinated with other necessary operations and,
where possible, business cycles. Both Rigs have recently completed a total
maintenance and refurbishment program, including recent repairs and certain
upgrades to the Pincay. See "-- Description of Rigs."
Notwithstanding the age of its Rigs, the Company believes that it will be
feasible to continue to upgrade them. However, there can be no assurance as to
if, when or to what extent upgrades will continue to be made to such Rigs,
particularly in view of current rates that would be foregone by removing a rig
from service for upgrade. If such upgrades are undertaken, there can be no
assurance that the upgrades can be completed in a cost-effective manner or that
there will be adequate demand for the Rigs' services.
ATLANTIC CANADA STRATEGY
As its principal focus, the Company intends to pursue an integrated
investment strategy in Atlantic Canada by leveraging initially on the cash flow
from, and utilization of, the Rigs. The Company believes that the Atlantic
Canada region offers significant investment opportunities. The Company's plans
include expanding its drilling rig fleet's cold weather, hostile environment
capabilities as well as diversifying its business to include substantial natural
gas gathering and transmission facilities, related gas processing facilities, a
facility for the generation of electricity and other related investments. In
Atlantic Canada, as with any frontier region, there will be substantial risks
associated with investments in such projects. Further, if recent declines in the
price of crude oil are sustained for some period, the pace of development within
the area could be affected and materially extend the time frame for the projects
discussed herein to commence or become operational. However, the Company
believes that by using an integrated investment approach related to the
development of the region's hydrocarbon reserves, the potential for investment
returns is maximized. The Company is contemplating pursuing the development of
the projects described below. Each of these projects is in a preliminary,
conceptual phase. In addition, (i) the Company does not currently possess the
capital necessary to implement its business strategy completely and there can be
no assurances that the Company will be able to obtain sufficient capital for any
or all of the projects, (ii) there can be no assurances that these projects and
other opportunities will prove to be economic or that they will occur, and (iii)
many of these projects will require governmental 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.
6
<PAGE> 9
Special Multipurpose, New Build Semisubmersible. As part of its strategy to
enhance the number, size and capability of its available rigs, the Company has
entered into a nonbinding Memorandum of Understanding with Friede-Goldman Inc.
regarding the construction of a fifth-generation, state-of-the-art drilling rig
(the "Planned Rig"). The Planned Rig, which is still in the design phase and
estimated to cost approximately $300 million, would be Canadian built and
flagged and would be able to drill throughout the region to depths of 25,000
feet in water depths of up to 5,000 feet. The Planned Rig's characteristics
would make it suitable for use to develop any known proven or potential oil and
gas reserves in Atlantic Canada. In addition, the Planned Rig would have heavy
lift capability, enabling it to install subsea transmission, gathering and
production systems, and provide repair and maintenance capability for such
systems as well as allowing it to repair and maintain the pipeline system
proposed by North Atlantic Pipeline Partners, L.P. ("North Atlantic Partners").
The Planned Rig's high (5,500 short tons) deckload capacity will enable it to
inventory drilling equipment and other stores to better facilitate uninterrupted
drilling operations. These additional capabilities should expand the market for
the Planned Rig and enhance its competitiveness compared to lesser equipped
rigs.
Demand for the Planned Rig could be adversely impacted, however, by an
extended period of depressed crude oil prices, as is currently the case in North
America and worldwide. If these events were determined to render the Planned Rig
uneconomic, the Company would reconsider whether to commence construction of the
Planned Rig until conditions improved. In addition, the Company currently does
not have the financial resources to construct the Planned Rig. No assurances can
be given that the Company will be able to raise the necessary capital at
satisfactory rates to fund such construction.
Pipeline Activities. During 1997, Tatham Offshore Canada Limited, a
wholly-owned subsidiary of the Company, was formed to pursue business
opportunities in the Atlantic Canada region. In addition, the Company has caused
to be formed two limited partnerships, one in Canada and one in the United
States and both known collectively as North Atlantic Partners to construct and
operate an offshore natural gas pipeline from the Grand Banks area offshore
Newfoundland to the east coast of the United States with land falls in both
Newfoundland and Nova Scotia. The General Partner of North Atlantic Partners
(Canada) has filed an application with Canada's National Energy Board, and North
Atlantic Partners (U.S.) has filed an application with the Federal Energy
Regulatory Commission in the United States for authority to build a three-phase,
1,500 mile natural gas pipeline that would serve the growing hydrocarbon
industry offshore Atlantic Canada.
Because another pipeline has been given regulatory authority and is planned
to begin construction this year, North Atlantic Partners is also assessing
redesigning and downsizing the first phase of the pipeline to reduce the capital
cost of that phase of the pipeline to approximately $600 million. As redesigned,
the initial phase of the pipeline project would be approximately 375 miles long
and would originate in the Jeanne D'Arc Basin of the Grand Banks area and extend
to a point near Argentia, Newfoundland.
To date, North Atlantic Partners has obtained nonbinding letters of intent
for the use of its system to deliver gas to the United States which total
approximately 500 MMcf per day. The Company believes that there is significant
reserve potential from the areas offshore Atlantic Canada and as that reserve
potential is developed, a second pipeline into the United States will be
required to meet increased demand for natural gas increases on the east coast of
the United States. The timing of increased drilling activity and the development
of the Atlantic Canada reserve potential is dependent upon major and independent
producers. As development drilling in the area continues, the Company will be
better able to assess the timing and construction requirements for a second
pipeline into the United States.
Gas Processing Facility. The natural gas that will be produced in the Grand
Banks area and potentially be transported through the North Atlantic Partners
pipeline system is expected to contain significant quantities of natural gas
liquids ("NGLs"), such as ethane, propane, butanes and natural gasoline. These
NGLs can be recovered from the natural gas stream through processing. The
Company is investigating the possibility of developing a gas processing plant in
the Argentia area to use the natural gas from the Grand Banks area. The Company
estimates that a processing plant to process the natural gas would cost
approximately $110 million and would be able to initially process up to 400 MMcf
of gas per day, with the ability to be upgraded to process additional natural
gas at a cost of approximately $75 million for each additional 400 MMcf per day.
In addition, the Company is evaluating opportunities to maximize economic value
from potential processing operations with petrochemical producers and with other
potential users of NGLs. The successful development of any such processing
project would be dependent
7
<PAGE> 10
on the construction of the pipeline system proposed by the North Atlantic
Partners. The Company currently does not possess the capital necessary to
construct a gas processing plant and there can be no assurances that the Company
will be able to raise sufficient capital resources at attractive rates to
construct such a facility.
Power Generation Facility. To develop a market for the Grand Banks area
natural gas, in addition to a gas processing plant, the Company has examined the
feasibility of building a gas fired power generating plant in the Argentia area
at a cost of approximately $600 million for 1100 megawatts of combined cycle
power generation. Electrical generation in Newfoundland is currently not gas
fired, relying instead in large part, on less efficient, transported fuel oil.
The successful development of any such power generation project would be
dependent on the construction of the pipeline system and gas processing facility
discussed above.
Hydrocarbon Marketing Company. As part of its activities in the region, the
Company has formed North Atlantic Hydrocarbons Marketing, Inc. ("North Atlantic
Marketing") to buy natural gas and NGLs contained in the natural gas stream in
the production. North Atlantic Marketing would assume the marketing risk related
to the natural gas stream, purchasing the natural gas and entrained liquids from
producers and finding a market for those hydrocarbons.
Oil and Gas Development. Significant oil and gas exploration and production
opportunities also exist throughout the region. The Company is actively seeking
to acquire working interests for proven and probable reserves in Atlantic Canada
and has had independent studies undertaken of the prospective reserves in the
region. Those studies indicate that the region is one of the largest potential
gas regions in North America. Unlike other international opportunities, the
Company does not consider political instability as a significant risk factor
with respect to Canadian opportunities.
On September 18, 1998, Tatham Offshore Canada was informed by the
Canada-Newfoundland Offshore Petroleum Board that it was the successful bidder
on an exploration license offshore Newfoundland. The exploration license is
located on the Grand Banks and contains approximately 175,000 acres. The Company
has agreed to spend approximately $1,000,000 over the next five years in
qualified exploration expenditures in the defined area.
Other Opportunities. Among other potential businesses the Company may
enter, the Company is currently evaluating the feasibility of (i) an industrial
gas distribution system, (ii) an ice management system designed to manage and
reduce the risk of potential damage to its proposed offshore pipelines and
subsea facilities owned by other parties, operated through the Company's
subsidiary, Berg Masters Limited, (iii) a large diameter steel pipe rolling
mill, (iv) methanol production, and (v) other opportunities related to or
located in Atlantic Canada. There can be no assurances that such opportunities
will prove economical, be financeable or will occur.
OIL AND GAS PROPERTIES
GENERAL
As of June 30, 1998, Tatham Offshore owned interests in oil and gas leases
in the Gulf covering approximately 31,809 gross (22,598 net) acres. See " --Oil
and Gas Reserves" for an estimate of Tatham Offshore's total proved developed
reserves of oil and gas and a discussion of the assumptions used in, and
inherent difficulties relating to, estimating reserves. However, all of these
leases were under contract to be transferred, and were transferred, in
transactions which closed on or before August 14, 1998.
DESCRIPTION OF SIGNIFICANT PROPERTIES
The following is a description of the significant properties that Tatham
Offshore held until August 14, 1998, the date the Merger and related
transactions were completed. See " -- Recent Events".
Viosca Knoll Block 817. Viosca Knoll Block 817 is a producing property that
is comprised of 5,760 gross (1,440 net) acres located 40 miles off the coast of
Louisiana in approximately 650 feet of water. Tatham Offshore owned a 25%
working interest (the "Subject Interest") in the Viosca Knoll Block 817 acreage,
which interest is burdened by a convertible production payment described below.
See "-- Reversionary Interests." From the inception of production in December
1995 through June 30, 1998, the Viosca Knoll Block 817 project has produced 12.4
Bcf of gas and 22,527 barrels of oil, net to Tatham Offshore's 25% working
interest. Gas production from Viosca Knoll Block 817 is dedicated to the
Partnership for gathering through the Viosca Knoll system.
8
<PAGE> 11
Under the convertible production payment, the holders are entitled in the
aggregate to 25% of the proceeds from the production attributable to the Subject
Interest (after deducting all leasehold operating expenses, including platform
access and processing fees) until the holders have received the aggregate sum of
$16.0 million. At the option of the holders, the unpaid portion of the
production payment may be converted into Tatham Offshore common stock at any
time until September 2000. In March 1998, Mr. Tatham acquired one-half of this
convertible production payment. At June 30, 1998, the unpaid portion of the
convertible production payment obligation totaled $11.3 million.
West Delta Block 35. West Delta Block 35, a producing field located 10
miles off the coast of Louisiana in approximately 60 feet of water, was acquired
by Tatham Offshore in 1992 to drill for and produce remaining reserves in a
fault block of an abandoned field. In late 1992, Tatham Offshore farmed-out the
property and retained a 38% working interest in West Delta Block 35. The West
Delta Block 35 field commenced production in July 1993. From the inception of
production through June 30, 1998, the West Delta 35 field has produced 3.5 Bcf
of gas and 36,873 barrels of oil, net to Tatham Offshore's interest.
Ewing Bank Blocks 958, 959, 1002 and 1003. Tatham Development owns a 100%
working interest in Ewing Bank Blocks 958, 959, 1002 and 1003, the Sunday
Silence Project, a recently discovered and currently undeveloped field that is
comprised of 20,160 gross acres located approximately six miles south of Ewing
Bank Blocks 914 and 915 (discussed below) in water depths ranging from 1,400 to
1,600 feet. In July 1994, Tatham Offshore completed the drilling of an
exploratory well, the Ewing Bank 958 #1. Logs and sidewall cores indicate that
the Ewing Bank 958 #1 well contains approximately 380 feet of oil and gas pay.
The Ewing Bank 958 #1 well, which was drilled to a total measured depth of
17,600 feet, identified pay zones in the Pliocene aged formations lying
primarily at measured depths between 10,000 and 15,000 feet. Tatham Offshore
completed drilling a second well at Ewing Bank Block 1003 in September 1994 to
delineate the field. During October 1994, the Ewing Bank 1003 #1 delineation
well was flow-tested at a rate of approximately 8,700 barrels of oil and 5.4
MMcf of gas per day.
In June 1997, the United States Department of the Interior, Minerals
Management Service notified Tatham Offshore that its application for deepwater
royalty relief for the Sunday Silence Project had been approved under a federal
law enacted in November 1995. The royalty relief provides for the abatement of
federal royalty on the first 52.5 million barrels of oil equivalent produced
from the Sunday Silence Project.
In connection with the Merger and related transactions, Tatham Offshore
conveyed to DeepTech all of its outstanding shares of capital stock of Tatham
Development as discussed in " -- Recent Events".
Ewing Bank Blocks 914 and 915. Tatham Offshore owned a 100% working
interest in each of Ewing Bank Blocks 914 and 915, which are both located in a
water depth of approximately 1,000 feet. From the inception of production
through June 30, 1998, the Ewing Bank 914 #2 well produced a total of 1.2
million barrels of oil and condensate and 3.4 Bcf of gas. In May 1997, the Ewing
Bank 914 #2 well was shut-in as a result of a downhole mechanical problem and in
May 1998, Tatham Offshore completed abandonment procedures on the Ewing Bank 914
#2 and the Ewing Bank 915 #4 wells.
Ship Shoal Block 331. Ship Shoal Block 331 is located 75 miles off the
coast of Louisiana in approximately 370 feet of water. Tatham Offshore held a
100% working interest in the 5,278 gross acres lease. In December 1997, Tatham
Offshore assigned its interests and related abandonment obligations in Ship
Shoal Block 331 to a third party. Prior to the production problems, the Ship
Shoal Block 331 project produced 88 MMcf of gas and 41,875 barrels of oil.
Reversionary Interests. Tatham Offshore canceled its reversionary working
interests of 37.5% in Viosca Knoll Block 817, 25% in Garden Banks Block 72 and
25% in Garden Banks Block 117 in connection with the Merger and related
transactions discussed in " -- Recent Events".
Ship Shoal Block 331 Platform. Tatham Offshore owned 100% of a multipurpose
platform located in Ship Shoal Block 331. The Ship Shoal 331 Platform is located
adjacent to the Partnership's platform at Ship Shoal Block 332 which serves as
the junction platform connecting two pipeline systems in which the Partnership
owns an approximate 25.7% interest. The Ship Shoal 331 Platform was conveyed to
the Partnership in connection with the Merger and related transactions discussed
in "-- Recent Events."
CUSTOMERS AND CONTRACTS
Ewing Bank Gathering Agreement. In 1992, the Partnership, DeepTech and
Tatham Offshore entered into the Ewing Bank Gathering Agreement (the "Ewing Bank
Agreement"). Pursuant to the Ewing Bank Agreement and the Master Gas Dedication
Agreement (as discussed below), all existing and future oil and gas production
from Tatham Offshore's leaseholds in the Ewing Bank project area is dedicated to
the Partnership for transportation.
9
<PAGE> 12
Master Gas Dedication Agreement. In December 1993, the Partnership and
Tatham Offshore entered into the Master Gas Dedication Agreement pursuant to
which Tatham Offshore dedicated to the Partnership transportation of all future
production, if any, from Tatham Offshore's Viosca Knoll Block 817, Garden Banks
Block 72, Garden Banks Block 117 and Ship Shoal Block 331 project areas and, in
certain cases, additional acreage contained in adjoining areas of mutual
interest. In exchange, the Partnership agreed to install certain pipeline
facilities necessary to transport production from these areas and to provide
transportation services with respect to such production.
Marketing Agreements. Tatham Offshore and Offshore Gas Marketing, Inc.
("Offshore Marketing"), a subsidiary of DeepTech, have entered into agreements
whereby Offshore Marketing has agreed to purchase all of the gas, oil and
condensate produced by Tatham Offshore. The agreement provides Offshore
Marketing fees equal to 2% of the sales value of crude oil and condensate and
$0.015 per dekatherm of natural gas for selling Tatham Offshore's production.
During the year ended June 30, 1998, Tatham Offshore's sales to Offshore
Marketing totaled $10.8 million.
All of the foregoing agreements were either terminated or assigned to
DeepTech or the Partnership in connection with the Merger and related
transactions.
OIL AND GAS RESERVES
Estimates of Tatham Offshore's oil and gas reserves as of June 30, 1998
have been made by the Company's reserve engineers. As of June 30, 1998, the
Company estimated that the aggregate of Tatham Offshore's proved developed
reserves totaled 62,300 barrels of oil and 7,684 MMcf of gas. Estimated proved
reserves totaled 41,900 barrels of oil and 5,989 MMcf of gas for Viosca Knoll
Block 817 and 20,400 barrels of oil and 1,695 MMcf of gas for West Delta Block
35.
In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenue therefrom are based upon a number of
variable factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs and
future plugging and abandonment costs, all of which may vary considerably from
actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenue expected therefrom, prepared by different
engineers or by the same engineers at different sites, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.
Estimates with respect to proved reserves that may be developed and
produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than upon actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves. A significant portion of Tatham Offshore's reserves is based
upon volumetric calculations.
The estimated future net cash flows and the present value of estimated
future net cash flows discounted at 10% per annum, from the production and sale
of the proved developed reserves attributable to the Company's interest in oil
and gas properties as of June 30, 1998, as determined by the Company's reserve
engineers in accordance with the requirements of applicable accounting standards
before income taxes totaled $3.5 million and $3.4 million, respectively. In
preparing such estimates, the Company used prices of $12.28 per barrel of oil
and $1.76 per Mcf of gas as of June 30,1998. All of Tatham Offshore's reserves
at June 30, 1998 were classified as proved developed reserves.
In accordance with applicable requirements of the Securities and Exchange
Commission (the "Commission"), the estimated discounted future net revenue from
estimated proved reserves are based on prices and costs at fiscal year end
unless future prices or costs are contractually determined at such date. Actual
future prices and costs may be materially higher or lower. Actual future net
revenue also will be affected by factors such as actual production, supply and
demand for oil and gas, curtailments or increases in consumption by natural gas
purchasers, changes in governmental regulations or taxation and the impact of
inflation on costs.
In accordance with the methodology approved by the Commission, specific
assumptions were applied in the computation of the reserve evaluation estimates.
Under this methodology, future net cash flows are determined by reducing
estimated future gross cash flows to Tatham Offshore for oil and natural gas
sales by the estimated costs to develop and produce the underlying reserves,
including future capital expenditures, operating costs, transportation costs,
royalty and overriding royalty burdens, production payments and net profits
interest expense on certain of Tatham Offshore's properties.
10
<PAGE> 13
Future net cash flows were discounted at 10% per annum to arrive at
discounted future net cash flows. The 10% discount factor used to calculate
present value is required by the Commission, but such rate is not necessarily
the most appropriate discount rate. Present value of future net cash flows,
irrespective of the discount rate used, is materially affected by assumptions of
future oil and natural gas prices and timing of production, which may prove to
be inaccurate. In addition, the calculations of estimated net revenue do not
take into account the effect of certain cash outlays, including, among other
things, general and administrative costs, interest expense and dividends. The
present value of future net cash flows shown above should not be construed as
the current market value as of June 30, 1998, or any prior date, of the
estimated oil and natural gas reserves attributable to Tatham Offshore's
properties.
PRODUCTION, UNIT PRICES AND COSTS
The following table sets forth certain information regarding the production
volumes of, average unit prices received for and average production costs for
Tatham Offshore's sale of oil and gas for the periods indicated:
<TABLE>
<CAPTION>
Natural Gas (MMcf) Oil and Condensate (Mbbl)
Year Ended June 30, Year Ended June 30,
---------------------------- -------------------------
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net production................ 4,532 7,180 3,274 16 170 418
Average sales price........... $2.34 $2.36 $2.51 $16.24 $22.35 $18.83
Average production costs (1).. $1.13 $1.03 $1.50 $ 6.79 $ 6.19 $19.86
</TABLE>
--------------
(1) The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but
generally include demand and commodity charges under transportation
agreements, platform access and processing fees, maintenance and
repair, labor and utilities costs.
The relationship between Tatham Offshore's average prices and its average
production costs depicted by the table above is not necessarily indicative of
future results of operations expected by Tatham Offshore.
ACREAGE
The following table sets forth the developed and undeveloped oil and gas
acreage in which Tatham Offshore held an interest as of June 30, 1998.
Undeveloped acreage is considered to be those lease acres on which wells have
not been drilled or completed to a point that would permit the production of
commercial quantities of oil and gas, regardless of whether or not such acreage
contains proved reserves. A substantial portion of Tatham Offshore's acreage is
undeveloped. Gross acres in the following table refer to the combined number of
acres in which a working interest is owned directly by Tatham Offshore. The
number of net acres is the sum of the fractional ownership of working interests
owned directly by Tatham Offshore in the gross acres.
<TABLE>
<CAPTION>
Gross Net
------ ------
<S> <C> <C>
Developed acreage....................... 3,912 1,482
Undeveloped acreage..................... 27,897 21,116
------ ------
Total acreage....................... 31,809 22,598
</TABLE>
OIL AND GAS DRILLING ACTIVITY
The following table sets forth the gross and net number of productive, dry
and total exploratory wells and development wells that Tatham Offshore drilled
in each of the years ended June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY
Natural Gas.............................. -- -- -- -- -- --
Oil...................................... -- -- -- -- -- --
Dry...................................... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total............................ -- -- -- -- -- --
===== ===== ===== ===== ===== =====
DEVELOPMENT
Natural Gas.............................. -- -- 4.00 1.00 3.00 .75
Oil...................................... -- -- -- -- 1.00 .25
Dry...................................... -- -- -- -- 1.00 .25
----- ----- ----- ----- ----- -----
Total............................ -- -- 4.00 1.00 5.00 1.25
===== ===== ===== ===== ===== =====
</TABLE>
11
<PAGE> 14
The following table sets forth Tatham Offshore's ownership in producing
wells at June 30, 1998:
<TABLE>
<CAPTION>
GROSS NET
------ --------
<S> <C> <C>
Natural Gas 8 2.13
Oil 2 .63
------ --------
10 2.76
====== ========
</TABLE>
REGULATION
The oil and gas industry is extensively regulated by federal, state and
provincial authorities in the United States and Canada. Further, numerous
departments and agencies, both federal and state, have issued rules and
regulations binding on the oil and gas industry and its individual members, some
of which carry substantial penalties for the failure to comply. Legislation
affecting the oil and gas industry is under constant review and statutes are
constantly being adopted, expanded or amended. This regulatory burden increases
the oil and gas industry's cost of doing business.
In particular, the drilling industry is dependent on the demand for
services from the oil and gas exploration industry and, accordingly, is affected
by changing tax laws, price controls and other laws relating to the energy
business. The Company's business is affected generally by political developments
and by federal, state, provincial, local and foreign laws, rules and regulations
which may relate directly to the oil and gas industry. The adoption of laws,
rules and regulations, both domestic and foreign, which curtail exploration and
development drilling for oil and gas for economic, environmental or other policy
reasons may adversely affect the Company's operations by limiting available
drilling and production opportunities. The Company's foreign operations are
subject to political, economic, environmental and other uncertainties associated
with foreign operations, as well as the additional risks of fluctuating currency
values and exchange controls. Governments may from time to time suspend or
curtail drilling operations or leasing activities when such operations are
considered to be detrimental to the environment or to jeopardize public safety.
ENVIRONMENTAL
General. The Company's operations are subject to extensive federal, state
and local statutory and regulatory requirements relating to environmental
affairs, health and safety, waste management and chemical products. In recent
years, these requirements have become increasingly stringent and in certain
circumstances, they impose "strict liability" on a company, rendering it liable
for environmental damage without regard to negligence or fault on the part of
such company. To the Company's knowledge, its operations are in substantial
compliance, and are expected to continue to comply in all material respects,
with applicable environmental laws, regulations and ordinances.
It is possible, however, that future developments, such as stricter
environmental laws, regulations or enforcement policies could affect the
handling, manufacture, use, emission or disposal of substances or wastes by the
Company. In addition, some risk of environmental costs and liabilities is
inherent in the Company's operations and products as it is with other companies
engaged in similar or related businesses, and there can be no assurance that
material costs and liabilities, including substantial fines and criminal
sanctions for violation of environmental laws and regulations, will not be
incurred by the Company. Furthermore, the Company will likely be required to
increase its expenditures during the next several years to comply with higher
industry and regulatory safety standards. However, such expenditures cannot be
accurately estimated at this time.
Solid Waste. The Company's operations may generate or transport both
hazardous and nonhazardous solid wastes that are subject to the requirements of
the federal Resource Conservation and Recovery Act ("RCRA"), as amended, 42
U.S.C. Section 6901 et. seq., and its regulations, and comparable state statutes
and regulations. Further, it is possible that some wastes that are currently
classified as nonhazardous, via exemption or otherwise, perhaps including wastes
currently generated during exploration, development and production operations
may, in the future be designated as "hazardous wastes," which are subject to
more rigorous and costly treatment, storage, transportation and disposal
requirements. Such changes in the regulations may result in additional
expenditures or operating expenses by the Company. As recently as August 8,
1998, the Environmental Protection Agency ("EPA") added four petroleum refining
wastes to the list of RCRA hazardous wastes. While the full impact of the rule
has yet to be determined, the rule may, as of February 1999, impose increased
expenditures and operating expenses on the Company, which may take on increased
obligations relating to the treatment, storage, transportation and disposal of
certain petroleum refining wastes that previously were not regulated as
hazardous wastes.
Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sub-Section 9601 et. seq.,
and comparable state statutes, also known as "Superfund" laws, impose liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons that cause or contribute to the
12
<PAGE> 15
release or threatened release of a "hazardous substance" into the environment.
These persons include the current owner or operator of a site, the past owner or
operator of a site, and companies that transport, dispose of or arrange for the
disposal of the hazardous substances found at the site. CERCLA also authorizes
the EPA or state agency and, in some cases third parties, to take actions in
response to threats to the public health or the environment and to seek to
recover from the responsible classes of persons the costs they incur. Despite
the "petroleum exclusion" of Section 101(14) that currently encompasses natural
gas, the Company may nonetheless generate or transport "hazardous substances"
within the meaning of CERCLA, or comparable state statutes, in the course of its
ordinary operations. In addition, certain petroleum refining wastes that
previously were not regulated as hazardous wastes may now fall within the
definition of CERCLA hazardous substance. Thus, the Company may be responsible
under CERCLA or the state equivalents for all or part of the costs required to
clean up sites where a release of a hazardous substance has occurred.
Air. Tatham Offshore's operations may be subject to the Clean Air Act
("CAA"), 42 U.S.C. Section 7401-7642, et. seq., and comparable state statutes.
The 1990 CAA amendments and accompanying regulations, state or federal, may
impose certain pollution control requirements with respect to air emissions from
operations, particularly in instances where a company constructs a new facility
or modifies an existing facility. The Company may also be required to incur
certain capital expenditures in the next several years for air pollution control
equipment in connection with maintaining or obtaining operating permits and
approvals addressing other air emission-related issues. However, the Company
does not believe its operations will be materially adversely affected by any
such requirements.
Water. The Federal Water Pollution Control Act ("FWPCA"), or Clean Water
Act, 33 U.S.C. Section 1311 et. seq., imposes strict controls against the
unauthorized discharge of produced waters and other oil and gas wastes into
navigable waters. The FWPCA provides for civil and criminal penalties for any
unauthorized discharges of oil and other hazardous substances in reportable
quantities and, along with the Oil Pollution Act of 1990 ("OPA"), 33 U.S.C.
Sections 2701-2761, imposes substantial potential liability for the costs of
removal, remediation and damages. Similarly, the OPA imposes liability for the
discharge of oil into or upon navigable waters or adjoining shorelines. Among
other things, the OPA raises liability limits, narrows defenses to liability and
provides more instances in which a responsible party is subject to unlimited
liability. One provision of the OPA requires that offshore facilities establish
and maintain evidence of financial responsibility of $150 million. State laws
for the control of water pollution also provide varying civil and criminal
penalties and liabilities in the case of an unauthorized discharge of petroleum,
its derivatives or other hazardous substances into state waters. Further, the
Coastal Zone Management Act ("CZMA"), 16 U.S.C. Sections 1451-1464,
authorizes state implementation and development of programs containing
management measures for the control of nonpoint source pollution to restore and
protect coastal waters. State and federal wetlands presentation programs may
also impose certain restrictions on dredge and fill and development activities.
Endangered Species. The Endangered Species Act ("ESA"), 7 U.S.C. Section
136, seeks to ensure that activities do not jeopardize endangered or threatened
plant and animal species, nor destroy or modify the critical habitat of such
species. Under the ESA, certain exploration and production operations, as well
as actions by federal agencies or funded by federal agencies, must not
significantly impair or jeopardize the species or its habitat. The ESA provides
for criminal penalties for willful violations of the Act. Other statutes which
provide protection to animal and plant species and thus may apply to the
Company's operations are the Marine Mammal Protection Act of 1972, 16 U.S.C.
Sections 1361 to 1421h, the Marine Protection and Sanctuaries Act, the Fish
and Wildlife Coordination Act, the Fishery Conservation and Management Act and
the Migratory Bird Treaty Act. The National Historic Preservation Act, 16 U.S.C.
Section 470, may impose similar requirements.
Communication of Hazards. The Occupational Safety and Health Act ("OSHA"),
as amended, 29 U.S.C. Section 651 et. seq., the Emergency Planning and Community
Right-to-Know Act ("EPCRA"), as amended, 42 U.S.C. Section 11001 et. seq., and
comparable state statutes require the Company to organize and disseminate
information to employees, state and local organizations, and the public about
the hazardous materials used in its operations and its emergency planning.
OPERATIONAL HAZARDS AND INSURANCE
Tatham Offshore's exploration, production and development and drilling
operations are subject to the usual hazards incident to the drilling and
production of natural gas and crude oil, such as blowouts, cratering,
explosions, uncontrollable flows of oil, natural gas or well fluids, fires,
pollution, releases of toxic gas and other environmental hazards and risks.
These hazards can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damages and
suspension of operations. In addition, a pipeline may experience damage as a
result of an accident or other natural disaster. To mitigate the impact of
repair costs associated with such an accident or disaster, the Company maintains
insurance of various types that it considers to be adequate to cover its
operations. Such insurance is subject to deductibles that the Company considers
reasonable and not excessive. The Company's insurance does not cover every
potential risk associated with the drilling and production of oil and natural
gas, but is consistent with insurance coverage generally available to the
industry. The Company's insurance policies do not provide coverage for losses or
liabilities relating to pollution, except for sudden and accidental occurrences.
13
<PAGE> 16
The occurrence of a significant event not fully insured or indemnified
against, or the failure of a party to meet its indemnification obligations,
could materially and adversely affect the Company's operations and financial
condition. The Company believes that it is adequately insured for public
liability and property damage to others with respect to its operation. However,
no assurance can be given that the Company will be able to maintain adequate
insurance in the future at rates it considers reasonable.
INTERNATIONAL OPERATIONS AND RISKS
The Company conducts some of its operations outside the United States.
Risks associated with operating in international markets include foreign
exchange restrictions and currency fluctuations, foreign taxation, changing
political conditions and foreign and domestic monetary policies, expropriation,
nationalization, nullification, modifications or renegotiation of contracts, war
and civil disturbances or other risks that may limit or disrupt markets. The
ability of the Company to compete in the international markets may also be
adversely affected by foreign government regulations that favor or require the
awarding of such contracts to local contractors, or by regulations requiring
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. No predictions can be made as to what foreign
government regulations may be enacted in the future that could be applicable to
the Company's operations.
EMPLOYEES
As of August 14, 1998, Tatham Offshore had fifteen employees. Prior to such
date, all individuals, including executive officers, necessary to meet the
financial, geological, engineering and other technical and administrative
requirements of the Company were provided by DeepTech pursuant to a management
agreement with Tatham Offshore (the "Management Agreement"), or affiliates of
DeepTech pursuant to service contracts. The Management Agreement, as amended,
provided for an annual management fee of 26% of DeepTech's overhead expenses.
For the year ended June 30, 1998, DeepTech charged Tatham Offshore $4.4 million
pursuant to such Management Agreement. The Management Agreement was terminated
on August 14, 1998. See " -- Recent Events".
UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION
This Annual 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.
CERTAIN DEFINITIONS
The following are abbreviations and words commonly used in the oil and gas
industry and in this Annual Report.
"bbl" or "barrel" means barrels, a standard measure of volume for oil,
condensate and natural gas liquids which equals 42 U.S. gallons.
"Bcf" means billion cubic feet (or thousand MMcf).
"development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"exploratory well" means a well drilled to find commercially productive
hydrocarbons in an unproved area or to extend significantly a known oil or
natural gas reservoir.
14
<PAGE> 17
"farm-in" or "farm-out" refers to an agreement whereunder the owner of a
working interest in an oil and gas lease delivers the contractual right to earn
the working interest or a portion thereof to another party who desires to drill
on the leased acreage. Generally, the assignee is required to drill one or more
wells in order to earn a working interest in the acreage. The assignor usually
retains a royalty or a working interest after payout in the lease. The assignor
is said to have "farmed-out" the acreage. The assignee is said to have
"farmed-in" the acreage.
"gross" oil and natural gas wells or gross acres are the total number of
wells or acres, respectively, in which the Company has an interest, without
regard to the size of that interest.
"Mbbl" means thousand barrels.
"Mcf" means thousand cubic feet, a standard measure of volume for gas.
"MMbtu" means million British Thermal Units, a unit of heat measure with
one btu being the amount of heat needed to raise the temperature of one pound of
water one degree Fahrenheit.
"MMcf" means million cubic feet.
"net" oil and natural gas wells or "net" acres or "net" production or
reserves are the total gross number of wells or acres, respectively, in which
the Company has an interest multiplied times the Company's working interest in
such wells or acres.
"OCS" means Outer Continental Shelf, an area offshore the United States
over which the federal government has jurisdiction, which extends from the end
of state territorial waters (three to twelve nautical miles offshore, depending
on the state) to 200 nautical miles from shore. The term OCS as used herein
includes not only those areas on the Shelf itself, but those areas in the
flextrend and the deepwater, to a limit of 200 nautical miles, as well.
"royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually carved from the leasehold interest
pursuant to an assignment to a third party reserved by an owner of the leasehold
in connection with a transfer of the leasehold to a subsequent owner.
"working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
In this Annual Report, natural gas volumes are stated at the legal pressure
base of the state or area in which the reserves are located and at 60 degrees
Fahrenheit.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings which 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 Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 28, 1998, DeepTech, the holder of a majority of the Company's
outstanding voting stock at the time, executed a written consent approving the
sale of substantially all of the Company's oil and gas assets in the Gulf and an
amendment to the Company's Certificate of Incorporation. The amendment was
approved to reflect the fact that DeepTech will no longer own any shares of the
Company's stock. Prior to the amendment, DeepTech was excluded from the category
of "Related Persons," as that term is defined in the Certificate's Article II.
The amendment removed DeepTech from the list of persons or entities not to be
included in the definition of "Related Persons." Following the amendment, if
DeepTech were to acquire 10% or more of the Company's voting stock, any merger
or consolidation with DeepTech would require 75% of the outstanding voting stock
to approve such a combination.
15
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of August 31, 1998, there were approximately 162 holders of record of
the common stock. The following table sets forth the high and low sales prices
for the common stock as quoted on The Nasdaq National Market for the periods
indicated. In addition, the table is adjusted for the one for ten reverse common
stock split Tatham Offshore effected on November 24, 1997.
<TABLE>
<CAPTION>
Common Stock Price Range
------------------------
High Low
<S> <C> <C>
YEAR ENDED JUNE 30, 1997
First Quarter ..................................... 13 3/4 7 1/2
Second Quarter .................................... 9 3/8 4 3/8
Third Quarter ..................................... 9 3/8 5
Fourth Quarter .................................... 7 1/2 5
YEAR ENDED JUNE 30, 1998
First Quarter ..................................... 6 7/8 2 13/16
Second Quarter .................................... 5 5/8 2 1/2
Third Quarter ..................................... 4 7/8 3
Fourth Quarter .................................... 4 1/4 3
PERIOD FROM JULY 1, 1998 THROUGH AUGUST 31, 1998 .... 3 3/4 2 5/8
</TABLE>
Tatham Offshore has never declared or paid cash dividends on its common or
preferred stock. The Company intends to retain any future earnings to fund
growth and does not anticipate paying any cash dividends on its stock in the
foreseeable future. The payment of future dividends, if any, will be determined
by the Board of Directors in light of conditions then-existing, including the
Company's operating results, financial condition, capital requirements, general
business conditions and other factors the Board of Directors deems relevant. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
The following table summarizes the Company's outstanding equity at June 30,
1998:
<TABLE>
<CAPTION>
Conversion/
Shares Liquidation Dividend Accrued Exchange
Equity Outstanding Preference Rate Dividends Features Symbol
------ ----------- ---------------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Senior Preferred Stock (a) 7,500 (a) $1,000 per share 9% $ 1,631,000 (a) N/A
Series A Preferred Stock (b) 17,557,648 (g) $ 1.50 per share 12% $ 6,321,000 (c)(d) TOFFL (e)
Series B Preferred Stock 74,379 $ 1.00 per share 8% $ 10,000 (c)(d) TOFFO (e)
Series C Preferred Stock (c) 321,205 $ 0.50 per share 4% $ 10,000 (c)(d) TOFFN (e)
Common Stock (b) 30,001,026 (g) N/A -- $ -- -- TOFF (f)
</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"). In connection with the
Redemption Agreement, the Partnership returned to Tatham Offshore the
Senior Preferred Stock on August 14, 1998 in exchange for certain assets.
Tatham Offshore then eliminated the Senior Preferred Stock. Each share of
the Senior Preferred Stock was 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 held all outstanding
shares. The Senior Preferred Stock was 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.
(b) As of June 30, 1998, DeepTech held 28,073,450 shares and 4,670,957 shares
of outstanding common stock and Series A Preferred Stock, respectively. On
August 14, 1998, DeepTech divested itself of this equity ownership through
the Rights Offering.
(c) 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 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
unpaid dividends into shares of common stock at $6.53 per share.
(d) Redeemable at the option of Tatham Offshore on or after July 1, 1997.
(e) The preferred stock is traded on the OTC Bulletin Board Service.
(f) The common stock is traded on The Nasdaq Stock Market's National Market.
(g) In connection with the Rights Offering, Tatham Offshore purchased all of
the shares of Common Stock and Series A Preferred Stock that were not
acquired by the holders of Rights or TB Securities in the Rights Offering,
3,926,746 and 653,365, respectively, and the proceeds from such purchase by
Tatham Offshore were contributed by DeepTech to Tatham Offshore.
16
<PAGE> 19
RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to sales and other issuances by Tatham
Offshore within the past three fiscal years of Tatham Offshore securities, the
sales or issuances of which were not registered pursuant to the Securities Act
of 1933 (the "Securities Act").
In September 1995, Tatham Offshore issued two industry partners warrants to
acquire an aggregate of up to 2,000,000 shares of its common stock at an
exercise price of $8.00 per share as partial consideration for the acquisition
of a 25% working interest in Viosca Knoll Block 817 and an approximate 12.5%
working interest in the remainder of the Viosca Knoll Block 817 unit. The
warrants are exercisable for a period of five years through conversion of the
unpaid balance of a $16 million production payment payable issued in connection
with the acquisition of such working interests which is payable out of 25% of
the net cash flow from the working interests so acquired. Such transaction was
completed without registration under the Securities Act in reliance on the
exemption provided by Section 4(2) of the Securities Act.
In November 1995 and May 1996, the Company issued 12,094 shares and 12,423
shares, respectively, of its common stock in connection with the mandatory
arrangement of certain senior executives of DeepTech and received a $360,000
credit against its management fees payable to DeepTech. Such transactions were
completed without registration under the Securities Act in reliance on the
exemption provided by Section 4(2) of the Securities Act.
In June 1996, in connection with its Non-Employee Director Compensation
Plan, Tatham Offshore issued its common stock to the following persons in the
following amounts: 6,378 shares to James G. Niven, 1,820 shares to E. Garrett
Bewkes, 5,678 shares to Humbert B. Powell, 6,378 shares to Philip G. Clarke and
5,458 shares to Clyde E. Nath. Such transactions were completed without
registration under the Securities Act in reliance on the exemption provided by
Section 4(2) of the Securities Act.
In February 1996, Tatham Offshore issued 7,500 shares of its 9% Senior
Convertible Preferred Stock to Leviathan Gas Pipeline Partners, L.P. as partial
consideration for the satisfaction of certain demand charge obligations. Such
transaction was completed without registration under the Securities Act in
reliance on the exemptions provided by Section 4(2) of the Securities Act. In
March 1998, Tatham Offshore eliminated its 9% Senior Convertible Preferred Stock
and replaced this stock with Series B 9% Senior Convertible Preferred Stock.
Such transaction was completed without registration under the Securities Act in
reliance on the exemption provided by Section 4(2) of the Securities Act.
Tatham Offshore, Inc. issued a total of 90,000 shares of its common stock
to Offshore Drilling Consultants, Inc. from September 1997 through March 1998 as
compensation for consulting services related to its Atlantic Canada project.
Prior to January 1998, Offshore Drilling Consultants, Inc. was known as F-W Oil
Interests, Inc. Such transactions were completed without registration under the
Securities Act in reliance on the exemption provided by Section 4(2) of the
Securities Act.
In December 1997, Tatham Offshore issued 26,666,667 shares of its common
stock to DeepTech in exchange for $60 million of Subordinated Convertible
Promissory Notes held by DeepTech. Such transaction was completed without
registration under the Securities Act in reliance on the exemption provided by
Section 4(2) of the Securities Act.
17
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the Company for each of the
three years ended June 30, 1998, 1997 and 1996 and at June 30, 1998 and 1997
have been derived from the consolidated financial statements and notes thereto
which are included elsewhere in this Annual Report. The selected financial data
at and for each of the two years ended June 30, 1995 and 1994 and at June 30,
1996 have been derived from the historical financial statements of the Company.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and the notes thereto which
are included elsewhere in this Annual Report.
The following selected financial data is included in this Annual Report due
to the requirements of the Securities Exchange Act. With the exception of the
North Atlantic Partners pipeline project, all of the historical business and
operations of Tatham Offshore has been transferred to DeepTech and the
Partnership who has also assumed all future liability related to these assets
and operations as part of the Reorganization Transaction. Such information,
although important for an understanding of Tatham Offshore's historical
financial results and business, is of little relevance to the Company's business
and operations on a going forward basis.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUE:
Oil and gas sales ..................................... $ 10,868 $ 20,723 $ 16,070 $ 8,054 $ 12,146
Drilling services ..................................... 672 -- -- -- --
-------- -------- -------- -------- --------
Total revenue ................................ 11,540 20,723 16,070 8,054 12,146
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Production and operating expenses ..................... 5,666 8,465 13,203 13,745 8,509
Exploration expenses .................................. 149 542 637 11,459 3,067
Depreciation, depletion and amortization .............. 3,047 5,364 1,758 1,210 983
Impairment, abandonment and other ..................... -- 41,674 8,000 -- --
Management fee ........................................ 4,375 3,279 4,436 4,967 3,377
General and administrative expenses ................... 1,371 1,567 1,839 2,145 1,496
-------- -------- -------- -------- --------
Total operating costs ........................ 14,608 60,891 29,873 33,526 17,432
-------- -------- -------- -------- --------
Operating loss ........................................ (3,068) (40,168) (13,803) (25,472) (5,286)
Gain on sale of oil and gas properties ................ -- -- 22,641 1,496 --
Interest income ....................................... 223 571 113 836 431
Interest and other financing costs .................... (1,966) (8,374) (8,161) (11,631) (3,935)
-------- -------- -------- -------- --------
Net (loss) income ..................................... $ (4,811) $(47,971) $ 790 $(34,771) $ (8,790)
======== ======== ======== ======== ========
Net (loss) income available to common stockholders .... $ (8,581) $(51,891) $ 509 $(34,771) $ (9,925)
======== ======== ======== ======== ========
Basic net (loss) income per common share .............. $ (0.50) $ (19.47) $ 0.20 $ (13.91) $ (4.50)
======== ======== ======== ======== ========
Diluted net (loss) income per common share ............ $ (0.50) $ (19.47) $ 0.09 $ (13.91) $ (4.50)
======== ======== ======== ======== ========
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Semisubmersible drilling rigs, net . $129,260 $ -- $ -- $ -- $ --
Oil and gas properties, net . . . . . 5,724 30,752 64,900 70,829 46,453
Total assets . . . . . . . . . . . . 153,418 42,485 97,130 94,720 99,291
Notes payable . . . . . . . . . . . 64,156 -- -- -- --
Long term debt . . . . . . . . . . . -- 60,000 60,000 60,000 60,000
Stockholders' equity (deficit) . . . 75,410 (27,696) 18,862 (20,020) 14,751
</TABLE>
19
<PAGE> 22
ITEM 7. 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 the notes thereto located elsewhere in
this Annual Report and the information set forth under the heading "Selected
Financial Data." This discussion is intended to assist in the understanding of
Tatham Offshore's financial position and results of operations for each of the
years ended June 30, 1998, 1997 and 1996. Effective June 25, 1998, Tatham
Offshore acquired DeepFlex which owns the Pincay and the Shoemaker. On August
14, 1998, Tatham Offshore transferred all of its remaining oil and gas
properties to the Partnership in connection with the Merger and related
transactions.
The following discussion of results of operations is included in this
Annual Report due to the requirements of the Securities Act. With the exception
of the North Atlantic Partners pipeline project, all of the historical business
and operations of Tatham Offshore has been transferred to DeepTech and the
Partnership who has also assumed all future liability related to these assets
and operations as part of the Reorganization Transaction. Such information,
although important for an understanding of Tatham Offshore's historical
financial results and business, is of little relevance to the Company's business
and operations on a going forward basis.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998 COMPARED WITH YEAR ENDED JUNE 30, 1997
Revenue from oil and gas sales totaled $10.9 million for the year ended
June 30, 1998 as compared with $20.7 million for the year ended June 30, 1997.
During the year ended June 30, 1998, Tatham Offshore sold 4,532 MMcf of gas and
16,295 barrels of oil at average prices of $2.34 per Mcf and $16.24 per barrel,
respectively. During the same period in 1997, Tatham Offshore sold 7,180 MMcf of
gas and 170,000 barrels of oil at average prices of $2.36 per Mcf and $22.35 per
barrel, respectively. The decrease in oil and gas sales was primarily a result
of the cessation of oil and gas production in May 1997 from Tatham Offshore's
Ewing Bank 914 #2 well, decreased gas production from Tatham Offshore's Viosca
Knoll Block 817 lease and substantially lower realized oil prices.
Drilling services totaled $0.7 million for the year ended June 30, 1998 and
represented revenue from contract drilling services provided by the Rigs from
June 25, 1998 through June 30, 1998.
Production and operating expenses for the year ended June 30, 1998 totaled
$5.7 million as compared with $8.5 million for the same period in 1997. The
decrease of $2.8 million was primarily comprised of a decrease of $3.0 million
in transportation, production, operating and workover expenses related to the
cessation of oil and gas production in May 1997 from Tatham Offshore's Ewing
Bank 914 #2 well, a decrease of $0.2 million related to a production payment
and an increase of $0.4 million related to the operations of the Rigs.
Exploration expenses for the year ended June 30, 1998 totaled $0.1 million
as compared with $0.5 million for the year ended June 30, 1997. Exploration
expenses primarily included delay rentals and minimum royalties.
Depreciation, depletion and amortization totaled $3.0 million for the year
ended June 30, 1998 as compared with $5.4 million for the year ended June 30,
1997. The decrease of $2.4 million is primarily a result of a $0.8 million net
reduction in abandonment expense as a result of Tatham Offshore assigning its
working interest in Ship Shoal Block 331 to a third party for the assumption of
the abandonment obligations, lower depletion at Viosca Knoll Block 817 and West
Delta Block 35 of $1.3 million, lower abandonment accruals related to West Delta
Block 35 and Viosca Knoll Blocks 817 and 818 of $0.4 million, and offset by $0.1
million related to the Rigs.
Impairment, abandonment and other for the year ended June 30, 1997 totaled
$41.7 million. Impairment, abandonment and other for the year ended June 30,
1997 consisted of a charge to reserve Tatham Offshore's investment in its Ewing
Bank 914 #2 well, certain adjacent leases and Ship Shoal Block 331 property, to
accrue Tatham Offshore's abandonment obligations associated with the Ewing Bank
914 #2 and 915 #4 wells and the Ship Shoal Block 331 property and to expense
Tatham Offshore's net prepaid demand charges related to obligations under
certain transportation agreements. See "Note 4 -- Oil and Gas Properties" on
pages F-12 through F-15. No impairment abandonment and other charges were
recorded during the year ended June 30, 1998.
General and administrative expenses, including the management fee allocated
from DeepTech, for the year ended June 30, 1998 totaled $5.7 million as compared
with $4.8 million for the same period in 1997. The increase reflected an
increase in staff and overhead expenses, attributable to the Canadian
activities, allocated to Tatham
20
<PAGE> 23
Offshore under the Management Agreement of $1.1 million offset by a decrease in
direct general and administrative expenses of $0.2 million. Tatham Offshore
amended its Management Agreement effective July 1, 1997 to provide for a 26%
overhead allocation as compared to a 24% overhead allocation during the year
ended June 30, 1997. Effective August 14, 1998, the Management Agreement was
terminated and the Company directly employed its management, operational and
financial staff.
Operating loss for the year ended June 30, 1998 was $3.1 million as
compared with an operating loss of $40.2 million for the year ended June 30,
1997. The change was due to the items discussed above.
Interest income totaled $0.2 million for the year ended June 30, 1998 as
compared with $0.6 million for the same period in 1997 and included interest
income from available cash.
Interest expense for the year ended June 30, 1998 totaled $1.9 million as
compared with $8.4 million for the year ended June 30, 1997 and primarily
related to interest under the $60 million principal amount of Subordinated
Convertible Promissory Notes (the "Subordinated Notes") held by DeepTech, which
were converted into shares of Tatham Offshore common stock in December 1997. See
"-- Liquidity Outlook."
After taking into account $3.8 million of preferred stock dividends in
arrears, the Company's net loss available to common stockholders for the year
ended June 30, 1998 was $8.6 million, or $0.50 per share, as compared with net
loss available to common stockholders for the year ended June 30, 1997 of $51.9
million, or $19.47 per share, after taking into account $3.9 million of
preferred stock dividends in arrears. The weighted average shares outstanding
for the purposes of calculating loss per share for the years ended June 30, 1998
and 1997 were 17,299,739 shares and 2,665,084 shares, respectively.
YEAR ENDED JUNE 30, 1997 COMPARED WITH YEAR ENDED JUNE 30, 1996
Revenue from oil and gas sales totaled $20.7 million for the year ended
June 30, 1997 as compared with $16.1 million for the year ended June 30, 1996.
During the year ended June 30, 1997, the Company sold 7,180 MMcf of gas and
170,000 barrels of oil and condensate at average prices of $2.36 per Mcf and
$22.35 per barrel, respectively. During the year ended June 30, 1996, the
Company sold 3,274 MMcf of gas and 418,000 barrels of oil and condensate at
average prices of $2.51 per Mcf and $18.83 per barrel, respectively. The
increase is primarily due to increased production from the Viosca Knoll Block
817 project and higher oil prices partially offset by lower oil and gas
production from the Ewing Bank 914 #2 well and lower gas prices.
Production and operating expenses for the year ended June 30, 1997 totaled
$8.5 million as compared with $13.2 million for the year ended June 30, 1996.
The decrease of $4.7 million is comprised of (i) a decrease of $4.0 million in
the cost of transportation services primarily related to lower oil production
and the restructuring of certain transportation agreements with the Partnership,
(ii) a decrease of $2.0 million in workover and repair expenses, (iii) a
decrease of $0.2 million in operating costs primarily related to the Viosca
Knoll Block 817 project and (iv) an increase of $1.5 million related to a
production payment. During the year ended June 30, 1996, the Company incurred
$2.3 million of workover and repair expenses related to the Ewing Bank 914 #2
well.
Exploration expenses for the year ended June 30, 1997 totaled $0.5 million
as compared with $0.6 million for the year ended June 30, 1996. Exploration
expenses for both periods included delay rentals, minimum royalties and costs
incurred under an amended technology services agreement with an affiliate of
DeepTech.
Depreciation, depletion and amortization totaled $5.4 million for the year
ended June 30, 1997 as compared with $1.8 million for the year ended June 30,
1996. The increase is primarily attributable to the initiation of production
from the first well at Viosca Knoll Block 817 in December 1995 and from an
additional seven wells during calendar 1996.
Impairment, abandonment and other for the year ended June 30, 1997 totaled
$41.7 million as compared with $8.0 million for the year ended June 30, 1996.
Impairment, abandonment and other for the year ended June 30, 1997 consisted of
a charge to reserve the Company's investment in its Ewing Bank 914 #2 well,
certain adjacent leases and Ship Shoal Block 331 property, to fully accrue the
Company's abandonment obligations associated with the Ewing Bank 914 #2 and 915
#4 wells and the Ship Shoal Block 331 property and to expense the Company's net
prepaid demand charges related to obligations under certain transportation
agreements. See "Notes to Consolidated Financial Statements -- Note 4 --
Property and Equipment -- Oil and Gas Properties -- Impairment, Abandonment and
Other" located on page F-14 through F-15. In connection with the Company's
assessment of its Ship Shoal Block 331 property and its decision to seek a sale
of all or a
21
<PAGE> 24
portion of such property, or a joint venture partner, the Company reduced its
investment in its Ship Shoal Block 331 property by $8.0 million during the year
ended June 30, 1996.
General and administrative expenses, including the management fee allocated
from DeepTech, for the year ended June 30, 1997 totaled $4.8 million as compared
with $6.3 million for the year ended June 30, 1996. The decrease of $1.5 million
reflected a decrease in direct general and administrative expenses of $0.3
million and a decrease in staff and overhead expenses allocated to the Company
under its Management Agreement with DeepTech of $1.2 million. As a result of
DeepTech's reduction of services provided to Tatham Offshore, the Company
amended its Management Agreement effective July 1, 1996 to provide for a 24%
overhead allocation as compared to an effective 31.6% overhead allocation during
the year ended June 30, 1996.
Operating loss for the year ended June 30, 1997 totaled $40.2 million as
compared with an operating loss of $13.8 million for the year ended June 30,
1996. The change in operating loss was due to the items discussed above.
During the year ended June 30, 1996, the Company recognized a $22.6 million
gain related to the sale of its working interest in certain properties to the
Partnership as a result of the Company waiving its options to prepay the
then-existing Payout Amount and receive a reassignment of its working interests.
Interest expense, net of interest income, for the year ended June 30, 1997
totaled $7.8 million as compared with $8.0 million for the year ended June 30,
1996. For the years ended June 30, 1997 and 1996, interest expense of $7.1
million was attributable to interest payable to DeepTech under the Subordinated
Notes.
After considering $3.9 million in preferred dividends in arrears, Tatham
Offshore's net loss available to common stockholders for the year ended June 30,
1997 was $51.9 million as compared with net income available to common
stockholders for the year ended June 30, 1996 of $0.5 million after considering
$0.3 million in preferred dividends in arrears.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's exploration and production activities have
generated and utilized substantially all of the operating cash flow.
Prospectively, the Company's contract drilling activities are expected to
generate and utilize substantially all of the operating cash flow, at least
during the near term. See "-- Liquidity Outlook."
Sources of Cash. Historically, the Company's cash from operations was
generated by the sale of the Company's interest in oil and gas production.
Prospectively, 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. However, as described below,
the Company will need to raise substantial capital (equity, debt or both) or
enter into other arrangements to allow the Company to implement its business
strategy in Atlantic Canada. If either of the Rigs is not employed for any
extended period of time, the absence of associated revenues may have a material
adverse effect on the Company, including limiting the Company's ability to raise
capital from external sources.
Cash from operations during the year ended June 30, 1998 was derived
primarily from production from Tatham Offshore's working interest in Viosca
Knoll Block 817. Tatham Offshore's 25% working interest in Viosca Knoll Block
817 was subject to a production payment equal to 25% of the net operating cash
flow from such working interest. As of August 14, 1998, the Company had (i)
disposed of all of its oil and gas operations, (ii) acquired and commenced
operating the Rigs and (iii) begun aggressively implementing its Canada
strategy.
In February 1998, DeepFlex exchanged its 1,016,957 shares of 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 the 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.
Uses of Cash. Prospectively, the Company expects that its primary uses of
cash will consist of (i) scheduled interest payments on the Credit Facility,
(ii) amounts necessary to fund capital expenditures related to the Rigs that
22
<PAGE> 25
are not funded by customers, and (iii) amounts necessary to pay general and
administrative and other operational expenses. In addition, the Company will use
available cash to fund the pursuit of its business strategy in Atlantic Canada.
Such uses will include funding the North Atlantic Partners pipeline project, the
Planned Rig, the remainder of the Company's Atlantic Canada strategy and any of
the Company's other potential capital expenditures.
During the year ended June 30, 1998, the Company's primary uses of cash
consisted 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.
North Atlantic Partners is the sponsor of a proposal to construct a natural
gas pipeline from offshore Newfoundland and Nova Scotia to Seabrook, New
Hampshire. As of June 30, 1998, Tatham Offshore Canada Limited, the Canadian
representative of North Atlantic Partners, has incurred $11.5 million in
developmental costs in connection with such project and related infrastructure
projects. The Company anticipates that the ultimate capital costs of the
project, if approved, could be in excess of several billion dollars. See Items 1
and 2. "Business and Properties -- Atlantic Canada Strategy."
In order to improve liquidity and partially address its capital
requirements during the year ended June 30, 1998, Tatham Offshore entered into
an option agreement to restructure the Subordinated Notes held by DeepTech. On
December 17, 1997, DeepTech converted the Subordinated Notes into 26,666,667
shares of Common Stock at a conversion rate of $2.25 per share, the average of
the closing price for the ten trading days immediately preceding the exercise of
the option. As a result of the conversion of the Subordinated Notes, Tatham
Offshore eliminated all of its then existing outstanding debt.
Liquidity Outlook. The Company intends to fund its immediate cash
requirements with cash on hand and cash from its drilling services operations.
At June 30, 1998, the Company had $2.7 million of cash and cash equivalents.
On September 30, 1996, a subsidiary of DeepFlex entered into a $65 million
senior secured credit facility with a syndicate of lenders (as amended, the
"Credit Facility"). Proceeds from the Credit Facility were used to acquire the
Shoemaker, to fund significant upgrades to the Shoemaker, and to retire $30.3
million of other rig related indebtedness. In April 1997, the Credit Facility
was amended to provide for an additional $12 million to fund the remaining
refurbishments and upgrades to the Shoemaker. The Credit Facility (i) matures on
March 31, 1999, (ii) bears interest at the prime rate plus 3% per annum (11.5%
at June 30, 1998), payable quarterly, (iii) is secured by the two
semisubmersible drilling rigs and all of the related assets, (iv) required a
quarterly principal payment of excess flow as defined in the credit agreement
with a minimum principal amortization of $250,000 per quarter beginning on
December 31, 1996 and ending on September 30, 1998, (v) provided the Lenders
warrants to acquire a 5% minority equity interest in the subsidiaries which own
the Rigs, and (vi) is subject to customary conditions and covenants, including
the maintenance of a minimum level of working capital. As of June 30, 1998,
amounts outstanding under the Credit Facility totaled $59.2 million. Management
believes it will be able to refinance the Credit Facility upon its maturity.
In connection with the Merger, the Company entered into a short term
financing arrangement with Tatham Brothers, LLC ("Tatham Brothers") to provide
for funds to (i) satisfy approximately $1.6 million of cash requirements with
respect to the Redemption Agreement with the Partnership, (ii) pay $1.4 million
to DeepTech in connection with the Management Agreement between Tatham Offshore
and DeepTech, (iii) pay approximately $6.9 million to TB Securities with respect
to obligations under the Rights Offering, (iv) fund a $7.5 million letter of
credit for potential tax liabilities, (v) refinance $5.1 million in existing
loans to DeepFlex and (vi) pay fees and expenses associated with the short term
financing. Tatham Brothers is an affiliate of Thomas P. Tatham and the parent
company of TB Securities. The short term financing bears interest at the rate of
12% per annum and is due on January 15, 1999. It is secured by a pledge of
DeepFlex of its interest in a certain payment-in-kind Subordinated Promissory
Note issued by RIGCO North America, L.L.C. and FPS V, Inc., both subsidiaries
of the Company, which has a current outstanding balance of approximately $70.0
million. The Company anticipates that it will
23
<PAGE> 26
refinance the short term financing with Tatham Brothers upon its maturity or pay
off the facility with proceeds from the refinancing of the Credit Facility
discussed above.
On September 15, 1998, a draw of $1.4 million was made on the
above-mentioned letter of credit by DeepTech to fund certain tax liabilities
incurred in connection with the Merger.
The Company is a guarantor of a $5.0 million loan from NationsBank, N.A. to
Tatham Brothers, which proceeds were used to fund certain improvements to the
Rigs. The loan bears interest at the rate of Prime plus 1 1/2% per annum and is
due on January 19, 1999 or on demand.
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. 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.
The ability of the Company to satisfy its future capital needs with respect
to its planned Atlantic Canada strategy, particularly its ability to obtain
regulatory approval and financing for the North Atlantic Partners pipeline
project, will depend upon its ability to raise substantial amounts of additional
capital and to implement its business strategy successfully. With respect to the
Company's strategy described under "Business -- Business Strategy", (i) the
Company does not currently possess the capital necessary to implement its
business strategy completely and there can be no assurances that the Company
will be able to obtain sufficient capital for any or all of the projects, (ii)
there can be no assurances that these projects and other opportunities will
prove to be economical or that they will occur, and (iii) many of these projects
will require governmental 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 the Company's best
interests.
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.
Year 2000. The year 2000 issue is the result of computer programs that were
written using two digits rather than four to define the year. The Company
believes that all of its software and equipment are year 2000 compliant and that
this problem will have no affect on the Company's internal operations. Although
the company intends to interact only with those third parties that have year
2000 compliant computer systems, it is impossible for the Company to monitor all
such systems. Currently, the Company has no information concerning the year 2000
compliance status of its customers and vendors. There can be no assurances that
such systems will not have a material adverse impact on the Company's business
and operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to some market risk due to the floating interest
rate under the RIGCO Credit Facility. See "-- Note 5 -- Indebtedness." Under the
RIGCO Credit Facility, the remaining principal is due on March 31, 1999 along
with the final interest payment. On June 30, 1998, the Credit Facility had
principal balance of $59,156,000 and an interest rate based on the prime rate
plus 3% (11 1/2% at June 30, 1998). A 1 1/2% increase in interest rates could
result in a $900,000 annual increase in interest expense on the existing
principal balance.
On April 3, 1997, RIGCO entered into an interest rate cap agreement with
Citibank, N.A., which covered $36.5 million of the debt and provided a maximum
fixed effective interest rate of 11.74% and which terminates on September 30,
1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) hereof.
24
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the caption "Election of Directors" in the
Company's definitive proxy statement (the "Proxy Statement") relating to the
1998 annual stockholders meeting (the "Annual Meeting"), is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the caption "Election of Directors --
Executive Compensation" in the Proxy Statement relating to the Annual Meeting is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Election of Directors --
Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A discussion of certain agreements, arrangements and transactions between
or among the Company, the Partnership, DeepTech and certain other related
parties is summarized in the Company's "Notes to Consolidated Financial
Statements -- Note 2 -- Recent Events", "-- Note 4 -- Oil and Gas
Properties --", "-- Note 7 -- Related Party Transactions and "-- Note 11
- -- Subsequent Events --" located elsewhere in this Annual Report.
The information appearing under the captions "Election of Directors --
Certain Relationships and Related Transactions", "-- Equity Incentive Plan", and
"-- Non Employee Director Stock Option Plan" in the Proxy Statement is
incorporated herein by reference.
25
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report or
incorporated by reference:
1. Financial Statements
As to financial statements and supplementary information, reference is
made to "Index to Consolidated Financial Statements" on page F-1 of
this Annual Report.
2. Financial Statement Schedules
None. All financial statement schedules are omitted because the
information is not required, is not material or is otherwise included
in the consolidated financial statements or notes thereto included
elsewhere in this Annual Report.
3. (a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Tatham Offshore
(filed as exhibit 3.1 in Tatham Offshore's Annual Report
on Form 10-K for the fiscal year ended June 30, 1994,
and incorporated herein by reference).
3.2 By-laws of Tatham Offshore (filed as exhibit 3.2 in
Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein
by reference).
3.3 Certificate of Amendment of Certificate of Incorporation
of Tatham Offshore (filed as Exhibit 3.1 to Tatham
Offshore's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, Commission File No. 0-22892 and
incorporated herein by reference).
3.4 Certificate of Amendment of Certificate of Incorporation
of Tatham Offshore (filed as Exhibit 3.2 to Tatham
Offshore's Registration Statement on Form S-1 Commission
File No. 333-49859 and incorporated herein by reference).
4.1 Certificate of Designation Establishing the Series A
Convertible Exchangeable Preferred Stock of Tatham
Offshore (filed as Exhibit 4.1 to Tatham Offshore's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995, Commission File No. 0-22892 and
incorporated herein by reference).
4.2 Certificate of Designation Establishing the Series B
Convertible Exchangeable Preferred Stock (filed as
Exhibit 4.2 to Tatham Offshore's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995,
Commission File No. 0-22892 and incorporated herein by
reference).
4.3 Certificate of Designation Establishing the Series C
Convertible Exchangeable Preferred Stock (filed as
Exhibit 4.3 to Tatham Offshore's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995,
Commission File No. 0-22892 and incorporated herein by
reference).
4.4 Certificate of Designation Establishing the Mandatory
Redeemable Preferred Stock (filed as Exhibit 4.4 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.5 Certificate of Designation Establishing the Series B
Convertible Preferred Stock (filed as Exhibit 4.1 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, Commission File No.
0-22892 and incorporated herein by reference).
</TABLE>
26
<PAGE> 29
<TABLE>
<S> <C>
4.6 Warrant Agreement relating to the warrants entitling the
holder thereof to purchase shares of Convertible
Exchangeable Preferred Stock (filed as Exhibit 4.5 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.7 Exchange Warrant Agreement relating to the warrants
entitling the holder thereof to purchase shares of
Tatham Offshore's Common Stock (filed as Exhibit 4.6 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
10.1 Registration Rights Agreement dated March 21, 1994,
between Tatham Offshore and First Interstate Bank of
Texas, N.A., as Trustee (filed as Exhibit 10.17 to
DeepTech's Registration Statement on Form S-1,
Commission File No. 33-76999, and incorporated herein by
reference).
10.2 Farmout Agreement, dated October 1, 1994, between Tatham
Offshore, F-W Oil Interests, Inc., O.P.I. International,
Inc., and J. Ray McDermott Properties, Inc. (filed as
Exhibit 10.48 to DeepTech's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, Commission File
No. 0-23934 and incorporated herein by reference).
10.3 Agreement dated July 2, 1993 and amended on December 6,
1993 between Fina Oil and Chemical Company and Petrofina
Delaware, Incorporated and Tatham Offshore covering
Viosca Knoll Blocks 772/773, 774, 817, 818 and 861
(filed as Exhibit 10.20 to Tatham Offshore's
Registration Statement on Form S-1, Commission File No.
33-70120, and incorporated herein by reference).
10.4 Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Ewing Bank
Blocks 871, 914, 915, 916, 958 and 959, Ewing Bank Area,
Offshore Louisiana, dated May 13, 1988 by and among
Mobil-X, Sohio, Kerr-McGee and Kerr-McGee Federal
Limited Partnership I-1981 (filed as Exhibit 10.22 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 33-70120, and incorporated herein by
reference).
10.5 Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Viosca
Knoll Blocks 772, 773, 774, 817, 818 and 861, Viosca
Knoll Area Offshore Louisiana, dated July 7, 1993 by and
among Tatham Offshore, Petrofina Delaware, Incorporated
and Fina Oil & Chemical Company (filed as Exhibit 10.23
to Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 33-70120, and incorporated herein by
reference).
10.6 DeepTech Registration Rights Agreement by and between
Tatham Offshore and DeepTech (filed as Exhibit 10.25 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 33-70120, and incorporated herein by
reference).
10.7 Indemnification Agreement dated as of October 16, 1993
between Tatham Offshore and its directors (filed as
Exhibit 10.26 to Tatham Offshore's Registration
Statement on Form S-1, Commission File No. 33-70120, and
incorporated herein by reference).
10.8 Subordinated Convertible Note Purchase Agreement between
Tatham Offshore and DeepTech, as amended (filed as
exhibit 10.30 in Tatham Offshore's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
10.9 11 3/4% Subordinated Convertible Promissory Note made
payable by the Company to the order of the holder
thereof (filed as exhibit 10.31 in Tatham Offshore's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1994, and incorporated herein by reference).
10.10 Form of Stock Option Agreement by and between the
Optionee and Tatham Offshore (filed as exhibit 10.35 in
Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein
by reference).
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C>
10.11 Agreement for Purchase and Sale by and between Tatham
Offshore, Inc., as Seller, and Flextrend Development
Company, L.L.C., as Buyer, dated June 30, 1995 (filed as
Exhibit 6(a) to the Leviathan Gas Pipeline Partners,
L.P. Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, Commission File Number 1-11680 and
incorporated herein by reference).
10.12 Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of F-W Oil Interests,
Inc. (filed as Exhibit 10.91 to DeepTech's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.13 Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of J. Ray McDermott
Properties, Inc. (filed as Exhibit 10.92 to DeepTech's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, Commission File No. 0-23934 and
incorporated herein by reference).
10.14 Tatham Offshore, Inc. Employee Equity Incentive Plan
(filed as Exhibit 10.47 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.15 Tatham Offshore, Inc. Non-Employee Director Stock Option
Plan (filed as Exhibit 10.48 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.16 Master Drilling Agreement and Drilling Order between
Tatham Offshore, Inc. and Sedco Forex Division,
Schlumberger Technology Corporation dated September 19,
1996 (filed as Exhibit 10.50 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1996, and incorporated herein by reference).
10.17 Redemption Agreement dated February 27, 1998 between
Tatham Offshore, Inc. and Flextrend Development Company,
L.L.C. (filed as Exhibit 10.1 to Tatham Offshore's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, Commission File No. 0-22892 and
incorporated herein by reference).
10.18 Purchase Commitment Agreement dated February 27, 1998 by
and between Tatham Offshore, Inc. and Tatham Brothers,
LLC (filed as Exhibit 10.2 to Tatham Offshore's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, Commission File No. 0-22892 and
incorporated herein by reference).
10.19 Master Agreement, dated as of November 29, 1995, by and
among Highwood Partners, L.P., DeepTech International
Inc., DeepFlex Production Services, Inc., FPS III, Inc.
and Deepwater Drillers, L.L.C. (filed as Exhibit 10.1 to
DeepTech's Current Report on Form 8-K dated May 2, 1996
and incorporated herein by reference).
10.20 Limited Liability Company Agreement of Deepwater
Drillers, L.L.C. (filed as Exhibit 10.2 to DeepTech's
Current Report on Form 8-K dated May 2, 1996 and
incorporated herein by reference).
10.21 First Amended and Restated Drilling Make-Ready Agreement
dated November 29, 1996 between RIGCO North America,
L.L.C. and Schlumberger Technology Corporation (Sedco
Forex Division) (filed as Exhibit 10.1 to DeepTech's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, Commission File No. 0-23934 and
incorporated herein by reference).
10.22 Contribution and Distribution Agreement dated February
27, 1998, between DeepTech International Inc., Tatham
Offshore, Inc., DeepFlex Production Services, Inc., and
El Paso Natural Gas Company (filed as Exhibit 10.26 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 333-49859 and incorporated herein by
reference).
</TABLE>
28
<PAGE> 31
<TABLE>
<S> <C>
10.23 Standby Agreement dated February 27, 1998, between
DeepTech International Inc., Tatham Offshore, Inc.,
Thomas P. Tatham, Tatham Brothers, LLC, and El Paso
Natural Gas Company (filed as Exhibit 10.27 to Tatham
Offshore's Registration Statement on Form S-1,
Commission File No. 333-49859 and incorporated herein by
reference).
10.24 Form of Tax Sharing Agreement among Tatham Offshore,
Inc., DeepTech International Inc. and DeepFlex
Production Services, Inc. (filed as Exhibit 10.28 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 333-49859 and incorporated herein
by reference).
10.25* First Amended and Restated Charter between RIGCO North
America, L.L.C. and Sedco Forex Division, Schlumberger
Technology Corporation dated November 29, 1996.
10.26* Second Amended and Restated Charter between RIGCO North
America, L.L.C. and Sedco Forex Division, Schlumberger
Technology Corporation dated August 14, 1997.
10.27 Credit Agreement, dated September 30, 1996 among RIGCO
North America, L.L.C., Lehman Commercial Paper, Inc., as
Advisor, Syndication Agent, Arranger, Collateral and
Documentation Agent and Administrative Agent, and the
banks and other financial institutions from time to time
party thereto (filed as Exhibit 10.3 to DeepTech's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, Commission File Number 0-23934 and
incorporated herein by reference).
10.28* Global Amendment and Assignment and Acceptance dated
October 9, 1996 to the Credit Agreement among RIGCO
North America, L.L.C., Lehman Commercial Paper, Inc., as
Advisor, Syndication Agent and Arranger, Hibernia
National Bank, as Collateral and Documentation Agent and
BHF-Bank Aktrengesellschaft, as Administrative Agent.
10.29 Second Amendment dated as of April 23, 1997 to the
Credit Agreement among RIGCO North America, L.L.C.,
Lehman Commercial Paper, Inc., as Advisor, Syndication
Agent and Arranger, Hibernia National Bank, as
Collateral and Documentation Agent and BHF-Bank
Aktiengesellschaft, as Administrative Agent (filed as
Exhibit 10.40 to DeepTech's Annual Report on Form 10-K/A
for the fiscal year ended June 30, 1997 Commission File
No. 0-23934 and incorporated herein by reference).
10.30* Third Amendment dated May 13, 1997 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.31* Fourth Amendment dated July 31, 1997 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.32* Fifth Amendment dated June 16, 1998 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.33* Sixth Amendment dated September 25, 1998 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.34* Management Agreement dated June 16, 1998 between
DeepFlex Production Services, Inc. and RIGCO North
America, L.L.C.
</TABLE>
29
<PAGE> 32
<TABLE>
<S> <C>
10.35* Restructuring Agreement dated September 22, 1997,
between DeepTech and Tatham Offshore.
10.36 Amended and Restated Management Agreement, effective as
of July 1, 1992, between DeepTech and Tatham Offshore
(filed as Exhibit 10.1 to Amendment No. 4 to Tatham
Offshore's Registration Statement on Form S-1, Commission
File No. 33-70120, and incorporated herein by
reference.)
10.37 First Amendment to Amended and Restated Management
Agreement, dated as of January 1, 1995, between DeepTech
and Tatham Offshore (filed as Exhibit 10.71 to
DeepTech's Registration Statement on Form S-1, Commission
File No. 33-88688, and incorporated herein by reference).
10.38 Fourth Amendment to First Amended and Restated Management
Agreement dated as of May 1, 1997 between DeepTech and
Tatham Offshore (filed as Exhibit 10.6 to DeepTech's
Annual Report on Form 10-K/A for the fiscal year ended
June 30, 1997, Commission File No. 0-23934, and
incorporated herein by reference).
10.39 Letter Agreement dated March 22, 1995 between Tatham
Offshore and Ewing Bank Gathering Company, L.L.C.
amending the Gathering Agreement dated July 1, 1992
(filed as Exhibit 10.44 to DeepTech's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.40 Gas Purchase Agreement dated July 26, 1993 between
Offshore Marketing and Tatham Offshore (filed as Exhibit
10.17 to Tatham Offshore's Registration Statement on
Form S-1, Commission File No. 33-70120, and incorporated
herein by reference).
10.41 Condensate Purchase Agreement dated July 26, 1993
between Offshore Marketing and Tatham Offshore (filed
as Exhibit 10.18 to Tatham Offshore's Registration
Statement on Form S-1, Commission File No. 33-70120, and
incorporated herein by reference).
10.42 Credit Agreement, dated as of February 16, 1996 among
DeepFlex Production Services, Inc., Citicorp USA, Inc.,
as Administrative Agent, and the several lenders from
time to time parties thereto (filed as Exhibit 10.3 to
DeepTech's Current Report on Form 8-K dated May 2, 1996
and incorporated herein by reference).
10.43 Fourth Amendment to Management Agreement Between
DeepTech International Inc. and DeepFlex Production
Services, Inc. dated as of May 1, 1997 (filed as Exhibit
10.38 to DeepTech's Annual Report on Form 10-K/A for the
fiscal year ended June 30, 1997, Commission File No.
0-23934 and incorporated herein by reference).
10.44 First Amendment to Management Agreement between
RIGCO North America, L.L.C. and DeepTech dated as of May
1, 1997 (filed as Exhibit 10.39 to DeepTech's Annual
Report on Form 10-K/A for the fiscal year ended June 30,
1997, Commission File No. 0-23934 and incorporated
herein by reference).
21.1 * List of Subsidiaries of Tatham Offshore, Inc.
23.1 * Consent of Independent Accountants,
PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on the signature pages on
this Annual Report on Form 10-K).
</TABLE>
- --------------------------
* Filed herewith
(b) Reports on Form 8-K.
None.
30
<PAGE> 33
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Thomas P. Tatham
and Dennis A. Kunetka and each of them, any one of whom may act without the
joinder of the others, as his or her attorney-in-fact to sign on his or her
behalf and in the capacity stated below and to file all amendments to this
Annual Report, which amendment or amendments may make such changes and additions
thereto as such attorney-in-fact may deem necessary or appropriate.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TATHAM OFFSHORE, INC.
(Registrant)
By: /s/ THOMAS P. TATHAM
-------------------------------------------------
Thomas P. Tatham
Chairman of the Board and Chief Executive Officer
September 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date(s) indicated.
/s/ THOMAS P. TATHAM /s/ KENNETH E. BEENEY
- ------------------------------------------- ----------------------------------
Thomas P. Tatham, Chairman of the Board Kenneth E. Beeney, Director
and Chief Executive Officer September 28, 1998
September 28, 1998
/s/ DENNIS A. KUNETKA /s/ JONATHAN D. POLLOCK
- ------------------------------------------- ----------------------------------
Dennis A. Kunetka, Chief Financial Officer, Jonathan D. Pollock, Director
Senior Vice President and Secretary September 28, 1998
(Principal Accounting Officer)
September 28, 1998
/s/ CLYDE E. NATH /s/ DIANA J. WALTERs
- ------------------------------------------- ----------------------------------
Clyde E. Nath, Director Diana J. Walters, Director
September 28, 1998 September 28, 1998
/s/ PHILLIP G. CLARKE /s/ ROGER B. VINCENT, SR.
- ------------------------------------------- ----------------------------------
Phillip G. Clarke, Director Roger B. Vincent, Sr., Director
September 28, 1998 September 28, 1998
/s/ JAMES G. NIVEN
- -------------------------------------------
James G. Niven, Director
September 28, 1998
31
<PAGE> 34
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................................... F-2
Consolidated Balance Sheet as of June 30, 1998 and 1997................................... F-3
Consolidated Statement of Operations for the Years Ended
June 30, 1998, 1997 and 1996......................................................... F-4
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1998, 1997 and 1996......................................................... F-5
Consolidated Statement of Stockholders' Equity for the Years
Ended June 30, 1998, 1997 and 1996................................................... F-6
Notes to Consolidated Financial Statements................................................ F-7
</TABLE>
F-1
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Tatham Offshore, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Tatham
Offshore, Inc. and its subsidiaries at June 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
September 28, 1998
F-2
<PAGE> 36
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30,
------------------------------
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,689 $ 7,887
Accounts receivable 2,957 201
Receivable from affiliates 514 1,350
Prepaid expenses 167 --
------------ ------------
Total current assets 6,327 9,438
------------ ------------
Property and equipment:
Semisubmersible drilling rigs 135,754 --
Oil and gas properties, at cost, using successful efforts method 26,762 81,081
------------ ------------
162,516 81,081
Less - accumulated depreciation, depletion, amortization and impairment 27,532 50,329
------------ ------------
Property and equipment, net 134,984 30,752
------------ ------------
Deferred costs 11,529 1,317
Debt issue costs, net 578 --
------------ ------------
Total assets $ 153,418 $ 41,507
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 3,812 $ 1,385
Accounts payable to affiliates 11,374 155
Long term debt currently payable 59,156 --
------------ ------------
Total current liabilities 74,342 1,540
Long-term debt to affiliate -- 60,000
Other noncurrent liabilities 3,416 7,663
------------ ------------
77,758 69,203
------------ ------------
Minority interests in consolidated subsidiary 250 --
------------ ------------
Commitments and contingencies (Note 9)
Stockholders' equity (deficit) (Note 6):
Preferred stock, $0.01 par value, 110,000,000 shares authorized as of June
30, 1998 and 1997, 17,960,732 and 24,343,931 shares issued and
outstanding at June 30, 1998
and 1997, respectively 180 243
Common stock, $0.01 par value, 250,000,000 shares authorized
as of June 30, 1998 and 1997, respectively, 30,001,026 and
2,735,573 shares issued and outstanding as of June 30, 1998
and 1997, respectively 300 274
Additional paid-in capital 192,179 84,225
Accumulated deficit (117,249) (112,438)
------------ ------------
75,410 (27,696)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 153,418 $ 41,507
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE> 37
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenue:
Oil and gas sales to affiliates $ 10,764 $ 20,543 $ 15,904
Oil and gas sales 104 180 166
Drilling services 672 -- --
------------ ------------ ------------
11,540 20,723 16,070
------------ ------------ ------------
Costs and expenses:
Production and operating expenses 5,238 8,465 13,203
Drilling operating expenses 428 -- --
Exploration expenses 149 542 637
Depreciation, depletion and amortization 3,047 5,364 1,758
Impairment, abandonment and other -- 41,674 8,000
Management fee 4,375 3,279 4,436
General and administrative expenses 1,371 1,567 1,839
------------ ------------ ------------
14,608 60,891 29,873
------------ ------------ ------------
Operating loss (3,068) (40,168) (13,803)
Interest income 223 571 113
Gain on sale of oil and gas properties -- -- 22,641
Interest and other financing costs (165) -- (255)
Interest expense - affiliates (1,801) (8,374) (7,906)
------------ ------------ ------------
Net (loss) income $ (4,811) $ (47,971) $ 790
============ ============ ============
Net (loss) income available to common shareholders $ (8,581) $ (51,891) $ 509
============ ============ ============
Weighted average number of shares outstanding (Note 3) 17,300 2,665 2,509
============ ============ ============
Basic net (loss) income per common share (Note 3) $ (0.50) $ (19.47) $ 0.20
============ ============ ============
Diluted net (loss) income per common share (Note 3) $ (0.50) $ (19.47) $ 0.09
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE> 38
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (4,811) $ (47,971) $ 790
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 3,047 5,364 1,758
Impairment, abandonment and other -- 41,674 8,000
Amortization of debt issue costs 39 -- --
Costs and expenses settled by issuance of common stock 389 -- --
Gain on sale of oil and gas properties -- -- (22,641)
Noncash interest expense related to conversion of debt into
common stock 1,709 -- --
Other -- 2,377 1,889
Changes in operating working capital (net of effect of conveyance):
(Increase) decrease in accounts receivable (668) 518 2,743
Decrease (increase) in receivable from affiliates 837 (382) 303
(Increase) decrease in prepaid expenses (116) 29 175
Increase (decrease) in accounts payable and accrued liabilities (3,369) (3,221) (7,809)
Increase (decrease) in accounts payable to affiliates 4,819 (2,946) 7,208
------------ ------------ ------------
Net cash provided by (used in) operating activities 1,876 (4,558) (7,584)
------------ ------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (352) (2,923) (9,143)
Deferred costs (10,212) (1,317) --
Cash received from conveyance of DeepFlex to Tatham Offshore
(Notes 2 and 10) 3,580 -- --
Proceeds from deferred income related to the Assigned Properties -- -- 15,000
------------ ------------ ------------
Net cash (used in) provided by investing activities (6,984) (4,240) 5,857
------------ ------------ ------------
Cash flows from financing activities:
Repayment of notes payable (250) -- (10,468)
Proceeds from notes payable to affiliate -- -- 8,000
Repayment of notes payable to affiliate -- (1,734) (8,000)
Proceeds from the issuance of common stock related to the
exercise of Exchange Warrants 2,656 -- --
Redemption of Mandatory Redeemable Preferred Stock (2,496) -- --
Proceeds of offering of Warrants, net of underwriting fees,
commissions and offering costs -- -- 11,291
Proceeds from issuance of Series A Preferred Stock -- 12,242 1,804
Proceeds from issuance of Series B Preferred Stock -- 74 --
Proceeds from issuance of Series C Preferred Stock -- 1,339 --
------------ ------------ ------------
Net cash (used in) provided by financing activities (90) 11,921 2,627
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (5,198) 3,123 900
Cash and cash equivalents at beginning of year 7,887 4,764 3,864
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,689 $ 7,887 $ 4,764
============ ============ ============
</TABLE>
Supplemental disclosures to the statement of cash flows - see Note 10.
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE> 39
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Warrants
outstanding
to purchase shares
Preferred Stock Common Stock of Convertible
---------------------- ---------------------- Exchangeable Additional
Number of Number of Preferred paid-in Accumulated
Shares Par value Shares Par value Stock capital deficit Total
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 -- $ -- 25,000 $ 250 $ -- $ 44,987 $ (65,257) $ (20,020)
Offering of
Warrants, net -- -- -- -- 11,291 -- -- 11,291
Issuance of Senior
Preferred Stock 8 -- -- -- -- 7,500 -- 7,500
Issuance of Series
A Preferred Stock 18,717 187 -- -- (8,408) 26,939 -- 18,718
Issuance of common
stock -- -- 500 5 -- 578 -- 583
Net income for the
year ended
June 30, 1996 -- -- -- -- -- -- 790 790
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, June 30, 1996 18,725 187 25,500 255 2,883 80,004 (64,467) 18,862
Issuance of Series
B Preferred Stock 74 1 -- -- (34) 107 -- 74
Issuance of Series
C Preferred Stock 1,338 13 -- -- (602) 1,928 -- 1,339
Conversion of
Warrants into
Mandatory Redeemable
Preferred Stock 4,991 50 -- -- (2,247) 2,197 -- --
Conversion of
Series A Preferred
Stock into Common Stock (784) (8) 1,856 19 -- (11) -- --
Net loss for the
year ended June
30, 1997 -- -- -- -- -- -- (47,971) (47,971)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, June 30, 1997 24,344 243 27,356 274 -- 84,225 (112,438) (27,696)
Reverse stock split
(Note 3) -- -- (24,620) (246) -- 246 -- --
Conversion of debt
into common stock -- -- 26,667 266 -- 61,443 -- 61,709
Contribution by
DeepTech of all of the
outstanding capital
stock of DeepFlex
(Notes 2 and 10) -- -- -- -- -- 59,279 -- 59,279
Conveyance of all
of the outstanding
capital stock of Tatham
Development to DeepTech
(Notes 2 and 10) -- -- -- -- -- (13,620) -- (13,620)
Issuance of common stock -- -- 90 1 -- 388 -- 389
Conversion of
Series A Preferred Stock
into common stock (375) (3) 101 1 -- 2 -- --
Conversion of
Series C Preferred
Stock into Exchange
Warrants (1,017) (10) -- -- 1,474 (1,464) -- --
Issuance of common
stock related to
the exercise of
Exchange Warrants -- -- 407 4 (1,474) 4,126 -- 2,656
Redemption of
Mandatory
Redeemable
Preferred Stock (4,991) (50) -- -- -- (2,446) -- (2,496)
Net loss for the
year ended June
30, 1998 -- -- -- -- -- -- (4,811) (4,811)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, June 30, 1998 17,961 $ 180 30,001 $ 300 $ -- $ 192,179 $(117,249) $ 75,410
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE> 40
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION:
Tatham Offshore, Inc. ("Tatham Offshore"), a Delaware corporation, is a
diversified energy company currently pursuing, through its operating
subsidiaries, 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"). As of June 30, 1998, Tatham Offshore was an approximately
94%-owned subsidiary of DeepTech International Inc. ("DeepTech"), a diversified
energy company, which, through its affiliates, was 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.
On June 25, 1998, DeepTech contributed all of the outstanding shares of capital
stock of DeepFlex Production Services, Inc. ("DeepFlex") to Tatham Offshore as
discussed in Note 2. DeepFlex, a Delaware corporation and wholly-owned
subsidiary of Tatham Offshore, was formed in January 1995 and through its
subsidiaries, focuses on the acquisition and deployment of semisubmersible
drilling rigs for contract drilling. RIGCO North America, L.L.C. ("RIGCO") and
FPS VI, Inc. ("FPS VI"), wholly-owned subsidiaries of DeepFlex, own interests in
the FPS Laffit Pincay and the FPS Bill Shoemaker, both second generation
semisubmersible drilling rigs.
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
Partners"). North Atlantic Partners 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 June 30, 1998, Tatham Offshore Canada
Limited has incurred $11,529,000 in 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 through June 24, 1998, holds
interests in the Ewing Bank Blocks 958, 959, 1002 and 1003, the Sunday Silence
prospect. See Note 2.
NOTE 2 - RECENT EVENTS:
On February 27, 1998, DeepTech entered into an Agreement and Plan of Merger (the
"Merger Agreement") with El Paso Natural Gas Company ("El Paso") and El Paso
Acquisition Company ("El Paso Acquisition"), a wholly-owned subsidiary of El
Paso, pursuant to which DeepTech would merge (the "Merger") with El Paso, or
under certain circumstances, with El Paso Acquisition. Subsequently, DeepTech,
El Paso and El Paso Acquisition executed Amendment No. 1 to the Merger Agreement
(the "Amended Merger Agreement") with El Paso Energy Corporation ("El Paso
Corporation") to reflect El Paso's reorganization of its corporate structure.
The holders of a majority of DeepTech's common stock approved the Amended Merger
Agreement on July 19, 1998. Pursuant to the Amended Merger Agreement, DeepTech
merged with El Paso Acquisition on August 14, 1998.
As a result of the Merger and related transactions, some of the assets of Tatham
Offshore and DeepTech were restructured so that DeepFlex became a wholly-owned
subsidiary of Tatham Offshore and Tatham Offshore transferred its interest in
the Sunday Silence prospect to DeepTech. Pursuant to the Redemption Agreement
(discussed below), Tatham Offshore agreed to transfer all of its remaining
assets located in the Gulf to Leviathan Gas Pipeline Partners, L.P. (the
"Partnership"), an affiliate. Further, DeepTech divested itself of its equity
ownership interest in Tatham Offshore by offering all of the shares of Tatham
Offshore common stock and Series A Preferred Stock (Note 6) held by DeepTech to
the stockholders of DeepTech in a Rights Offering (discussed below).
Following the asset restructuring, Tatham Offshore's marine services business
includes the operation of two semisubmersible drilling rigs, the FPS Bill
Shoemaker and the FPS Laffit Pincay, currently owned by DeepFlex. In addition,
Tatham Offshore will continue to pursue energy related opportunities in Atlantic
Canada, including the
F-7
<PAGE> 41
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
North Atlantic pipeline project, related gas processing facilities, a facility
for the generation of electricity and other related investments. The material
terms of the Merger and the transactions contemplated by the Amended Merger
Agreement, Redemption Agreement (discussed below) and other agreements as these
agreements relate to Tatham Offshore and its subsidiaries are as follows:
(a) As discussed in Note 1, DeepTech contributed all of the outstanding
shares of capital stock of DeepFlex to Tatham Offshore on June 25,
1998. As a result of this contribution by DeepTech, Tatham Offshore,
through DeepFlex, assumed certain indebtedness due to DeepTech (see
(b) below) and $64,406,000 of third-party and affiliate debt (Note 5).
(b) On June 25, 1998, Tatham Offshore conveyed to DeepTech all of the
outstanding shares of capital stock of Tatham Development and canceled
its reversionary interests in certain oil and gas properties (Note 4)
in payment of the indebtedness owed to DeepTech discussed in (a)
above.
(c) On August 14, 1998, Tatham Offshore transferred its remaining assets
located in the Gulf to the Partnership in consideration of the
redemption by Tatham Offshore of its Senior Preferred Stock (discussed
in Note 6) currently owned by the Partnership (the "Redemption
Agreement"). Specifically, under the terms of the Redemption Agreement
and subject to the satisfaction of certain conditions to closing, the
Partnership exchanged 7,500 shares of Senior Preferred Stock and all
related accrued and unpaid dividends due to the Partnership as of the
date of the exchange for 100% of Tatham Offshore's right, title and
interest in and to Viosca Knoll Blocks 772, 773, 774, 817, 818 and 861
(subject to an existing production payment obligation), West Delta
Block 35, Ewing Bank Blocks 871, 914, 915 and 916 and the platform
located on Ship Shoal Block 331. At the closing, Tatham Offshore paid
the Partnership $1,605,000, the amount equal to the net cash generated
from such properties from January 1, 1998 through August 14, 1998. In
addition, the Partnership assumed all abandonment and restoration
obligations associated with the platform and leases. At the closing of
the Redemption Agreement on August 14, 1998, the management fees
charged to Tatham Offshore by DeepTech were reduced by 50% effective
retroactively to January 1, 1998 and the balance of $1,405,000 owed to
DeepTech was paid. See (e) below.
(d) On July 16, 1998, the Commission declared effective Tatham Offshore's
Registration Statement on Form S-1 relating to the offering of rights
to the DeepTech stockholders to purchase DeepTech's 28,073,450 shares
of Tatham Offshore common stock and 4,670,957 shares of Tatham
Offshore's Series A Preferred Stock (the "Rights Offering"). As a
result of the Rights Offering, unaffiliated parties purchased
3,378,693 shares of common stock and 562,148 shares of Series A
Preferred Stock. Tatham Brothers Securities, LLC ("TB Securities"), an
affiliate of Mr. Thomas P. Tatham, Chairman of the Board and Chief
Executive Officer of Tatham Offshore and DeepFlex, purchased
20,768,011 shares of common stock and 3,455,440 shares of Series A
Preferred Stock which resulted in DeepTech receiving net proceeds from
the Rights Offering of $75.0 million. Under a firm underwriting
agreement, Tatham Brothers received a fee of $6.9 million as an
underwriting fee. To the extent any shares held by DeepTech remained
unsubscribed, Tatham Offshore purchased such shares and DeepTech
contributed the proceeds from such purchase to Tatham Offshore.
DeepTech no longer owns any of Tatham Offshore's capital stock as a
result of the Rights Offering.
(e) As of August 14, 1998, the closing of the Merger, DeepTech no longer
operates Tatham Offshore under its management agreement discussed in
Note 7. Tatham Offshore has hired a management team and support
personnel required to conduct its contract drilling services business
and implement its Atlantic Canada strategy.
F-8
<PAGE> 42
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
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"). All of Tatham Offshore's
subsidiaries are currently 100% owned. All significant intercompany balances and
transactions have been eliminated in consolidation. 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.
Cash and cash equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Semisubmersible drilling rigs
The cost of the semisubmersible drilling rigs is capitalized and depreciated
using the straight-line method over the drilling rigs' estimated useful lives of
25 years.
Impairment losses on long-lived assets (including the semisubmersible drilling
rigs) are recognized if the carrying amount of such assets, grouped at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows from other assets, exceeds the estimated
undiscounted future cash flows of such assets. Measurement of any impairment
loss is based on the fair value of the assets.
Capitalization of interest
Interest and other financing costs are capitalized in connection with
construction projects as part of the cost of the asset and amortized over the
related asset's estimated useful life.
Oil and gas properties
The Company accounts for its oil and gas exploration and production activities
using the successful efforts method of accounting. Under this method, costs of
successful exploratory wells, development wells and acquisitions of mineral
leasehold interests are capitalized. Production, exploratory dry hole and other
exploration costs, including geological and geophysical costs and delay rentals,
are expensed as incurred. Unproved properties are assessed periodically and any
impairment in value is recognized currently as impairment, abandonment and other
expense. Upon discovery of proved reserves, the costs of unproved properties are
transferred to proved properties.
Depreciation, depletion and amortization of the capitalized costs of producing
oil and gas properties, consisting principally of tangible and intangible costs
incurred in developing a property and costs of productive leasehold interests,
are computed on the unit-of-production method. Unit-of-production rates are
based on annual estimates of remaining proved developed reserves or proved
reserves, as appropriate, for each property. Estimated dismantlement,
restoration and abandonment costs and estimated residual salvage values are
taken into account in determining depreciation provisions. Other noncurrent
liabilities at June 30, 1998 and 1997 include $3,416,000 and $7,663,000,
respectively, of accrued dismantlement, restoration and abandonment costs.
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", effective July 1, 1996. SFAS No. 121 requires recognition of
impairment losses on long-lived assets (including proved properties, wells,
equipment and related facilities) if the carrying amount of such assets, grouped
at the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows from other assets, exceeds the estimated
undiscounted future cash flows of such assets. Measurement of any impairment
loss is based on the fair value of the assets. Prior to the adoption of SFAS No.
121, the Company recorded impairments to the extent that the net
F-9
<PAGE> 43
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
book value of oil and gas properties, on an overall basis, exceeded the
estimated undiscounted future net revenue of proved oil and gas reserves, net of
income taxes. Implementation of SFAS No. 121 did not have a material effect on
the Company's financial position or results of operations. See Note 4.
Repair and maintenance costs are charged to expense as incurred; additions,
improvements and replacements are capitalized.
Debt issue costs
Debt issue costs are capitalized and amortized over the life of the related
indebtedness. Any unamortized debt issue costs are expensed at the time the
related indebtedness is repaid or otherwise terminated.
Deferred costs
The Company capitalizes costs related to advisory, legal and other direct
project costs of pending transactions as deferred costs. At June 30, 1998 and
1997, the Company had capitalized $11,529,000 and $1,317,000, respectively, of
development costs related to its sponsorship of North Atlantic Partners'
proposal to construct a pipeline offshore eastern Canada as discussed in Note 1.
Revenue recognition
Revenue from oil and gas sales is recognized upon delivery in the period of
production. Revenue from drilling services is recognized in the period rendered.
The Company's drilling services revenues are generated from contract drilling
services related to its two semisubmersible drilling rigs.
Income taxes
The Company utilizes an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of other assets and liabilities.
Earnings per share
During the three months ended December 31, 1997, Tatham Offshore adopted 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 4 and its convertible production payment
related to 25% of the net operating cash flow from Viosca Knoll Block 817.
F-10
<PAGE> 44
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Basic net loss per share equals diluted net loss per share for the years ended
June 30, 1998 and 1997. The following is a reconciliation of the numerators and
the denominators of the basic and diluted per share computations for the year
ended June 30, 1996.
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
BASIC EPS
Net income $ 509,000 2,508,824 $ 0.20
========
EFFECT OF DILUTIVE SECURITIES
Conversion of preferred stock and related accrued dividends 281,000 6,169,449
--------- ---------
DILUTED EPS
Net income $ 790,000 8,678,273 $ 0.09
========= ========= ========
</TABLE>
Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions, including those related to oil and gas reserves and potential
environmental liabilities, that affect the reported amounts of certain assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the related reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. Management believes that its estimates are reasonable.
Other
The fair values of the financial instruments included in the Company's assets
and liabilities approximate their carrying values.
Tatham Offshore adopted SFAS No. 123, "Accounting for Stock Based Compensation",
effective July 1, 1996. While SFAS No. 123 encourages entities to adopt the fair
value method of accounting for their stock-based compensation plans, the Company
has elected to continue to utilize the intrinsic value method under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". The
adoption of SFAS No. 123 did not have a material adverse effect on the Company's
financial position or results of operations at adoption and during the years
ended June 30, 1998, 1997 and 1996.
The Financial Accounting Standards Board recently issued statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which is
effective for the Company's financial statements as of and for the year ending
June 30, 1999. This Statement requires reporting of summarized financial results
for operating segments as well as established standards for related disclosures
about products and services, geographic areas and major customers. Primary
disclosure requirements include total segment revenues, total segment profit or
loss and total segment assets. The Company has not yet completed its evaluation
of the impact of this Statement on its financial statements.
Certain amounts in prior years have been reclassified to conform to the current
year's presentation.
The Company utilizes an off-balance sheet financial instrument to manage the
interest rate associated with its borrowings. An interest rate cap is used to
lock in a maximum rate if rates rise, but enables the Company to otherwise pay
lower market rates. The cost of the interest rate cap is amortized to interest
expense over the life of the cap, and the unamortized cost is included in other
assets.
NOTE 4 - PROPERTY AND EQUIPMENT:
SEMISUBMERSIBLE DRILLING RIGS
At June 30, 1998, capitalized costs and related accumulated depreciation of
semisubmersible drilling rigs totaled $135,754,000 and $6,494,000, respectively,
and relate to the contribution by DeepTech of all of the outstanding capital
stock of DeepFlex to Tatham Offshore on June 25, 1998 (Notes 1 and 2). As a
result, through RIGCO and FPS VI, the Company owns the FPS Laffit Pincay and the
FPS Bill Shoemaker.
F-11
<PAGE> 45
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Both the FPS Laffit Pincay and the FPS Bill Shoemaker are currently operated
under management and charter agreements with Sedco Forex Division ("Sedco
Forex") of Schlumberger Technology Corporation. Sedco Forex is responsible for
all aspects of operating and marketing of the drilling rigs, subject to agreed
budgets and certain authorizations for new contracts. The agreements with Sedco
Forex provide them with a management fee and the recoupment of their actual
operating costs.
OIL AND GAS PROPERTIES
Capitalized Costs
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
(In thousands)
<S> <C> <C>
Proved properties $ 4,099 $ 5,446
Unproved properties -- 2,143
Wells, equipment and related facilities 22,663 73,492
------------ ------------
Total capitalized costs 26,762 81,081
Accumulated depreciation, depletion
amortization and impairment (21,038) (50,329)
------------ ------------
Net capitalized costs $ 5,724 $ 30,752
============ ============
</TABLE>
Costs Incurred in Oil and Gas Acquisition, Exploration and Development
Activities
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Acquisition of proved properties $ -- $ -- $ 2,373
Exploration 149 542 637
Development 353 2,923 8,799
------------ ------------ ------------
Total costs incurred $ 502 $ 3,465 $ 11,809
============ ============ ============
</TABLE>
Results of Operations for Oil and Gas Producing Activities
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Oil and gas sales $ 10,868 $ 20,723 $ 16,070
Production and operating expenses (5,238) (8,465) (13,203)
Exploration expenses (149) (542) (637)
Depreciation, depletion and amortization (4,099) (5,364) (1,758)
Impairment, abandonment and other -- (41,674) (8,000)
------------ ------------ ------------
Results of operations from oil and gas producing
activities (excluding corporate overhead,
interest costs and income tax benefits) $ 1,382 $ (35,322) $ (7,528)
============ ============ ============
</TABLE>
Sale of Properties to the Partnership
On June 30, 1995, the Partnership entered into a purchase and sale agreement
(the "Purchase and Sale Agreement") with Tatham Offshore. Pursuant to the
Purchase and Sale Agreement, the Partnership acquired, subject to certain
reversionary interests, a 75% working interest in Viosca Knoll Block 817, a 50%
working interest in Garden Banks Block 72 and a 50% working interest in Garden
Banks Block 117 (the "Assigned Properties") from Tatham Offshore for
$30,000,000. Tatham Offshore received $15,000,000 at closing and an
F-12
<PAGE> 46
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
additional $15,000,000 on August 15, 1995. The Partnership was entitled to
retain all of the revenue attributable to the Assigned Properties until it has
received net revenue equal to the Payout Amount (as defined below), whereupon
Tatham Offshore was entitled to receive a reassignment of the Assigned
Properties, subject to reduction and conditions as discussed below. Prior to
December 10, 1996, "Payout Amount" was defined as an amount equal to all costs
incurred by Flextrend Development with respect to the Assigned Properties
(including the $30,000,000 acquisition cost paid to Tatham Offshore) plus
interest thereon at a rate of 15% per annum. Effective February 1, 1996, the
Partnership entered into an agreement with Tatham Offshore regarding the
restructuring of certain transportation agreements that increased the amount
recoverable from the Payout Amount by $7,500,000 plus interest (see "Impairment,
Abandonment and Other" discussion below). During the year ended June 30, 1996,
Tatham Offshore waived its options to prepay the then-existing Payout Amount and
receive a reassignment of its working interests and recognized $22,641,000 as a
gain on the sale of oil and gas properties.
Effective December 10, 1996, the Partnership exercised its option to permanently
retain 50% of the acquired working interest in the Assigned Properties in
exchange for forgiving 50% of the then-existing Payout Amount exclusive of the
$7,500,000 plus interest added to the Payout Amount in connection with the
restructuring of certain transportation agreements discussed above. The
Partnership remained obligated to fund any further development costs
attributable to Tatham Offshore's portion of the working interests, with such
costs to be added to the Payout Amount. The Partnership's election to retain 50%
of the acquired working interest in the Assigned Properties reduced the Payout
Amount from $94,020,000 to $50,760,000. Subsequent to December 10, 1996, only
50% of the development and operating costs attributable to the Assigned
Properties were added to the Payout Amount and 50% of the net revenue from the
Assigned Properties reduce the Payout Amount. See "Impairment, Abandonment and
Other" discussion below and Note 2. As a result of the Merger and related
transactions, the reversionary interests were cancelled.
Viosca Knoll Block 817
In September 1995, Tatham Offshore reacquired an aggregate 25% working interest
in Viosca Knoll Block 817 and an approximate 12.5% working interest in the
remainder of Viosca Knoll Blocks 772/773, 774, 818 and 861 (collectively, the
"Viosca Knoll Properties") from two industry partners for a total of $16,000,000
in convertible production payments payable from 25% of the net cash flow from
the Viosca Knoll Properties so acquired. The estimated net present value of the
convertible production payments payable of $2,000,000 was recorded as oil and
gas properties on the date of acquisition. The unpaid portion of the production
payments is convertible into Tatham Offshore common stock at any time during the
first five years at $8.00 per share. At June 30, 1998, the unpaid portion of the
production payment obligation totaled $11,299,000. For the years ended June 30,
1998 and 1997, production and operating expenses include $1,236,000 and
$1,465,000, respectively, of production payments made during the year. As part
of the Redemption Agreement, this property was transferred to the Partnership
effective August 14, 1998.
Transportation and Processing Agreements
General. In December 1993, Tatham Offshore entered into a master gas dedication
arrangement with the Partnership (the "Master Dedication Agreement"). Under the
Master Dedication Agreement, Tatham Offshore dedicated all production from its
Garden Banks, Viosca Knoll, Ewing Bank and Ship Shoal leases as well as certain
adjoining areas of mutual interest to the Partnership for transportation. In
exchange, the Partnership agreed to install the pipeline facilities necessary to
transport production from the areas and certain related facilities and to
provide transportation services with respect to such production. Tatham Offshore
agreed to pay certain fees for transportation services and facilities access
provided under the Master Dedication Agreement. Pursuant to the terms of the
Purchase and Sale Agreement, the Partnership assumed all of Tatham Offshore's
obligations under the Master Dedication Agreement and certain ancillary
agreements with respect to the Assigned Properties.
Ewing Bank Gathering System. Pursuant to a gathering agreement (the "Ewing Bank
Agreement") among Tatham Offshore, DeepTech, and a subsidiary of the
Partnership, Tatham Offshore dedicated all natural gas and crude oil produced
from eight of its Ewing Bank leases for gathering and redelivery by the
Partnership and was obligated to pay a demand rate as well as a commodity charge
equal to 4% of the market price of production actually transported. Tatham
Offshore's Ewing Bank 914 #2 well commenced production in August 1993.
Production and
F-13
<PAGE> 47
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
operating expenses on the accompanying consolidated statement of operations
included demand and commodity fees of $1,493,000 and $5,090,000 for the years
ended June 30, 1997 and 1996, respectively, related to the Ewing Bank Agreement.
In March 1996, the Partnership settled all remaining unpaid demand charge
obligations under this agreement in exchange for certain consideration as
discussed below.
Ship Shoal. Tatham Offshore and the Partnership also entered into a gathering
and processing agreement (the "Ship Shoal Agreement") pursuant to which the
Partnership constructed a gathering line from Tatham Offshore's Ship Shoal Block
331 lease to interconnect with a third-party pipeline at the Partnership's
processing facilities located on its Ship Shoal Block 332 platform. Pursuant to
the terms of the Ship Shoal Agreement, and in consideration for constructing the
interconnect, refurbishing the platform and providing access to the processing
facilities, Tatham Offshore was required to pay the Partnership demand charges
and has dedicated all production from its Ship Shoal 331 lease and eight
additional surrounding leases for gathering and processing by the Partnership
for additional commodity fees. Production and operating expenses on the
accompanying consolidated statement of operations include demand and commodity
fees of $638,000 and $997,000 for the years ended June 30, 1997 and 1996,
respectively, related to the Ship Shoal Agreement. In March 1996, the
Partnership settled all remaining unpaid demand charge obligations under this
agreement in exchange for certain consideration as discussed below.
Transportation Agreements Settled. Effective February 1, 1996, Tatham Offshore
entered into an agreement with the Partnership to prepay its remaining demand
charge obligations under the Ewing Bank and Ship Shoal Agreements. Under the
agreement, Tatham Offshore's demand charge obligations relative to the Ewing
Bank Gathering System and the pipeline facilities constructed by the Partnership
for its Ship Shoal property have been prepaid in full. In exchange, Tatham
Offshore (i) issued to the Partnership 7,500 shares of Senior Preferred Stock
(as defined in Note 6) with a liquidation preference of $1,000 per share, (ii)
added the sum of $7,500,000 to the Payout Amount under the Purchase and Sale
Agreement and (iii) granted to the Partnership certain rights to use and acquire
the Ship Shoal Block 331 platform. The Partnership has the right to utilize the
Ship Shoal Block 331 platform and related facilities at a rental rate of $1.00
per annum for such period as the platform is owned by Tatham Offshore and
located on the Ship Shoal Block 331, provided such use does not interfere with
lease operations or other activities of Tatham Offshore. In addition, the
Partnership has a right of first refusal relative to a sale of the platform. The
agreement with the Partnership resulted in a reduction in demand charge payments
of $7,800,000 and $4,100,000 for the years ended June 30, 1997 and 1996,
respectively. Tatham Offshore remains obligated to pay the commodity charges
under these agreements. See "Impairment, Abandonment and Other" discussion
below. This agreement was transferred to the Partnership on August 14, 1998 as
part of the Redemption Agreement.
Impairment, Abandonment and Other
In May 1997, Tatham Offshore shut-in the Ewing Bank 914 #2 well as a result of a
downhole mechanical problem. Although Tatham Offshore was evaluating potential
workover and recompletion alternatives for this well, the Company, at June 30,
1997, reserved its remaining investment in the Ewing Bank 914 #2 well and
certain adjacent leases and accrued additional costs associated with the
abandonment of this well and the Ewing Bank 915 #4 well. In May 1998, Tatham
Offshore completed abandonment procedures on these wells.
Problems resulting from the completion of three wellbores at Ship Shoal Block
331 have resulted in only a minimal amount of production from the property and
Tatham Offshore decided not to pursue further recompletion operations. As a
result of this decision, at June 30, 1997, Tatham Offshore reserved its
remaining investment in its Ship Shoal Block 331 and accrued costs associated
with the abandonment of the platform and wells. In December 1997, Tatham
Offshore assigned its Ship Shoal Block 331 lease and related abandonment
obligations to a third party.
F-14
<PAGE> 48
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In summary, impairment, abandonment and other on the accompanying consolidated
statement of operations includes the following items related to the Ewing Bank
and Ship Shoal properties discussed above.
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Reserve investments in oil and gas properties $ -- $ 32,389 $ 8,000
Accrue abandonment costs -- 6,622 --
Expense prepaid demand charges, net -- 2,663 --
------------ ------------ ------------
$ -- $ 41,674 $ 8,000
============ ============ ============
</TABLE>
NOTE 5 - INDEBTEDNESS:
RIGCO Credit Facility
On September 30, 1996, RIGCO entered into a $65 million senior secured credit
facility with a syndicate of lenders (the "RIGCO Credit Facility"). Proceeds
from the RIGCO Credit Facility were used to acquire the FPS Bill Shoemaker, to
fund significant upgrades to the FPS Bill Shoemaker, and to retire certain other
rig related indebtedness. In April 1997, the RIGCO Credit Facility was amended
to provide for an additional $12,000,000 to fund the remaining refurbishments
and upgrades to the FPS Bill Shoemaker. The RIGCO Credit Facility was amended in
July 1997 to revise certain covenants. The RIGCO Credit Facility (i) matures on
March 31, 1999, (ii) bears interest at the prime rate plus 3% per annum (11.5%
at June 30, 1998), payable quarterly, (iii) is secured by all tangible and
intangible assets of RIGCO including the two semisubmersible drilling rigs, (iv)
requires a quarterly principal payment of excess cash flow as defined in the
credit agreement with a minimum principal amortization of $250,000 per quarter
beginning on December 31, 1996 and ending September 30, 1998 and (v) is subject
to customary conditions and covenants, including the maintenance of a minimum
level of working capital. As of June 30, 1998, amounts outstanding under the
RIGCO Credit Facility totaled $59,156,000. Debt issue costs related to the RIGCO
Credit Facility of $4,400,000 were capitalized and are being amortized over the
two-year life of the credit facility. Interest incurred and amortization of debt
issue costs related to the RIGCO Credit Facility totaled $151,000 for the period
from June 25, 1998 through June 30, 1998. In connection with providing the RIGCO
Credit Facility, lending syndicate members were issued warrants to purchase an
aggregate of 5% of RIGCO's outstanding equity. Management believes it will be
able to refinance the Credit Facility upon its maturity.
As required by the RIGCO Credit Facility, RIGCO purchased an interest rate cap
from a financial institution which established a maximum rate of 11.74% per
annum on $36.5 million of outstanding principal for the remaining term of the
credit facility.
Long-term debt - affiliates
As of June 30, 1997, Tatham Offshore had $60,000,000 aggregate principal amount
of Subordinated Convertible Promissory Notes (the "Subordinated Notes")
outstanding, all of which were held by DeepTech. Interest expense related to the
Subordinated Notes totaled $1,709,000 from July 1, 1997 through September 18,
1997, the date on which the DeepTech Board of Directors approved entering into
an option agreement to restructure the Subordinated Notes (the "Restructuring
Agreement"). Pursuant to the Restructuring Agreement, DeepTech forgave the
scheduled interest payments due in September and December 1997 under the
Subordinated Notes and on December 17, 1997, converted the Subordinated Notes
into 26,666,667 shares of Tatham Offshore common stock at a conversion rate of
$2.25 per share, the average closing price of Tatham Offshore common stock for
the ten trading days immediately preceding the exercise of the option. As a
result of the conversion of the Subordinated Notes, Tatham Offshore eliminated
all of its then existing outstanding debt.
The Subordinated Notes bore interest at a rate of 11 3/4% per annum, payable
quarterly. Effective July 1, 1997, the interest rate increased to 13% per annum.
Interest expense related to this borrowing totaled $1,709,000, $7,040,000 and
$7,060,000 for the years ended June 30, 1998, 1997 and 1996, respectively.
F-15
<PAGE> 49
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other
On May 15, 1998, DeepFlex borrowed $5,000,000 from Tatham Brothers, L.L.C., an
affiliate of Mr. Tatham. Proceeds from the borrowing were used to fund certain
upgrades and routine maintenance on the FPS Laffit Pincay. This borrowing
matures on January 15, 1999, bears interest at 12% per annum, payable at
maturity and is secured by the Subordinated Promissory Note dated September 30,
1996 issued by RIGCO North America, L.L.C. payable to DeepFlex. Interest expense
totaled $10,000 for the period from June 25, 1998 through June 30, 1998.
(See Note 11)
Interest expense related to other third party debt totaled $256,000 for the year
ended June 30, 1996.
NOTE 6 - STOCKHOLDERS' EQUITY:
The following table summarizes Tatham Offshore's outstanding equity:
<TABLE>
<CAPTION>
Dividends In Arrears
Shares Outstanding at June 30, June 30, Conversion/
------------------------------ Liquidation Dividend ----------------------- Exchange
Equity 1998 1997 Preference Rate 1998 1997 Features
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Preferred Stock (a) 7,500 7,500 $1,000 per share 9% $1,631,000(a) $ 956,000 (a) (d)
Series A Preferred
Stock (b) 17,557,648(h) 17,932,513 $1.50 per share 12% 6,321,000 3,228,000 (e)(f)
Series B Preferred Stock 74,379 74,379 $1.00 per share 8% 10,000 4,000 (e)(f)
Series C Preferred Stock 321,205 1,338,162(c) $0.50 per share 4% 10,000 13,000 (e)(f)
Mandatory Redeemable
Preferred Stock -- 4,991,377(c) $0.50 per share -- -- -- (g)
Common Stock 30,001,026(h) 27,355,727 N/A -- -- -- --
</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) DeepFlex held 4,670,957 shares of the outstanding Series A Preferred Stock
at June 30, 1997. In March 1998, DeepFlex conveyed its 4,670,957 shares of
Series A Preferred Stock to DeepTech. See Note 2.
(c) DeepFlex held 1,016,957 and 4,312,086 shares of the outstanding Series C
Preferred Stock and Mandatory Redeemable Preferred Stock, respectively, at
June 30, 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 $2,656,000 in proceeds to Tatham
Offshore. Tatham Offshore used $2,496,000 of proceeds to redeem all of its
4,991,377 shares of Mandatory Redeemable Preferred Stock outstanding at
$0.50 per share as required under the terms of the Mandatory Redeemable
Preferred Stock issue. DeepFlex conveyed the 406,783 shares of common stock
to DeepTech in March 1998. See Note 2.
(d) 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.
(e) 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 unpaid
dividends into shares of Tatham Offshore common stock at $6.53 per share.
(f) Redeemable at the option of Tatham Offshore on or after July 1, 1997.
(g) Tatham Offshore was required to redeem at a redemption price of $0.50 per
share if Tatham Offshore redeems any shares of Series A, B or C Preferred
Stock. Tatham Offshore was also required to redeem at a redemption price of
$0.50 per share from net proceeds from the sale of common stock pursuant to
the exercise of Exchange Warrants, subject to certain conditions. See (c)
above.
(h) In connection with the Rights Offering, Tatham Offshore purchased all of
the shares of Common Stock and Series A Preferred Stock that were not
acquired by the holders of Rights or TB Securities in the Rights Offering,
3,926,746 and 653,365, respectively, and the proceeds from such purchase by
Tatham Offshore were contributed by DeepTech to Tatham Offshore.
Common Stock
Effective February 1996, an amendment to Tatham Offshore's Restated Certificate
of Incorporation increased the number of authorized shares of Tatham Offshore's
common stock, $0.01 par value per share, from 100,000,000 shares to 250,000,000
shares and the number of shares of preferred stock, $0.01 par value per share,
from 10,000,000 shares to 110,000,000 shares. This increase in authorized
capital was necessary in order for Tatham Offshore to effect the rights
offering, as discussed below.
F-16
<PAGE> 50
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During the year ended June 30, 1998, Tatham Offshore issued 90,000 shares of
common stock to a consultant for services rendered in connection with the
Company's activities in Atlantic Canada. During the year ended June 30, 1996,
Tatham Offshore issued 245,182 shares of common stock to certain management
personnel of DeepTech in connection with DeepTech's deferred compensation
arrangement discussed in Note 7.
Preferred Stock
Tatham Offshore filed a registration statement (the "Offering") with the
Securities and Exchange Commission (the "Commission") which was declared
effective on December 26, 1995, relating to the granting to all holders of
Tatham Offshore's common stock, on the record date, December 26, 1995, rights
(the "Rights") to purchase up to 25,120,948 warrants (the "Warrants"). Each
Right entitled the holder to subscribe to purchase one Warrant at the purchase
price of $.50 per Warrant. In February 1996, Tatham Offshore issued 25,120,948
Warrants and received $12,560,000 in gross proceeds ($11,291,000 in net
proceeds) pursuant to the exercise of Rights. A total of 20,129,571 Warrants
were exercised to purchase 18,717,030 shares, 74,379 shares and 1,338,162 shares
of Series A, B and C Preferred Stock, respectively, at $1.00 per share which
generated an additional $15,459,000 in proceeds to Tatham Offshore. The
remaining 4,991,377 Warrants outstanding on January 1, 1997 were automatically
converted into an equal number of shares of Mandatory Redeemable Preferred
Stock.
In February 1998, DeepFlex exchanged its 1,016,957 shares of Tatham Offshore
Series C Preferred Stock for 406,783 Exchange Warrants and immediately converted
the Exchange Warrants into 406,783 shares of common stock at $6.53 per share for
a total of $2,656,000 in proceeds to Tatham Offshore. Tatham Offshore used
$2,496,000 of proceeds to redeem all of its 4,991,377 shares of Mandatory
Redeemable Preferred Stock outstanding at $0.50 per share as required under the
terms of the Mandatory Redeemable Preferred Stock issue. DeepFlex conveyed the
406,783 shares of common stock to DeepTech in March 1998.
Stock Compensation Plans
On August 28, 1995, Tatham Offshore filed a registration statement on Form S-8
with the Commission for the registration of 400,000 shares of common stock
authorized for issuance upon exercise of options under Tatham Offshore's Equity
Incentive Plan (the "Incentive Plan") and 100,000 shares of common stock
authorized for issuance upon exercise of options under Tatham Offshore's
Non-Employee Director Stock Option Plan (the "Director Option Plan" and
collectively with the Incentive Plan, the "Option Plans"). The Incentive Plan,
as amended, provides Tatham Offshore the ability to issue a variety of awards
pursuant to the plan including stock options, restricted stock, stock
appreciation rights and stock value equivalent awards. In January 1998, Tatham
Offshore issued 100,000 options under the Incentive Plan. In June 1996, Tatham
Offshore issued 25,514 shares of common stock to outside directors pursuant to
the exercise of options granted under the Director Option Plan in settlement of
directors' fees and meeting attendance fees for the year ended June 30, 1996.
During the years ended June 30, 1998, 1997 and 1996, Tatham Offshore issued
15,000 options, 9,000 options and 13,000 options, respectively, pursuant to the
Director Option Plan. Options outstanding under the Option Plans at June 30,
1998 totaled 136,500 of which 31,500 options were exercisable. In addition,
Tatham Offshore issued 79,000 stock appreciation rights pursuant to the
Incentive Plan during the year ended June 30, 1997.
Tatham applies APB Opinion No. 25 and related interpretations in accounting
for its option plans, under which no compensation cost has been recognized.
Had compensation costs for the Option Plan been determined consistent with the
methodology prescribed under SFAS No. 123, the Company's net income (loss) and
earnings (losses) per share would have been adjusted to the pro forma amounts
presented below:
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C> <C>
Net (loss) income As presented $ (8,581) $ (51,891) $ 509
Pro forma (8,918) (51,891) 509
(Losses) earnings per share As presented $ (0.50) $ (19.47) $ .020
Pro forma (0.52) (19.47) .020
</TABLE>
The following table summarizes the Option Plans:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------
1998 1997 1996
------------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Price
Outstanding at beginning of year 24,500 $ 13.90 15,500 $ 17.30 11,500 $ 92.40
Granted 115,000 3.00 9,000 8.10 38,514 11.20
Exercised -- -- -- -- (25,514) 13.70
Canceled (3,000) 13.90 -- -- (9,000) 100.00
------- -------- ------ ------- ------ --------
Outstanding at end of year 136,500 4.72 24,500 13.90 15,500 17.30
======= ======== ====== ======= ======= ========
Options exercisable at year at
June 30, 31,500 8.72 9,500 23.10 5,500 34.00
======= ======== ====== ======= ======= ========
Weighted average fair value of
options granted during the year $ 2.93 $ 7.90 $ 6.70
======== ======= ========
</TABLE>
The fair value at each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------
1998 1997 1996
<S> <C> <C> <C>
Volatility 132% 129% 112%
Risk-free interest rate 5.5% 6.5% 5.8%
Dividend yield 0% 0% 0%
Expected life 10 years 10 years 10 years
</TABLE>
In June 1996, the Company issued 255,138 shares of common stock to outside
directors pursuant to the exercise of options granted under the Director Option
Plan in settlement of directors' fees and meeting attendance fees for the year
ended June 30, 1996. In addition, Tatham Offshore issued 790,000 stock
appreciation rights pursuant to the Incentive Plan during the year ended June
30, 1997.
NOTE 7 - RELATED PARTY TRANSACTIONS:
DeepTech
The management agreement between Tatham Offshore and DeepTech provides for an
annual management fee which was intended to reimburse DeepTech for the estimated
costs of its operational, financial, accounting and administrative services
provided to the Company. Effective November 1, 1995, July 1, 1996 and July 1,
1997, the Company amended its management agreement with DeepTech to provide for
an annual management fee of 27.4%, 24% and 26%, respectively, of DeepTech's
overhead. During the years ended June 30, 1998, 1997 and 1996, DeepTech charged
Tatham Offshore $4,375,000, $3,279,000 and $4,436,000, respectively, under the
management agreement. The Company believes these amounts are representative of
what costs would have been on a stand alone basis for these services. The
management agreement was terminated upon the closing of the Merger. See Note 2.
DeepTech also entered into a management agreement with DeepFlex which was
intended to reimburse DeepTech for the estimated costs of its operational,
financial, accounting and administrative services. The management fee was
intended to reimburse DeepTech for the estimated costs of services provided to
DeepFlex. Effective July 1, 1996, the management agreement was amended to
provide for an annual management fee of 18% of DeepTech's unreimbursed overhead.
For the years ended June 30, 1998 and 1997, DeepFlex incurred $3,029,000 and
$2,458,000, respectively, under this management agreement. The Company believes
these amounts are representative of what costs would have been on a stand-alone
basis for these services. The management agreement was terminated upon the
closing of the Merger.
F-17
<PAGE> 51
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In October 1995, DeepFlex entered into a bridge loan agreement (the "Bridge
Loan") with Tatham Offshore whereby DeepFlex agreed to make $12,500,000 of
interim bridge financing available to fund a portion of the Company's working
capital and capital requirements. Tatham Offshore borrowed a total of $8,000,000
under the Bridge Loan which accrued interest at a rate of 15% per annum.
Interest expense related to borrowings under the Bridge Loan totaled $210,000
for the year ended June 30, 1996. On January 31, 1996, DeepFlex subscribed for
the purchase of 10,000,000 Warrants, pursuant to the exercise of Rights which
had been assigned from DeepTech, at a cost of $5,000,000, which was paid through
the forgiveness of $5,000,000 of principal and interest due under the Bridge
Loan. In February 1996, Tatham Offshore used Offering proceeds to repay in full
the remaining principal and accrued interest outstanding under the Bridge Loan.
On June 30, 1996, DeepFlex exercised 4,670,957 of its 10,000,000 Warrants to
purchase an equal number of shares of Series A Preferred Stock at $1.00 per
share by offsetting the then outstanding payable to DeepTech for costs allocated
under the management agreement by $4,670,957.
On November 1, 1995, Tatham Offshore converted $1,734,000 of its accounts
payable to an affiliate into an unsecured promissory note payable to DeepTech
(the "Affiliate Note"). The Affiliate Note bore interest at 14.5% per annum,
payable quarterly, and the principal was payable to DeepTech in six monthly
installments which began on January 31, 1997. Interest expense related to the
Affiliate Note totaled $202,000 and $170,000 for the years ended June 30, 1997
and 1996, respectively.
Under a convertible production payment, the holders of such production payments
are entitled in the aggregate to 25% of the proceeds from the production
attributable to a 25% working interest in Viosca Knoll Block 817 (after
deducting all leasehold operating expenses, including platform access and
processing fees) until the holders have received the aggregate sum of $16.0
million. At the option of the holders, the unpaid portion of the production
payment may be converted into Tatham Offshore common stock at any time until
September 2000. In March 1998, Mr. Tatham acquired one-half of this convertible
production payment. At June 30, 1998, the unpaid portion of the convertible
production payment obligation totaled $11.3 million.
Effective July 1, 1995, DeepTech established three deferred compensation
arrangements: (i) a mandatory arrangement for DeepTech's Chief Executive Officer
(the "DeepTech CEO"), (ii) a mandatory arrangement for certain senior executives
of DeepTech and (iii) an optional arrangement for all other employees of
DeepTech. Pursuant to the terms of each arrangement, participants deferred all
or a portion of their cash salary until no later than July 1, 1996. During each
month in the deferral period, each participant was entitled to receive options
to purchase a number of shares of either DeepTech or Tatham Offshore or
Preference Units of the Partnership equal to a percentage (ranging from 100% to
300% of their cash salary) divided by the lesser of the closing price on June
30, 1995 (DeepTech - $4.00, Tatham Offshore - $3.50 and the Partnership -
$11.875) or the average closing price for the applicable month. Options were
exercisable only by cancellation of the participant's cash salary. Each
participant earned credits equal to a multiple, based on the option elected, of
their deferred cash salary. Any participant except the DeepTech CEO could have
received all or a portion of their salary in cash if they did not elect to
exercise any options. To the extent that Tatham Offshore issued its common stock
pursuant to the exercise of options granted under these arrangements, it
received an offsetting credit against its management fees payable to DeepTech.
In November 1995, DeepTech terminated the deferred compensation arrangement for
all but three employees of DeepTech. In November 1995 and June 1996, Tatham
Offshore issued 12,095 shares and 12,423 shares, respectively, of its common
stock in connection with the mandatory arrangement for certain senior executives
of DeepTech and received a $360,000 credit against its management fees payable
to DeepTech.
The Partnership
Tatham Offshore Canada Limited ("Tatham Offshore Canada"), a wholly-owned
subsidiary of Tatham Offshore, is the Canadian representative of North Atlantic
Pipeline Partners, L.P. ("North Atlantic Partners"), the sponsor of a proposal
to build an approximately 2,500 kilometer pipeline from offshore Newfoundland
and Nova Scotia to the eastern seaboard of the United States. The Partnership
has entered into a letter agreement with Tatham Offshore Canada regarding
participation in the North Atlantic pipeline project. Under such agreement,
Tatham Offshore Canada is responsible for the development costs of the project.
Such agreement contains certain termination rights, contemplates the
negotiation, execution and delivery of definitive agreements and provides that
the Partnership
F-18
<PAGE> 52
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
would hold a pro rata partnership interest of up to 20% in North Atlantic
Partners. The Partnership has no financial commitment to the project until and
unless an application is approved by the appropriate Canadian and United States
regulatory authorities. In the event the Partnership was to terminate its
participation in North Atlantic Partners after the date North Atlantic Partners
receives regulatory approval of an application but prior to the in-service date
of the first phase of the North Atlantic pipeline, the Partnership, under
certain conditions, would be obligated to pay Tatham Offshore Canada an amount
equal to 150% of the Partnership's pro rata share of the "success fee" earned by
Tatham Offshore Canada related to the first phase of construction. For a period
of one year after the effective date of the Merger discussed in Note 2, the
Partnership shall have the right to terminate this agreement without incurring
the liability for the above-mentioned "success fee". Tatham Offshore Canada is
seeking additional participants on the same basis as that offered to the
Partnership.
The Partnership charged Tatham Offshore $1,827,000, $1,995,000 and $1,722,000
for the years ended June 30, 1998, 1997 and 1996, respectively, for commodity
and platform access fees associated with the Viosca Knoll 817 lease in
accordance with certain agreements between the parties. Commodity charges are
based on the volume of oil and gas transported or processed.
Other
During the years ended June 30, 1998, 1997 and 1996, Tatham Offshore sold 99% of
its production to Offshore Gas Marketing, Inc. ("Offshore Marketing"), an
80%-owned subsidiary of DeepTech. Through October 1995, the sales prices were
based upon contractually agreed-upon posted prices. In November 1995, Tatham
Offshore renegotiated its agreement with Offshore Marketing to provide Offshore
Marketing fees equal to 2% of the sales value of crude oil and condensate and
$0.015 per dekatherm of natural gas for selling the Company's production.
Dover Technology, Inc. ("Dover"), a 50%-owned subsidiary of DeepTech, charged
Tatham Offshore $160,000 and $601,000 for the years ended June 30, 1997 and
1996, respectively, for services related to the acquisition, development,
exploration or evaluation of oil and gas properties. Tatham Offshore's payable
to Dover for these services in the amount of $1,734,000 at November 1, 1995 was
converted into the Affiliate Note.
During the year ended June 30, 1996, the Company forgave a $90,000 advance to an
officer of DeepTech who is also a stockholder of Tatham Offshore in exchange for
consulting fees rendered by the officer/stockholder to Tatham Offshore.
The Company is a guarantor of a $5.0 million loan from NationsBank, N.A. to
Tatham Brothers, which proceeds were used to fund certain improvements to the
Rigs. The loan bears interest at the rate of Prime plus 1 1/2% per annum and is
due on January 19, 1999 or on demand. Mr. Tatham is also a co-guarantor of this
loan.
The Standby Agreement (the "Standby Agreement"), dated as of February 27,
1998, was executed in connection with the Merger and related transactions and is
by and among the Company, DeepTech, Mr. Tatham and El Paso. Pursuant to the
Standby Agreement, to the extent that any of the Company's Common Stock or
Series A Preferred Stock was not subscribed for by holders of DeepTech common
stock in the Rights Offering, Tatham Brothers committed to purchase such number
of unsubscribed shares in order for DeepTech to receive net proceeds from the
Rights Offering of not less than $75 million (the "Standby Commitment"). In
addition, Tatham Brothers had the right to purchase any shares which DeepTech
held after the Rights Offering and the satisfaction of the Standby Commitment.
Mr. Tatham unconditionally guaranteed Tatham Brothers' performance of the
Standby Commitment, which guarantee is backed by a letter of credit from
NationsBank, N.A. In consideration of Mr. Tatham's guarantee of the Standby
Commitment, under the terms of a Repayment Agreement between Mr. Tatham and
Tatham Brothers, dated February 27, 1998, (i) Tatham Brothers granted to Mr.
Tatham an option to purchase up to a one-third membership interest in Tatham
Brothers for $1,000 through the issuance of new membership units, and (ii) Mr.
Tatham had the right, but not the obligation, to lend to Tatham Brothers all
sums necessary for Tatham Brothers to fulfill its obligations under the Standby
Commitment.
Pursuant to the Purchase Commitment Agreement, dated as of February 27, 1998 by
and between Tatham Brothers and the Company, in consideration of the Standby
Commitment, the Company agreed to pay to Tatham Brothers a fee ranging from $5.8
million to $7.5 million depending upon the date of closing of the Rights
Offering. Such fee was payable by the Company in cash, or at Tatham Brothers'
election in shares of Common Stock. In connection with the Standby Commitment,
the Company has agreed to grant Tatham Brothers certain registration rights with
respect to such shares, including three demand registrations and unlimited
piggyback registration rights for five years. The terms of the Purchase
Commitment Agreement were negotiated by Tatham Brothers and the Company and were
approved by the Company's Conflict Committee and Board of Directors.
NOTE 8 - INCOME TAXES:
The Company's deferred income tax liabilities (assets) at June 30, 1998 and 1997
consist of net operating loss ("NOL") carryforwards and the tax effect of timing
differences between financial and tax reporting related to the recognition of
certain amounts as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
(in thousands)
<S> <C> <C>
Oil and gas properties $ -0- $ 702
------------ ------------
Gross deferred liability -0- 702
------------ ------------
NOL carryforwards (45,531) (38,315)
------------ ------------
Gross deferred asset (45,531) (38,315)
------------ ------------
Net deferred tax asset (45,531) (37,613)
Valuation allowances 45,531 37,613
------------ ------------
$ -- $ --
============ ============
</TABLE>
Because of the Company's cumulative losses, valuation allowances of $45,531,000
and $37,613,000 at June 30, 1998 and 1997, respectively, were provided against
the net deferred tax assets. At June 30, 1998, the Company had approximately
$133,915,000 of regular tax NOL carryforwards and approximately $132,599,000 of
alternative
F-19
<PAGE> 53
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
minimum tax NOL carryforwards. These losses begin to expire in the year 2005.
Substantial changes in a company's ownership can result in an annual limitation
on the utilization of federal income tax NOL carryforwards.
NOTE 9 - 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
minimum public float requirement increased from $1.0 million to $5.0 million.
Pursuant to an exception granted by Nasdaq, Tatham Offshore had until May 26,
1998 to meet the minimum public float requirement. Since the market value of
Tatham Offshore's public float (i) had 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 had 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. On May 27, 1998,
Nasdaq notified Tatham Offshore that the Nasdaq Listing Qualifications Panel
(the "Nasdaq Panel") had determined to continue Tatham Offshore's listing since
Tatham Offshore's public float exceeded the current requirement, and based on
the Nasdaq Panel's decision, Tatham Offshore continued to be listed on the
Nasdaq National Market.
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.
F-20
<PAGE> 54
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 10 - SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Cash paid for interest, net of
amounts capitalized $ 1,707 $ 7,249 $ 7,693
</TABLE>
Supplemental disclosures of noncash investing and financing activities
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Conversion of long-term debt to
common stock $ 60,000 $ -- $ --
Conversion of preferred stock to
common stock 540 1,129 --
Assignment of oil and gas properties and
abandonment obligations to a third party 1,200 -- --
Conveyance of Tatham Development to DeepTech (Notes 1 and 2):
Conveyance of oil and gas properties 22,079 -- --
Exchange of DeepFlex indebtedness (8,000) -- --
Decrease in paid in capital (13,620) -- --
Reduction in other current assets 116 -- --
Reduction in abandonment obligations (400) -- --
Reduction in accounts payable (175) -- --
Additions to oil and gas properties -- -- (2,000)
Increase in accounts payable and accrued liabilities -- -- 2,000
Stock subscriptions receivable -- -- (12,242)
Issuance of Series A Preferred Stock -- -- 16,913
Payable to affiliate -- -- (4,671)
</TABLE>
As discussed in Notes 1 and 2, DeepTech contributed 100% of the outstanding
capital stock of DeepFlex to Tatham Offshore on June 25, 1998. The assets and
liabilities assumed were as follows (in thousands):
<TABLE>
<S> <C>
Cash $ 3,580
Accounts receivable 2,088
Other current assets 168
Semisubmersible drilling rigs, net 129,351
Other noncurrent assets 617
Accounts payable (3,869)
RIGCO Credit Facility (59,406)
Affiliate debt (5,000)
Notes payable to DeepTech (8,000)
Minority interest liability (250)
-----------
Increase in paid in capital $ 59,279
===========
</TABLE>
F-21
<PAGE> 55
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 11 - SUBSEQUENT EVENTS:
In connection with the Merger, the Company entered into a short term financing
arrangement with Tatham Brothers to provide for funds to (i) satisfy
approximately $1.6 million of cash requirements with respect to the Redemption
Agreement with the Partnership, (ii) pay $1.4 million to DeepTech in connection
with the Management Agreement between Tatham Offshore and DeepTech, (iii) pay
approximately $6.9 million to TB Securities with respect to obligations under
the Rights Offering, (iv) fund a $7.5 million letter of credit for potential tax
liabilities, (v) refinance $5.1 million in existing loans to DeepFlex and (vi)
pay fees and expenses associated with the short term financing. Tatham Brothers
is an affiliate of Thomas P. Tatham and the parent company of TB Securities. The
short term financing bears interest at the rate of 12% per annum and is due on
January 15, 1999. It is secured by a pledge of DeepFlex of its interest in a
certain payment-in-kind Subordinated Promissory Notes issued by RIGCO North
America, L.L.C. and FPS V, Inc., both subsidiaries of the Company, which has a
current outstanding balance of approximately $70.0 million. The Company
anticipates that it will refinance the short term financing with Tatham Brothers
upon its maturity or pay off the facility with proceeds from the refinancing of
the Credit Facility.
NOTE 12 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED):
Oil and gas reserves
The following table represents the Company's net interest in estimated
quantities of developed and undeveloped reserves of crude oil, condensate and
natural gas and changes in such quantities at fiscal year end 1998, 1997 and
1996. Estimates of the Company's reserves at June 30, 1998 have been made by the
Company's reserve engineers. Estimates of the Company's reserves at June 30,
1997 and 1996 have been made by the independent engineering consulting firm,
Ryder Scott Company Petroleum Engineers. Net proved reserves are the estimated
quantities of crude oil and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are proved reserve volumes that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Proved undeveloped reserves are proved reserve volumes that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
significant expenditure is required for recompletion.
Estimates of reserve quantities are based on sound geological and engineering
principles, but, by their very nature, are still estimates that are subject to
substantial upward or downward revision as additional information regarding
producing fields and technology becomes available.
<TABLE>
<CAPTION>
Oil/Condensate Natural gas
(barrels) (MCF)
------------ ------------
(In thousands)
<S> <C> <C>
Proved reserves - June 30, 1995 5,887 34,331
Revisions of previous estimates (168) (3,902)
Purchase of reserves in place -- 17,160
Extensions, discoveries and other additions 398 8,427
Production (418) (1,035)
------------ ------------
Proved reserves -- June 30, 1996 5,699 54,981
Revisions of previous estimates (a) (5,440) (36,049)
Extensions, discoveries and other additions 36 540
Production (170) (7,180)
------------ ------------
Proved reserves -- June 30, 1997 125 12,292
Revisions of previous estimates (47) (77)
Extensions, discoveries and other additions -- --
Production (16) (4,532)
------------ ------------
Proved reserves -- June 30, 1998 62 7,683
============ ============
Proved developed reserves -- June 30, 1996 3,388 35,274
============ ============
Proved developed reserves -- June 30, 1997 125 12,292
============ ============
Proved developed reserves -- June 30, 1998 62 7,683
============ ============
</TABLE>
- ------------------
(a) The revisions of previous estimates of proved reserves from June 30, 1996
to June 30, 1997 were caused by (i) the elimination of 3.2 million barrels
of oil and 24,369 MMcf of gas as a result of the assignment of the working
interests in Ship Shoal Block 331 and (ii) the elimination of 2.1 million
barrels of oil and 3,178 MMcf of gas as a result of the abandonment of the
Ewing Bank Block 914 #2 well.
In general, estimates of economically recoverable oil and natural gas reserves
and of the future net revenue therefrom are based upon a number of variable
factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs and
future plugging and abandonment costs, all of which may vary considerably from
actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenues expected therefrom, prepared by different
engineers or by the same engineers at
F-22
<PAGE> 56
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
different sites, may vary substantially. The meaningfulness of such estimates is
highly dependent upon the assumptions upon which they are based.
Furthermore, Tatham Offshore's wells have only been producing for a short period
of time and, accordingly, estimates of future production are based on this
limited history. Estimates with respect to proved reserves that may be developed
and produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than upon actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves. A significant portion of Tatham Offshore's reserves is based
upon volumetric calculations.
Future net cash flows
The standardized measure of discounted future net cash flows relating to the
Company's proved oil and gas reserves is calculated and presented in accordance
with SFAS No. 69, "Disclosures About Oil and Gas Producing Activities."
Accordingly, future cash inflows were determined by applying year-end oil and
gas prices to the Company's estimated share of future production from proved oil
and gas reserves. The average prices utilized in the calculation of the
standardized measure of discounted future net cash flows at June 30, 1998 were
$12.28 per barrel of oil and $1.76 per MCF of gas. Future production and
development costs were computed by applying year-end costs to future years.
Future income taxes were derived by applying year-end statutory tax rates to the
estimated net future cash flows taking into consideration the Company's NOL
carryforwards. A prescribed 10% discount factor was applied to the future net
cash flows.
In the Company's opinion, this standardized measure is not a representative
measure of fair market value, and the standardized measure presented for the
Company's proved oil and gas reserves is not representative of the reserve
value. The standardized measure is intended only to assist financial statement
users in making comparisons between companies.
<TABLE>
<CAPTION>
June 30,
------------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Future cash inflows $ 14,267 $ 31,512 $ 240,358
Future production costs 9,174 16,750 74,996
Future development costs 1,546 2,096 44,624
Future income tax expenses -- -- 431
------------ ------------ ------------
Future net cash flows 3,547 12,666 120,307
Annual discount at 10% rate 138 1,623 30,313
------------ ------------ ------------
Standardized measure of discounted future
net cash flows $ 3,409 $ 11,043 $ 89,994
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------
Proved Proved
Developed Undeveloped Total
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Undiscounted estimated future net cash flows
from proved reserves before income taxes $ 3,547 $ -- $ 3,547
============ ============ ============
Present value of future net cash flows from
proved reserves before income taxes,
discounted at 10% $ 3,409 $ -- $ 3,409
============ ============ ============
</TABLE>
F-23
<PAGE> 57
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following are the principal sources of change in the standardized measure
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Beginning of year $ 11,043 $ 89,994 $ 45,006 (1)
Sales and transfers of oil and gas produced,
net of production costs (5,699) (13,771) (8,678)
Net changes in prices and production costs (3,198) (35,355) 26,798
Extensions, discoveries and improved
recovery, less related costs -- 627 3,746
Changes in estimated future development costs 502 28,959 2,587
Previously estimated development costs
incurred during the year 5 2,976 1,987
Revisions of previous quantity estimates (198) (47,259)(2) (3,198)
Purchase of reserves in place -- -- 18,200
Sales of reserves in place -- -- --
Net change in income taxes -- -- --
Accretion of discount 1,104 8,999 4,501
Changes in production rates, timing and other (150) (24,127) (955)
------------ ------------ ------------
End of year $ 3,409 $ 11,043 $ 89,994
============ ============ ============
</TABLE>
- ----------
(1) The standardized measure calculations at June 30, 1995 exclude the
Company's obligations to pay demand charges to an affiliate relative to its
Ewing Bank and Ship Shoal properties. These demand charges were prepaid in
full during the year ended June 30, 1996. See Note 4.
(2) The revisions of previous estimates of proved reserves from June 30, 1996
to June 30, 1997 were caused by (i) the elimination of 3.2 million barrels
of oil and 24,369 MMcf of gas as a result of the assignment of the working
interests in Ship Shoal Block 331 and (ii) the elimination of 2.1 million
barrels of oil and 3,178 MMcf of gas as a result of the abandonment of the
Ewing Bank Block 914 #2 well.
F-24
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Tatham Offshore
(filed as exhibit 3.1 in Tatham Offshore's Annual Report
on Form 10-K for the fiscal year ended June 30, 1994,
and incorporated herein by reference).
3.2 By-laws of Tatham Offshore (filed as exhibit 3.2 in
Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein
by reference).
3.3 Certificate of Amendment of Certificate of Incorporation
of Tatham Offshore (filed as Exhibit 3.1 to Tatham
Offshore's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, Commission File No. 0-22892 and
incorporated herein by reference).
3.4 Certificate of Amendment of Certificate of Incorporation
of Tatham Offshore (filed as Exhibit 3.2 to Tatham
Offshore's Registration Statement on Form S-1 Commission
File No. 333-49859 and incorporated herein by
reference).
4.1 Certificate of Designation Establishing the Series A
Convertible Exchangeable Preferred Stock of Tatham
Offshore (filed as Exhibit 4.1 to Tatham Offshore's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995, Commission File No. 0-22892 and
incorporated herein by reference).
4.2 Certificate of Designation Establishing the Series B
Convertible Exchangeable Preferred Stock (filed as
Exhibit 4.2 to Tatham Offshore's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995,
Commission File No. 0-22892 and incorporated herein by
reference).
4.3 Certificate of Designation Establishing the Series C
Convertible Exchangeable Preferred Stock (filed as
Exhibit 4.3 to Tatham Offshore's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995,
Commission File No. 0-22892 and incorporated herein by
reference).
4.4 Certificate of Designation Establishing the Mandatory
Redeemable Preferred Stock (filed as Exhibit 4.4 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.5 Certificate of Designation Establishing the Series B
Convertible Preferred Stock (filed as Exhibit 4.1 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, Commission File No.
0-22892 and incorporated herein by reference).
</TABLE>
<PAGE> 59
<TABLE>
<S> <C>
4.6 Warrant Agreement relating to the warrants entitling the
holder thereof to purchase shares of Convertible
Exchangeable Preferred Stock (filed as Exhibit 4.5 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.7 Exchange Warrant Agreement relating to the warrants
entitling the holder thereof to purchase shares of
Tatham Offshore's Common Stock (filed as Exhibit 4.6 to
Tatham Offshore's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
10.1 Registration Rights Agreement dated March 21, 1994,
between Tatham Offshore and First Interstate Bank of
Texas, N.A., as Trustee (filed as Exhibit 10.17 to
DeepTech's Registration Statement on Form S-1,
Commission File No. 33-76999, and incorporated herein by
reference).
10.2 Farmout Agreement, dated October 1, 1994, between Tatham
Offshore, F-W Oil Interests, Inc., O.P.I. International,
Inc., and J. Ray McDermott Properties, Inc. (filed as
Exhibit 10.48 to DeepTech's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, Commission File
No. 0-23934 and incorporated herein by reference).
10.3 Agreement dated July 2, 1993 and amended on December 6,
1993 between Fina Oil and Chemical Company and Petrofina
Delaware, Incorporated and Tatham Offshore covering
Viosca Knoll Blocks 772/773, 774, 817, 818 and 861
(filed as Exhibit 10.20 to Tatham Offshore's
Registration Statement on Form S-1, Commission File No.
33-70120, and incorporated herein by reference).
10.4 Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Ewing Bank
Blocks 871, 914, 915, 916, 958 and 959, Ewing Bank Area,
Offshore Louisiana, dated May 13, 1988 by and among
Mobil-X, Sohio, Kerr-McGee and Kerr-McGee Federal
Limited Partnership I-1981 (filed as Exhibit 10.22 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 33-70120, and incorporated herein by
reference).
10.5 Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Viosca
Knoll Blocks 772, 773, 774, 817, 818 and 861, Viosca
Knoll Area Offshore Louisiana, dated July 7, 1993 by and
among Tatham Offshore, Petrofina Delaware, Incorporated
and Fina Oil & Chemical Company (filed as Exhibit 10.23
to Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 33-70120, and incorporated herein by
reference).
10.6 DeepTech Registration Rights Agreement by and between
Tatham Offshore and DeepTech (filed as Exhibit 10.25 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 33-70120, and incorporated herein by
reference).
10.7 Indemnification Agreement dated as of October 16, 1993
between Tatham Offshore and its directors (filed as
Exhibit 10.26 to Tatham Offshore's Registration
Statement on Form S-1, Commission File No. 33-70120, and
incorporated herein by reference).
10.8 Subordinated Convertible Note Purchase Agreement between
Tatham Offshore and DeepTech, as amended (filed as
exhibit 10.30 in Tatham Offshore's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
10.9 11 3/4% Subordinated Convertible Promissory Note made
payable by the Company to the order of the holder
thereof (filed as exhibit 10.31 in Tatham Offshore's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1994, and incorporated herein by reference).
10.10 Form of Stock Option Agreement by and between the
Optionee and Tatham Offshore (filed as exhibit 10.35 in
Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein
by reference).
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
10.11 Agreement for Purchase and Sale by and between Tatham
Offshore, Inc., as Seller, and Flextrend Development
Company, L.L.C., as Buyer, dated June 30, 1995 (filed as
Exhibit 6(a) to the Leviathan Gas Pipeline Partners,
L.P. Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, Commission File Number 1-11680 and
incorporated herein by reference).
10.12 Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of F-W Oil Interests,
Inc. (filed as Exhibit 10.91 to DeepTech's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.13 Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of J. Ray McDermott
Properties, Inc. (filed as Exhibit 10.92 to DeepTech's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, Commission File No. 0-23934 and
incorporated herein by reference).
10.14 Tatham Offshore, Inc. Employee Equity Incentive Plan
(filed as Exhibit 10.47 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.15 Tatham Offshore, Inc. Non-Employee Director Stock Option
Plan (filed as Exhibit 10.48 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.16 Master Drilling Agreement and Drilling Order between
Tatham Offshore, Inc. and Sedco Forex Division,
Schlumberger Technology Corporation dated September 19,
1996 (filed as Exhibit 10.50 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1996, and incorporated herein by reference).
10.17 Redemption Agreement dated February 27, 1998 between
Tatham Offshore, Inc. and Flextrend Development Company,
L.L.C. (filed as Exhibit 10.1 to Tatham Offshore's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, Commission File No. 0-22892 and
incorporated herein by reference).
10.18 Purchase Commitment Agreement dated February 27, 1998 by
and between Tatham Offshore, Inc. and Tatham Brothers,
LLC (filed as Exhibit 10.2 to Tatham Offshore's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, Commission File No. 0-22892 and
incorporated herein by reference).
10.19 Master Agreement, dated as of November 29, 1995, by and
among Highwood Partners, L.P., DeepTech International
Inc., DeepFlex Production Services, Inc., FPS III, Inc.
and Deepwater Drillers, L.L.C. (filed as Exhibit 10.1 to
DeepTech's Current Report on Form 8-K dated May 2, 1996
and incorporated herein by reference).
10.20 Limited Liability Company Agreement of Deepwater
Drillers, L.L.C. (filed as Exhibit 10.2 to DeepTech's
Current Report on Form 8-K dated May 2, 1996 and
incorporated herein by reference).
10.21 First Amended and Restated Drilling Make-Ready Agreement
dated November 29, 1996 between RIGCO North America,
L.L.C. and Schlumberger Technology Corporation (Sedco
Forex Division) (filed as Exhibit 10.1 to DeepTech's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, Commission File No. 0-23934 and
incorporated herein by reference).
10.22 Contribution and Distribution Agreement dated February
27, 1998, between DeepTech International Inc., Tatham
Offshore, Inc., DeepFlex Production Services, Inc., and
El Paso Natural Gas Company (filed as Exhibit 10.26 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 333-49859 and incorporated herein by
reference).
10.23 Standby Agreement dated February 27, 1998, between
DeepTech International Inc., Tatham Offshore, Inc.,
Thomas P. Tatham, Tatham Brothers, LLC, and El Paso
Natural Gas Company (filed as Exhibit 10.27 to Tatham
Offshore's Registration Statement on Form S-1,
Commission File No. 333-49859 and incorporated herein by
reference).
</TABLE>
<PAGE> 61
<TABLE>
<S> <C>
10.24 Form of Tax Sharing Agreement among Tatham Offshore,
Inc., DeepTech International Inc. and DeepFlex
Production Services, Inc. (filed as Exhibit 10.28 to
Tatham Offshore's Registration Statement on Form S-1,
Commission File No. 333-49859 and incorporated herein
by reference).
10.25* First Amended and Restated Charter between RIGCO North
America, L.L.C. and Sedco Forex Division, Schlumberger
Technology Corporation dated November 29, 1996.
10.26* Second Amended and Restated Charter between RIGCO North
America, L.L.C. and Sedco Forex Division, Schlumberger
Technology Corporation dated August 14, 1997.
10.27 Credit Agreement, dated September 30, 1996 among RIGCO
North America, L.L.C., Lehman Commercial Paper, Inc., as
Advisor, Syndication Agent, Arranger, Collateral and
Documentation Agent and Administrative Agent, and the
banks and other financial institutions from time to time
party thereto (filed as Exhibit 10.3 to DeepTech's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, Commission File Number 0-23934 and
incorporated herein by reference).
10.28* Global Amendment and Assignment and Acceptance dated
October 9, 1996 to the Credit Agreement among RIGCO
North America, L.L.C., Lehman Commercial Paper, Inc., as
Advisor, Syndication Agent and Arranger, Hibernia
National Bank, as Collateral and Documentation Agent and
BHF-Bank Aktrengesellschaft, as Administrative Agent.
10.29 Second Amendment dated as of April 23, 1997 to the
Credit Agreement among RIGCO North America, L.L.C.,
Lehman Commercial Paper, Inc., as Advisor, Syndication
Agent and Arranger, Hibernia National Bank, as
Collateral and Documentation Agent and BHF-Bank
Aktiengesellschaft, as Administrative Agent (filed as
Exhibit 10.40 to DeepTech's Annual Report on Form 10-K/A
for the fiscal year ended June 30, 1997 Commission File
No. 0-23934 and incorporated herein by reference).
10.30* Third Amendment dated May 13, 1997 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.31* Fourth Amendment dated July 31, 1997 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.32* Fifth Amendment dated June 16, 1998 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.33* Sixth Amendment dated September 25, 1998 to the Credit
Agreement among RIGCO North America, L.L.C., Lehman
Commercial Paper, Inc., as Advisor, Syndication Agent
and Arranger, Hibernia National Bank, as Collateral and
Documentation Agent and BHF-Bank Aktrengesellschaft, as
Administrative Agent.
10.34* Management Agreement dated June 16, 1998 between
DeepFlex Production Services, Inc. and RIGCO North
America, L.L.C.
10.35* Restructuring Agreement dated September 22, 1997,
between DeepTech and Tatham Offshore.
10.36 Amended and Restated Management Agreement, effective as
of July 1, 1992, between DeepTech and Tatham Offshore
(filed as Exhibit 10.1 to Amendment No. 4 to Tatham
Offshore's Registration Statement on Form S-1, Commission
File No. 33-70120, and incorporated herein by
reference.)
10.37 First Amendment to Amended and Restated Management
Agreement, dated as of January 1, 1995, between DeepTech
and Tatham Offshore (filed as Exhibit 10.71 to
DeepTech's Registration Statement on Form S-1, Commission
File No. 33-88688, and incorporated herein by reference).
10.38 Fourth Amendment to First Amended and Restated Management
Agreement dated as of May 1, 1997 between DeepTech and
Tatham Offshore (filed as Exhibit 10.6 to DeepTech's
Annual Report on Form 10-K/A for the fiscal year ended
June 30, 1997, Commission File No. 0-23934, and
incorporated herein by reference).
10.39 Letter Agreement dated March 22, 1995 between Tatham
Offshore and Ewing Bank Gathering Company, L.L.C.
amending the Gathering Agreement dated July 1, 1992
(filed as Exhibit 10.44 to DeepTech's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.40 Gas Purchase Agreement dated July 26, 1993 between
Offshore Marketing and Tatham Offshore (filed as Exhibit
10.17 to Tatham Offshore's Registration Statement on
Form S-1, Commission File No. 33-70120, and incorporated
herein by reference).
10.41 Condensate Purchase Agreement dated July 26, 1993
between Offshore Marketing and Tatham Offshore (filed
as Exhibit 10.18 to Tatham Offshore's Registration
Statement on Form S-1, Commission File No. 33-70120, and
incorporated herein by reference).
10.42 Credit Agreement, dated as of February 16, 1996 among
DeepFlex Production Services, Inc., Citicorp USA, Inc.,
as Administrative Agent, and the several lenders from
time to time parties thereto (filed as Exhibit 10.3 to
DeepTech's Current Report on Form 8-K dated May 2, 1996
and incorporated herein by reference).
10.43 Fourth Amendment to Management Agreement Between
DeepTech International Inc. and DeepFlex Production
Services, Inc. dated as of May 1, 1997 (filed as Exhibit
10.38 to DeepTech's Annual Report on Form 10-K/A for the
fiscal year ended June 30, 1997, Commission File No.
0-23934 and incorporated herein by reference).
10.44 First Amendment to Management Agreement between
RIGCO North America, L.L.C. and DeepTech dated as of May
1, 1997 (filed as Exhibit 10.39 to DeepTech's Annual
Report on Form 10-K/A for the fiscal year ended June 30,
1997, Commission File No. 0-23934 and incorporated
herein by reference).
21.1 * List of Subsidiaries of Tatham Offshore, Inc.
23.1 * Consent of Independent Accountants,
PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on the signature pages on
this Annual Report on Form 10-K).
</TABLE>
- --------------------------
* Filed herewith
(b) Reports on Form 8-K.
None.
<PAGE> 1
EXHIBIT 10.25
FIRST AMENDED AND RESTATED
CHARTER
THIS FIRST AMENDED AND RESTATED CHARTER (the "Charter") is made as of the 29th
day of November, 1996, by and between:
RIGCO North America, L.L.C., a limited liability company organized under the
laws of Delaware, and having its registered office at 600 Travis, Suite 7400,
Houston, Texas 77002 (hereinafter called "Owner") of the one part; and
Schlumberger Technology Corporation (Sedco Forex Division), a company
incorporated under the laws of Texas and having its registered office at 1155
Dairy Ashford, Suite 402 Houston, Texas 77079 hereinafter called "Charterer") of
the other part.
WHEREAS:
A. Owner is the owner of a semisubmersible drilling unit known as the FPS
Laffit Pincay carrying a USA flag at time of delivery under this
Charter and subsequently changed to Bahamian flag, and having official
number 725001, together with all her engines, boilers, machinery,
masts, rigging, derricks, drawworks, blowout preventers, marine
drilling riser, lifeboats, boats, anchors, cables, chains, tackles,
cranes, fittings, tools, pumps, gear, equipment, apparel, furniture,
equipment, spare parts, top drive system and spare parts and all other
appurtenances thereto pertaining or belonging, whether on board the
Vessel or not and whether in transit or not, all as more fully
described in Schedule A (hereinafter called "Vessel");
B. Charterer and DeepFlex Production Partners L.P., an affiliate of Owner
("Deepflex Drillers"), entered into the Charter dated as of the 13th
day of October 1995 (the "Original Charter");
C. Deepflex transferred the Vessel to Owner, and Charterer and Owner wish
to amend and restate the Original Charter to, among other things,
reflect such change in ownership; and
D. Charterer desires to charter and the Owner desires to let the Vessel to
Charterer on the terms and conditions set out herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Charter, and for other valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I. - CHARTER PERIOD, DELIVERY AND REDELIVERY
1.1 Effective upon the termination date (the "Delivery Date") of that
certain Drilling Make-Ready Agreement dated October 13, 1995 (the
"Drilling Make-Ready Contract") between Charterer and DeepFlex, Owner
hereby lets and charters bareboat to Charterer, and Charterer hereby
hires bareboat, the Vessel until termination of this Charter. This
Charter shall terminate at such time as provided in Articles 1.3 and
11.1-11.5, such period being called "Charter Period" herein. References
in this Charter to "Client" shall mean Flextrend
1
<PAGE> 2
Development Company, L.L.C. ("Flextrend") or any other client under any
written contract with Charterer for drilling and or workover services
("Contract"). It is anticipated that the first Contract will be the
Flextrend Contract (hereinafter defined) between Flextrend and
Charterer commencing no earlier than 20 January 1996 and no later than
1 April 1996.
1.2 The Vessel shall be delivered to Charterer in USA waters on the
Delivery Date safely moored and secured at the shipyard/mooring
location where the Vessel was prepared for operations under the
Drilling Make-Ready Contract. Charter, with Owner's assistance and
cooperation, shall at all times obtain and maintain at Owner's cost and
risk all necessary import licenses, permits, authorizations,
certificates and the like necessary for the import and use of the
Vessel in the US Gulf of Mexico and state waters (if any) where the
Contract is performed ("Area of Operations" or "GOM").
Prior to the first date on which the Vessel is to commence operations
pursuant to this Charter pursuant to the first Contract related hereto:
A. the Vessel shall be surveyed, including video taped, by a
recognized commercial marine surveyor jointly selected by Owner
and Charterer, to determine the condition of the Vessel. The cost
of such survey shall be considered as an Operating expense as
defined under Article 3 and be charged to the Owner. A copy of
such report and video tape will be kept by Owner and Charterer.
B. Owner and Charterer shall enter into the Drilling Make-Ready
Contract under which Owner shall contract Charterer to prepare the
Vessel and her appurtenances for operations in the area of
operations to the satisfaction of the Certifying Authorities,
Owner, Charterer, and Client.
1.3 Except in the event of a Total Loss and subject to mutual agreement
otherwise, at the end of the Charter Period, the Vessel shall be
redelivered by the Charterer to Owner at the McDermott wharf at Harbor
Island, Texas, or such other nearest safe port if such port is not
accessible. Except as otherwise provided in Article 7, (i) any costs
related to redelivery will either be recovered from Client via
demobilization fees, or considered as Operating Expenses and paid for
by Owner, and (ii) in no case will these costs be borne by Charterer.
Prior to redelivery, the Vessel shall be surveyed, including video
taped, by a recognized commercial marine surveyor jointly selected by
Owner and Charterer, to determine the condition thereof. The cost of
such survey shall be considered as an Operating expense as defined
under Article 3 and be charged to the Owner. Such survey may be
commenced while the Vessel is under tow. A copy of each report and
video tape will be kept by Owner and Charterer.
ARTICLE II. - CONDITION OF OWNER'S VESSEL AND EQUIPMENT
Owner warrants that on the Delivery Date and, to its knowledge or except as
otherwise known to Charterer, the Vessel shall be seaworthy and able to float
safely and is fully licensed, permitted, certified and otherwise qualified to
operate in the GOM and that on delivery the Vessel is classed by ABS as ABS
Maltese Cross +Al and has a USCG Certificate of Inspection, with no outstanding
recommendations that would prevent the unit from operating; and that no dry
docking or cessation
2
<PAGE> 3
of operations during this Charter will be required as a result of any existing
condition to comply with any license, permits, classification, certification or
other requirements.
Owner agrees to assume all liability for claims, demands, losses, damages and
expenses arising directly out of a breach by Owner of the above warranties and
further agrees to defend, indemnify and hold Charterer harmless in this regard.
ARTICLE III. - CHARTERHIRE
3.1 During the term of this Charter, payments between Owner and Charterer
shall be as follows:
A. Prior to First Contract:
from the Delivery Date until the first date on which fees are
payable to Charterer under the Flextrend Contract or any other
Contract, Owner shall pay Charterer (i) a management fee of 2,800
United States Dollars ("USD") per day, (ii) personnel complement
costs in accordance with Schedule B, (iii) insurance payments set
forth in Article 4.1(D), and (iv) reimbursement for all reasonable
out-of-pocket expenses, third party engineering fees, demurrage,
wharfage, sales or value added taxes, Certifying Authority fees,
duties, fees and costs related to the maintenance, operation,
modification, transport and towing, stocking, insuring, fueling,
inspection, and, subject to the terms and conditions of this
Charter, capital expenditure and repair and replacement with
regard to the Vessel and equipment related to the Vessel.
Thereafter, Owner shall pay Charterer the fees provided in B. and
C. below. No charterhire shall be payable by Charterer to Owner.
B. Flextrend Contract and Dover Contract:
1) if Charterer and Flextrend enter into a Contract (the
"Flextrend Contract") for drilling on Garden Banks 117, any
lump sum collected for modification, mobilization,
demobilization or similar fees should be passed through
directly to Owner without regard to or any impact on the
arrangements set forth in 2) below;
2) Charterhire shall be the relevant dayrate, turnkey and
other amounts payable (collectively, the "Dayrate") under the
Flextrend Contract or, if applicable, the Contract between
Charterer and Dover Technology, Inc. covering the Belize
prospect (the "Dover Contract") received by Charterer LESS
Two Thousand Eight Hundred United States Dollars (2800 USD),
as adjusted pursuant to Article 3.3, per day and Charterer's
operating expenses. Operating expenses shall be defined in
this Article 3.1.B.2) as:
a) Personnel complement costs based on the costs in
Schedule B;
b) Charterer's in-house engineering support provided by
Charterer's Research and Engineering Department at a
cost of 800 USD per day, if consented to by Owner;
3
<PAGE> 4
c) Any reasonable out-of-pocket expenses, third party
engineering fees, demurrage, wharfage, sales or value
added taxes, Certifying Authority fees, duties, fees and
costs related to the maintenance, operation,
modification, transport and towing, stocking, insuring,
fueling, inspection, and, subject to the terms and
conditions of this Charter, capital expenditure and
repair and replacement with regard to the Vessel and
equipment related to the Vessel;
d) All other payments Owner is to pay Charterer pursuant to
this Charter, including, without limitation, the
insurance payments provided for in Article 4; and
e) "Shared Costs," being 5% of the difference between the
relevant Dayrate paid to Charterer and the amounts
described in a) through d) above.
C. Contracts covering any property in which an Owner Affiliate
(herein defined) directly or indirectly owns an interest:
1) Charterhire shall be the relevant Dayrate payable to
Charterer under each such Contract LESS Two Thousand Eight
Hundred Dollars (2800 USD), as adjusted pursuant to Article
3.3, per day and Charterer's operating expenses. Operating
expenses shall be defined in this Article 3.1.C.1) as:
a) Personnel complement costs based on the costs in
Schedule B;
b) Charterer's in-house engineering support provided by
Charterer's Research and Engineering Department at a
cost of 800 USD per day, if consented to by Owner;
c) All reasonable out-of-pocket expenses, third party
engineering fees, demurrage, wharfage, sales or value
added taxes, Certifying Authority fees, duties, fees and
costs related to the maintenance, operation,
modification, transport and towing, stocking, insuring,
fueling, inspection, and, subject to the terms and
conditions of this Charter, capital expenditure and
repair and replacement with regard to the Vessel and
equipment related to the Vessel;
d) Five percent (5%) of the gross day rate, turnkey or
similar fees (excluding add-ons, reimbursables and
similar items) payable to Charterer pursuant to the
relevant Contract;
e) All other payments Owner is required to pay Charterer
pursuant to this Charter, including, without limitation,
the insurance payments provided for in Article 4; and
4
<PAGE> 5
f) "Shared Costs," being 5% of the difference between the
relevant Dayrate paid to Charterer and the amounts
described in a) through e) above.
For purposes of this Charter, the terms:
"Owner Affiliate" means Owner, DeepTech International Inc. and
their Affiliates (herein defined) and any entity in which Owner,
DeepTech International Inc. or any of their Affiliates owns
(directly or indirectly) 20% or more of the interest therein.
"Affiliate" means, with respect to a relevant individual or
entity, any other individual or entity controlled by, controlling
or under common control with the relevant individual or entity; as
used herein, the term control (including its derivatives and
similar terms) means the power, directly or indirectly, to direct
or cause the direction of the management and policies of such
relevant individual or entity, by ownership of voting interest,
contract or otherwise.
D. Other Contracts not covered by B. and C. above:
1) Charterhire shall be the relevant Dayrate payable to
Charterer under each Contract LESS Two Thousand Eight Hundred
Dollars (2800 USD), as adjusted pursuant to Article 3.3, per
day and Charterer's operating expenses. Operating expenses
shall be defined in this Article 3.1.D.1) as:
a) Personnel complement costs based on the costs in
Schedule B;
b) Charterer's in-house engineering support provided by
Charterer's Research and Engineering Department at a
cost of 800 USD per day, if consented to by Owner;
c) All reasonable out-of-pocket expenses, third party
engineering fees, demurrage, wharfage, sales or value
added taxes, Certifying Authority fees, duties, fees and
costs related to the maintenance, operation,
modification, transport and towing, stocking, insuring,
fueling, inspection, and, subject to the terms and
conditions of this Charter, capital expenditure and
repair and replacement with regard to the Vessel and
equipment related to the Vessel;
d) Ten percent (10%) of the gross dayrate, turnkey or
similar fees (excluding add-ons, reimbursables and
similar items) payable to Charterer pursuant to the
relevant Contract;
e) All other payments Owner is to pay Charterer pursuant to
this Charter, including, without limitation, the
insurance payments provided for in Article 4; and
5
<PAGE> 6
f) "Shared Costs," being 5% of the difference between the
relevant Dayrate, payable to Charterer in the amounts
described in a) through e) above.
E. For periods when the Vessel is not under Contract or is under
Contract but no Dayrate is payable to Charterer, no Charterhire
shall be payable by Charterer to Owner, and Charterer shall be
entitled to a fee from Owner of 2,800 USD/day, as adjusted
pursuant to Article 3.3, plus reimbursement of Charterer's
operating expenses defined in this Article 3.1 but excluding the
items described in B.2.(b) and (e), C.1.(b), (d), and (f) and
D.1.(b), (d) and (f), and Charterer shall be under no obligation
to provide services associated with the excluded items.
3.2 Except as provided in 3.3 below Charterer's management fee of 2,800
USD/day shall not be reduced if the Dayrate payable is less than
operating expenses plus the management fee.
3.3 In the event that Charterer is operating at Repair Rate as defined in
the Flextrend Contract or other Contract/s, Charterer's fee of Two
Thousand Eight Hundred United States Dollars (2800 USD) per day shall
be reduced as follows:
A. reduced by 25% for repair hours from 12-24 hours during any
calendar month.
B. reduced by 50% for repair hours from 24-48 hours during any
calendar month.
C. reduced by 75% for repair hours from 48-72 hours during any
calendar month.
D. reduced to Zero after 72 hours at repair rate during any calendar
month.
3.4 The daily management fee payable under this charter shall be prorated
to the nearest hour.
3.5 Charterer shall make payment of amounts due to Owner hereunder (i) as
soon as reasonably practicable (but not more than ten (10) days) after
Charterer receives payment pursuant to the Flextrend Contract and the
Dover Contract and (ii) ten (10) days after payment is due under any
Contract other than those described in (i) above.
In the event such amount is not paid to Owner when due, Charterer shall
pay interest on the same at the rate of 12% per annum from the due date
until paid.
For amounts due under 3.1A, and in the event no Dayrate is received as
described in articles 3.1.B., 3.1.C. or 3.1.D hereabove Charterer shall
invoice the Owner on the first day of each month, for amounts earned
during the previous month and for the reimbursable operating expense
items. Owner shall make payment of such invoices within thirty (30)
days of receipt of Charterer's invoice. In the event Owner wishes to
dispute the correctness of any invoice, Owner shall give Charterer
notice of dispute within ten (10) days of receipt of Charterer's
invoice. In such a case, Owner shall have the right to withhold payment
on such disputed invoices until settlement of the dispute. Owner shall
however pay undisputed portions of any invoice within the time
specified above.
6
<PAGE> 7
In the event any correctly prepared and undisputed portion of any
invoice is not paid within thirty (30) days of Owner's receipt of the
same, Owner shall pay interest on the same at the rate of 12% per annum
from the due date until paid.
During any period in which there is not Contract in effect, Charterer
shall have the right to require Owner to provide reasonable security
for Owner's payment obligations to Charterer during such period. Such
security shall be (i) in the form of a letter of credit, cash
pre-payments or other arrangements mutually acceptable to the parties
hereto and (ii) in a varying amount not less than the positive
difference, if any, between then existing amounts payable by Charterer
pursuant to this Charter to (x) third-parties and (y) Owner.
3.6 Increase in Charterer's Personnel
A. Under the terms of any Contract between Client/s and Charterer,
Client may, at any time, with Charterer's approval, require
Charterer to increase the number of Charterer's Personnel and the
day rates. In no such event shall Charterer increase Charterer's
personnel complement without receiving at least equal dayrate
compensation from Client. In the event of such increases in
personnel and costs, Charterer's Personnel Costs as defined in
Schedule B shall be adjusted accordingly with such costs being
passed on to Owner so long as such adjustments do not reduce the
amount payable hereunder to Owner.
B. Upon the occurrence and during the continuation of any material
event, circumstance or condition which is required to be remedied
pursuant to any applicable Contract, Charterer may increase the
number of Charterer's personnel complement to the extent
reasonably necessary to effect such remedy; provided, that
Charterer shall immediately provide Company with a detailed
written notice describing such event, circumstance or condition,
the proposed remedy (including timing and costs) and any other
relevant information. To the extent reasonably practicable,
Contractor shall coordinate and cooperate with Company to effect
such remedy using proposals and procedures most economically
beneficial to Company.
3.7 Variation of Rates
Since certain expenses related to the operation of the Vessel are
passed through to the Owner at cost, except for Personnel Costs which
are provided for in Schedule B, and certain insurance costs which are
provided for in Article 4, expenses subtracted from the Dayrate under
this Charter shall be varied as follows:
A. if Personnel Costs provided for in the Schedule B increase after 1
February 1996, including all payroll burden and benefits paid by
Charterer for its employees due to a corporate wage increase by
Charterer, then the rates provided for in Schedule B shall
increase a like amount no sooner than 1 February 1996 subject to
approval by Owner, which approval shall not be withheld
unreasonably.
B. if Client or Owner requires Charterer to increase the number of
Charterer's Personnel, then the rates provided for in Schedule B
shall, subject to 3.6, increase in relation thereto, including the
costs of including labor burden and benefits.
7
<PAGE> 8
C. if upon periodic review, which reviews shall occur at least
quarterly, by Owner and Charterer, the burdens and costs reflected
in Schedule B for Jones Act liability insurance, travel, safety,
training, raises, bonuses, and relocation expenses are, in
reasonable, good faith, mutually agreed to be more or less than
the actual costs, then appropriate adjustments shall be made to
the burdens and actuals in Schedule B as mutually agreed, in
reasonable, good faith, by Owner and Charterer.
D. if at any time the management/shorebased personnel shown in
Schedule B are not committing, directly or indirectly, all or
substantially all of their business time to the Vessel, invoiced
personnel costs related thereto from Charterer to Owner pursuant
to this Charter shall be reduced accordingly to reflect work time
not chargeable to the Vessel. It being the intention of the
parties hereto that the Personnel Costs related to such
management/shorebased personnel are in exchange for such personnel
committing all or substantially all of their business time to the
Vessel.
3.8 Payments to Owner shall be paid into the following bank account or to
such other bank account as Owner may designate from time to time with
thirty (30) days prior notice:
Hibernia National Bank
New Orleans, Louisiana
ABA No. 065-000-090
For Credit to:
RIGCO North America, L.L.C.
Receivables Collateral Account
Account No. 812378783
Attention: Mr. Bruce Ross
Payments to Charterer shall be paid into the following bank account or
to such other bank account as Charterer may designate from time to time
with thirty (30) days prior notice:
Morgan Guaranty Trust Company of New York
New York, New York
ABA No. 021-000-238
For Credit To: Schlumberger Technology
Corporation (Sedco Forex Division)
Account No. 225-11-647
All payments are to be in US Dollars.
3.9 Charterer shall, and shall cause each of its subcontractors, vendors
and other representatives to, keep complete and accurate records of all
costs, expenses and expenditures in connection with this Charter. To
the extent necessary or appropriate to verify the amounts billed to
Owner pursuant to this Charter and for a period of two years after the
termination of this Charter, Owner or its designated representatives,
after ten (10) days' prior written notice to Charterer, shall have the
right during normal business hours to audit or examine all such books
and records relating to such transactions.
8
<PAGE> 9
ARTICLE IV. - INSURANCE
4.1 Charterer agrees to carry insurance or, to the extent permitted by law,
self insure at Charterer's option at least equal to the following:
A. On its employees, Employers Liability and Worker's Compensation
Insurance required by law, including all applicable endorsements,
including endorsements for claims under the Jones Act, providing
limits of liability as required under law or as applicable for no
less than 1,000,000 USD per occurrence.
B. Comprehensive Third Party Liability Insurance, including Marine
Liability Insurance, covering Charterer's liability. Such
insurance shall have a limit of no less than 1,000,000 USD
combined single limit per occurrence, irrespective of the
foregoing.
C. Charterer shall carry excess liability insurance in amounts not
less than 50,000,000 USD per occurrence in addition to and in
excess of all primary liability coverage carried by Charterer,
including, but not limited to insurance required under Articles
4.1.A-B above.
D. During the Charter Period, Charterer agrees to provide insurance
coverage set forth in Articles 4.1.B. - C. above at a cost to
Owner of 100 USD/day.
4.2 Owner agrees at its sole cost and expense to maintain insurance
coverage at least equal to the following:
A. On its employees, Employer's Liability and Worker's Compensation
Insurance required by law, including all applicable endorsements,
including endorsements for claims under the Jones Act.
B. Comprehensive Third Party Liability Insurance, including Marine
Liability Insurance, covering Owner's Liability. Such Insurance
shall have a limit of no less than 1,000,000 USD combined single
limit per occurrence.
C. All Risk Marine Hull and Machinery Insurance including Collision
Liability covering the Vessel and other equipment belonging to the
Vessel and owned by Owner for the full value thereof but not less
than 75,000,000 USD with a deductible not to exceed 500,000 USD.
Owner shall be named as the insured and sole loss payee of such
policy and all proceeds related thereto shall be paid directly to
Owner.
D. Removal of Wreck Insurance for the Vessel and Machinery not less
than a limit of 25,000,000 USD with a deductible not to exceed
50,000 USD.
4.3 Each party shall further cause the insurances provided by them
hereunder to be endorsed to provide that the policies will not be
canceled or changed for any reason whatsoever unless at least thirty
(30) days prior written notice has been given to the other party,
except in the event of war risk, in which case a seven (7) day notice
shall apply.
9
<PAGE> 10
4.4 The insurances provided by 4.1 and 4.2 (A) and (B) shall be endorsed to
provide to the effect that the underwriters waive all rights of
subrogation against the other party and that the other party and its
owners, parent, affiliated and subsidiary companies shall be named as
additional insureds on the policies (except Employer's Liability and
Worker's Compensation) to the extent of the contractual obligations
created herein.
The insurances provided by 4.2 (C) and (D) shall be endorsed to provide
the effect that the underwriters waive all rights of subrogation
against Charterer and Client and that Charterer and its owners, parent,
affiliated and subsidiary companies shall be named as additional
insureds on the policies.
4.5 Each party agrees that it will not cancel or voluntarily permit or
allow to be done any act by which any insurance provided by it may be
suspended, impaired or canceled. Each party shall, furnish the other
with certificates of the policies evidencing the insurance required
herein.
4.6 Charterer shall promptly furnish Owner with full information regarding
any casualty or other accident or damage to the Vessel.
4.7 Each party agrees to carry (at its expense) insurance adequate to cover
its indemnity obligations pursuant to this Charter.
ARTICLE V. - OPERATION OF THE VESSEL
5.1 Charterer shall during the Charter Period:
A. have the exclusive dominion, possession, control and command of
the Vessel and the Owner hereby relinquishes to Charterer all
dominion, possession, control and command of the Vessel;
B. except as otherwise provided in this Charter, man, victual,
navigate, operate, supply and fuel the Vessel, personnel costs and
other operating costs to be paid by Owner as provided in Article
3; and
C. operate the Vessel in a good and workmanlike manner, as a prudent
operator and in a manner consistent with accepted domestic
practice and practices exercised by Charterer with regard to its
own fleet.
5.2 Charterer shall keep the Vessel and her appurtenances in a good state
of repair and in efficient operating condition.
5.3 Charterer shall keep the Vessel seaworthy and able to float safely and
otherwise qualified to operate in the GOM and classed ABS as ABS
Maltese Cross +A1, and shall maintain the USCG Certificate of
Inspection and/or USCG Letter of Compliance and Bahamian flag
certificates and other required certificates in force with Owner's
cooperation at all times. If any temporary approval from ABS and/or the
USCG is in place on Delivery Date, Owner shall be responsible for any
costs related to retaining ABS class and or USCG issuance of necessary
replacement Certificate of Inspection.
10
<PAGE> 11
5.4 All repair, maintenance, classification and certification which is not
specified for Charterer's account herein, shall be for Owner's account.
Charterer is authorized to procure such repair, maintenance,
classification and certification on Owner's behalf and Owner shall
reimburse Charterer its costs on demand, failing which Charterer may
withhold same from amounts it owes Owner.
5.5 No individual expenditure, or aggregate expenditures, in excess of
25,000 USD shall be committed to or made without Owners' prior written
consent except to the extent of reasonable expenditures made in good
faith by Charterer as required to protect lives of personnel and
serious damage to equipment and the Vessel; in which case, Charterer
shall immediately notify Owner of each such expenditure individually.
Charterer shall not enter into or offer to enter into any Contract or
other agreement or arrangement related to or affecting the Vessel
without Owner's prior written consent, which consent may be granted or
withheld in Owner's sole discretion. Charterer agrees to timely enforce
all of its rights and remedies and perform in an efficient and
workmanlike manner all of its obligations under each Contract.
5.6 Charterer shall use commercially reasonable efforts to ensure that the
costs of operating the Vessel are equal to or less than the amounts set
forth in the Daily Drilling/Operating Costs Budget set forth in
Schedule C.
ARTICLE VI. - TAXES
6.1 Each of Owner and Charterer shall be responsible for all matters in
connection with any license, permit, accounting and reporting
requirement, and the like in connection with its employees including
making and submitting reports to the proper agencies and withholding
taxes, social security system, workmen's compensation and Medicare
premiums and submitting the same to the proper authorities. Any
payments resulting from the above responsibilities will be for the
account of Owner or Charterer, as applicable.
6.2 Each of Owner and Charterer shall be responsible for all taxes levied
on its personnel and/or invoices.
ARTICLE VII. - LIABILITIES
7.1 Except to the extent resulting from the Gross Negligence (herein
defined) or wilful misconduct of any indemnified party, Charterer
agrees to release, defend, indemnify and hold each of Owner and its
owners, parent, affiliates, contractors and sub-contractors, and its
and their directors, officers, employees and representatives excluding
any hereinafter defined Charterer Representative ("Owner
Representatives") harmless from and against any claims, loss, damages
and liability, including all cost and expenses of defense, attorney's
fees and court costs ("Losses"), in respect of:
A. any death or injury suffered by any of Charterer and its owners,
parent, affiliates, contractors and sub-contractors, and its and
their directors, officers, employees or representatives
("Charterer Representatives"); and
B. any loss of or damage to property owned by any Charterer
Representative.
11
<PAGE> 12
7.2 Except to the extent resulting from the Gross Negligence or wilful
misconduct of any indemnified party and subject to Article 4.1(C.),
Owner agrees to release, defend, indemnify and hold each Charterer
Representative harmless from, any Losses in respect of:
A. death or injury suffered by any Owner Representative; and
B. loss of or damage to and removal of wreck of the Vessel or any
property owned or provided by Owner or owned and provided by any
Owner Representative.
7.3 Each party's liability towards third parties shall be settled in
accordance with the applicable law, except as otherwise provided in
this Charter.
7.4 The indemnities provided for in 7.1 and 7.2 above apply without regard
to the cause or causes thereof including, without limitation, breach of
contract, representation or warranty, or simple negligence, whether
active, passive, sole or concurrent, even if on the part of the party
seeking the benefit of the indemnity, whether an action is founded on
statute, common law, maritime law or theory of strict liability.
7.5 Notwithstanding anything to the contrary in this Charter, a party's
damages resulting from a breach or violation of any representation,
warranty, covenant or condition contained herein shall be limited to
actual direct damages, and shall not include any other damages,
including, without limitation, loss of profit and other indirect,
special, consequential, incidental or punitive damages.
7.6 For purposes of Articles 7.1 and 7.2, the term "Gross Negligence" shall
have the meaning ascribed to it in the jurisprudence of the applicable
jurisdiction (i.e. in Texas, such term is currently interpreted as
meaning, among other things, conduct that is so shocking to common
sensibility that it would support belief that the act or omission
complained of was a result of conscious indifference to the right or
welfare of the person affected by it. 53 Tex. Jr.3d, Negligence ?
55fn.).
ARTICLE VIII. - USE OF EQUIPMENT AND SPARES
Charterer shall be entitled to use, without additional payment to Owner, all
furniture, fittings, and other equipment on board and forming part of the
Vessel, provided that at the end of the Charter Period, the same shall, without
prejudice to 5.2 and 7.2 be returned to the Owner, or replaced in the same good
order and condition as received, fair wear and tear excepted.
ARTICLE IX. - CHANGE, ALTERATIONS, REPLACEMENTS
9.1 Charterer shall make no structural changes or alterations to the Vessel
unless prior written approval has been obtained from the Owner. Owner
agrees that Charterer shall have the right to make any emergency
repairs or replacements reasonably required to safeguard the Vessel and
the personnel and equipment thereon. Such replacements shall be for
Owner's account and such repairs shall be for Owner's or Charterer's
account as specified in Article 5.
12
<PAGE> 13
All structural changes or alterations made under this Article 9.1 shall
comply with the Vessel's classification society's requirements and the
requirements of the USCG and/or Bahamian Registry.
9.2 Unless otherwise agreed in writing between Owner and Charterer, any
installations or addition to the Vessel paid for by Charterer and not
reimbursed by Owner, which can be removed at the end of the term of
this Charter without damage to the Vessel, shall remain the property of
the Charterer and Charterer shall remove all such installations or
additions prior to or as soon as possible after redelivery and, subject
to 5.2 and 7.2 and fair wear and tear, shall restore the Vessel to its
original condition.
9.3 Charterer shall not change the name or markings of the Vessel without
the prior written consent of the Owner.
9.4 Capital expenditures and modifications shall be for Owner's account if
approved in writing by Owner, including, without limitation, the
modifications pre-approved by Owner as shown in the Long Term
Maintenance and Capital Expenditure Program set forth in Schedule D,
which program shall be mutually reviewed and adjusted by Owner and
Charterer at least annually.
ARTICLE X. - LIENS
10.1 Charterer agrees and warrants that it will not allow any lien arising
out of Charterer's failure to pay its debts when due or any liability
or claim incurred or made against Charterer or for which Charterer
accepts responsibility under this Charter to attach to the Vessel.
Charterer further agrees that neither Charterer, nor the master of the
Vessel nor any other person shall have the right, power or authority
to, and Charterer shall not allow any such party to, create, incur, or
permit to exist on the Vessel any lien or encumbrance whatsoever.
Charterer shall indemnify and hold harmless the Owner and Lender
against any such liens upon the Vessel.
10.2 Charterer agrees to carry a copy of this Charter, and on demand to
exhibit the same to any person having business with the Charterer which
might give rise to any lien or encumbrance thereon, other than liens
for crew's wages and salvage.
10.3 Should the Vessel be arrested by reason of debt, liability, or claim
incurred by or made against Charterer or for which Charterer assumed
responsibility under this Charter, Charterer shall at its cost take all
reasonable steps to secure release of the Vessel within a reasonable
period of time.
ARTICLE XI. - TERMINATION OF CHARTER PERIOD
11.1 At any time after April 1, 1996, either Charterer or Owner shall have
the right to terminate this Charter (without any payment to the other
except for amounts already payable through the termination date), in
its sole discretion, by giving the other party at least 60 days prior
written notice if at the time such notice is delivered there is no
Contract then in effect requiring use of the Vessel.
13
<PAGE> 14
11.2 This Charter shall automatically be terminated upon the earlier to
occur of (i) October 1, 1997 unless the parties hereto agree in writing
to extend the term of this Charter; or (ii) the time of a total loss of
the Vessel, whether actual, constructive or compromised (such as
capture, seizure, terrorist acts, war, nationalization or inability to
export) as determined by the Vessel's underwriters; provided, however,
that Owner shall have the right to terminate this Charter to allow
Owner to proceed with converting the Vessel into a floating production
system upon at least 60 days prior written notice delivered on or after
August 1, 1996. In any case, the Charterer shall continue for the time
required to complete any Contract in effect and demobilize the Vessel.
11.3 This Charterer may be terminated in accordance with any provision in
this Charter expressly providing for termination rights.
11.4 If any material defect or deficiency in the Vessel or her appurtenances
affects the continued safe operation and use of the Vessel or her
appurtenances and the repair or replacement required to remedy the
defect or deficiency is Owner's responsibility and for Owner's account
hereunder, Charterer shall be entitled to request Owner to repair or
otherwise remedy such condition. If Owner has not commenced any such
necessary repair or remedy procedures within sixty (60) days of receipt
of such written request, Charterer may terminate this Charter and shall
have no obligation to pay Owner any amounts other than amounts of
Charterhire already earned.
11.5 In the event of termination under Article 11.2(ii) above, termination
shall take effect immediately and no payments or other action by
Charterer shall be due to Owner after that date except for payment of
Charterhire already earned. In the case of termination other than under
Article 11.2(ii) above, Charterer shall as soon as reasonably possible
after termination tow the Vessel to the stack location at the McDermott
wharf at Harbor Island, Texas. In the event the McDermott's facility is
not available is not accessible, then to the nearest safe port. Except
to the extent provided in Article 7, (i) any costs related to
redelivery will either be recovered from Clients via demobilization
fees, or considered as Operating Expenses and paid for by Owner, and
(ii) in no case will these costs be borne by Charterer.
ARTICLE XII. - ASSIGNMENT AND SUBCHARTERING
12.1 Owner (including a transferee thereof) may assign, alienate or
otherwise transfer all or any portion of its rights, title and interest
and delegate any of its obligations arising pursuant to this Charter.
12.2 Charterer agrees not to assign, transfer or otherwise alienate any of
its rights, title, interest or obligations under this Charter or to
subcharter the Vessel to any individual or entity other than an
affiliate or subsidiary of Charterer which remains an affiliate or
subsidiary of Charterer without the prior written consent of Owner,
which consent shall not be unreasonably withheld.
12.3 Unless otherwise agreed to by the parties hereto (including a
transferee of a party hereto), both the transferor and the transferee
(other than a mortgagee, pledgee or other holder of a security
interest) shall be jointly and severally responsible and primarily
liable for the full
14
<PAGE> 15
and timely performance of all covenants, agreements and other
obligations, and the timely payment and discharge of all liabilities,
costs and other expenses, arising (directly or indirectly) pursuant to
this Charter. Upon transfer of all or any portion of its rights, title
and interest in and to this Charter, the transferor shall promptly
provide the other parties hereto with a copy of such transfer document.
ARTICLE XIII. - CONDITIONS PRECEDENT [Intentionally omitted]
ARTICLE XIV. - CHOICE OF LAW AND NOTICES
14.1 TO THE EXTENT THE LAW OF ANOTHER JURISDICTION IS NOT REQUIRED TO BE
APPLIED, (i) THE INDEMNITY PROVISIONS OF THIS CHARTER SHALL BE GOVERNED
AND INTERPRETED IN ACCORDANCE WITH FEDERAL MARITIME LAWS AND (ii) THE
REMAINDER OF THIS CHARTER SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS; IN THE CASE OF (i) AND
(ii) ABOVE, WITHOUT REGARD TO ANY CONFLICT OR CHOICE OF LAW RULES OR
PROCEDURES WHICH IF APPLIED MIGHT PERMIT OR REQUIRE THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION.
14.2 Notice shall be deemed properly given if delivered in writing in person
to the named Representative of the other party or by telex or by
telefax to the numbers below, or by registered mail to the addresses
below:
FOR THE OWNER:
Attention: Harvey Fleisher
RIGCO North America, L.L.C.
600 Travis
Suite 7400
Houston, Texas 77002
Telephone 713 224-7400
Telefax 713 224-7574
FOR THE CHARTERER:
Attention: John Powers
Schlumberger Technology Corporation (Sedco Forex Division)
1155 Dairy Ashford, Suite 402
Houston, Texas 77079
Telephone: 281 556-3863
Telefax 281 558-3756
ARTICLE XV. - DEFAULT
15.1 If at any time a party (i) shall fail to pay any amount when due and
payable hereunder, (ii) shall be in default of any of the material
terms, conditions or provisions of this Charter, or (iii) shall be
dissolved or be adjudged a bankrupt, or shall file or have a petition
in bankruptcy filed against it, or shall make a general assignment for
the benefit of creditors,
15
<PAGE> 16
or if a receiver shall be appointed for said party, the other party
may, without prejudice to any other rights which it may have under this
Charter, exercise any one or more of the alternatives provided for
herein.
15.2 Upon the occurrence of an event of default, including those described
above, and at any time thereafter so long as the same shall be
continuing, the non-defaulting party may, by written notice at its
option, declare the other party to be in default, and:
A. If not cured within 15 days after receipt of said notice, declare
all earned and unpaid amounts, and other sums payable hereunder to
be immediately due and payable; and
B. Without prejudice to other rights to terminate set out in this
Charter, the defaulting party may terminate this Charter by giving
at least 15 days advance written notice of the breach, provided
that this Charter shall not terminate if the defaulting party
remedies the breach within said 15 days, but no such termination
shall release or relieve defaulting party from any of its
obligations or liabilities under this Charter.
ARTICLE XVI. - REPRESENTATIONS
16.1 Charterer represents, warrants, covenants, and agrees to and with Owner
that (a) Charterer is a corporation duly organized, validly existing,
and in good standing under the laws of the country or state of its
incorporation, with the corporate power to own its property and assets,
and is duly qualified in each jurisdiction where the nature of its
operations requires such qualification; (b) the execution, delivery,
and performance of this Charter (i) are within Charterer's power, (ii)
have been duly authorized by all necessary corporate action, including
any necessary board of directors or shareholders' action, (iii) do not
contravene Charterer's articles or certificate of incorporation or
by-laws, and (iv) do not contravene any law, any order of any court or
other agency of government, or any agreement or instrument or
contractual restriction binding on or affecting any of its property, or
constitute a default thereunder.
16.2 Owner represents, warrants, covenants, and agrees to and with Charterer
that (a) Owner is a limited partnership duly organized, validly
existing, and in good standing under the laws of the country or state
of its formation, with the partnership power to own its property and
assets, and is duly qualified in each jurisdiction where the nature of
its operations requires such qualification; (b) the execution,
delivery, and performance of this Charter (i) are within Owner's power,
(ii) have been duly authorized by all necessary corporate action,
including any necessary board of directors, shareholders' or other
appropriate body action, (iii) do not contravene Owner's articles or
certificate of incorporation or by-laws or other organizational
documents, and (iv) do not contravene any law, any order of any court
or other agency of government, or any agreement or instrument or
contractual restriction binding on or affecting any of its property, or
constitute a default thereunder.
16.3 EXCEPT AS EXPRESSLY PROVIDED IN THIS CHARTER, EACH OF CHARTERER AND
OWNER EXPRESSLY DISCLAIM, WAIVE AND NEGATE ANY AND ALL REPRESENTATIONS
OR WARRANTIES, INCLUDING,
16
<PAGE> 17
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS AND TITLE.
ARTICLE XVII. - FORCE MAJEURE
17.1 The term "Force Majeure" as used in this Charter shall mean any act,
event, cause or occurrences which are unforeseeable and unavoidable
rendering a party unable to perform its obligations on account of
strikes, riots, war (declared or undeclared) or warlike operations,
terrorist acts, insurrection, fire, storm (or other natural
catastrophe), any unavoidable delay in obtaining supplies or materials
(other than action or delay caused by Charterer or Owner), any act of
any government authority or any other cause whether or not similar to
the causes herein specified which is not within the reasonable control
of the Party claiming relief under this Clause;
17.2 If any party is rendered unable, wholly or in part by Force Majeure to
perform its obligations under this Charter other than financial
obligations, it is agreed that performance of such obligations by such
party, so far as they are affected by Force Majeure, shall be excused
from the inception of such inability until it is corrected, but for no
longer period. The party claiming an inability to perform shall, as
soon as possible after the occurrence of the Force Majeure event,
notify the other party of such event and its inability to perform. The
party claiming inability to perform shall promptly use all due
endeavors to overcome the Force Majeure event.
17.3 Should the Force Majeure event last for more than thirty (30) days,
either party shall be entitled to terminate this Charter.
ARTICLE XVIII. - CONFIDENTIALITY
18.1 All information acquired by one party regarding the business or
operations of the other party, other than information which either:
- is part of the public domain,
- becomes part of the public domain other than through the fault of
the parties,
- is already known by the Parties at the same time of disclosure,
- is required to be disclosed to third parties according to
applicable law, is to be treated as confidential and not to be
used or discussed by either party for any other purpose than for
the performance of this Charter for the maximum enforceable period
allowed by applicable law relative to such undertakings.
ARTICLE XIX. - CHARTERER'S CONTINUING OBLIGATIONS
19.1 Charterer shall be obligated under this Charter to operate the Vessel
in a fashion consistent with (i) all applicable laws, rules,
regulations and orders, (ii) the standards of a prudent operator in the
offshore drilling industry and (iii) how Charterer would operate one of
his own Vessels. Charterer shall use his best efforts to secure
additional work for the Vessel
17
<PAGE> 18
through a marketing effort within the Area of Operations. Owners shall
be timely consulted and kept aware of future work prospects for the
Vessel.
19.2 During the Charter Period, Charterer shall use all reasonable efforts
to give Owner at least ninety (90) days prior written notice before
conducting any marketing in the US Gulf of Mexico of any equipment that
is competitive with the Vessel, the semisubmersible drilling rig the
FPS Bill Shoemaker, official number 366166 (the "Bill Shoemaker")
(provided such rig continues under the management of Charterer), or any
other drilling rig owned by Owner or any affiliate or subsidiary of
Owner and managed by Charterer. It is expressly understood and agreed
that in the event of the acquisition of existing equipment in the Gulf
of Mexico by Charterer, Charterer may not be able to, and will not be
required to, give such notice.
ARTICLE XX. - MISCELLANEOUS
20.1 This Charter and the other agreements executed pursuant hereto, if any,
constitute the entire agreement and supersede all prior (oral or
written) or oral contemporaneous proposals or agreements, all previous
negotiations and all other communications or understandings between the
parties hereto with respect to the subject matter hereof.
20.2 All amendments, supplements and modifications to this Charter shall be
in writing and signed by all of the parties hereto.
20.3 This Charter may be executed in multiple counterparts, each of which,
when executed, shall be deemed an original, and all of which shall
constitute but one and the same instrument.
20.4 All personal pronouns used in this Charter, whether used in the
masculine, feminine or neuter gender, shall include all other genders;
the singular shall include the plural, and vice versa. Articles,
sections and other titles or headings are for convenience only, and
neither limit nor amplify the provisions of the Charter itself, and all
references herein to articles, sections or subdivisions thereof shall
refer to the corresponding article, section or subdivision thereof of
this Charter unless specific reference is made to such articles,
sections or subdivisions of another document or instrument.
20.5 All exhibits, schedules and the like contained herein are integrally
related to this Charter, and are hereby made a part of this Charter for
all purposes.
20.6 Subject to the terms and conditions set forth in this Charter, each of
the parties hereto agrees to use all reasonable efforts to take, or to
cause to be taken, all actions, and to do, or to cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Charter. In case, at any time after the execution
of this Charter, any further action is necessary or desirable to carry
out its purposes, the proper officers or directors of the parties
hereto shall take or cause to be taken all such necessary action.
20.7 Each of the parties hereto shall pay all costs and expenses incurred or
to be incurred by such party in negotiating and performing the
transactions contemplated by this Charter.
18
<PAGE> 19
20.8 Any term or provision of this Charter that is invalid or unenforceable
in any jurisdiction shall be ineffective as to such jurisdiction, to
the extent of such invalidity or unenforceability, without rendering
invalid or unenforceable the remaining terms and provisions of this
Charter or affecting the validity or enforceability of any terms and
provisions of this Charter in any other jurisdiction. If any provision
of this Charter is so broad as to be unenforceable, each provision
shall be interpreted to be only so broad as is enforceable. A
bankruptcy or similar trustee must accept or, to the extent permitted
by law, reject this Charter in its entirety.
20.9 This Charter shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, successors, assigns and
personal representatives.
20.10 Neither action taken (including, without limitation, any investigation
by or on behalf of any party) nor inaction pursuant to this Charter,
shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by the
party not committing such action or inaction. A waiver by any party
hereto of a particular right, including, without limitation, breach of
any provision of this Charter, shall not operate or be construed as a
subsequent waiver of that same right or a waiver of any other right.
20.11 The rights, obligations and remedies created by this Charter are
cumulative and in addition to any other rights, obligations or remedies
otherwise available at law or in equity. Nothing herein shall be
considered an election of remedies. Without being subject to the
limitations required by common law, any party may enforce this Charter
by an injunction or specific performance. In addition, any successful
party is entitled to costs related to enforcing this Charter,
including, without limitation, attorneys' fees, court costs and
settlement and arbitration expenses.
20.12 Except as expressly provided in this Charter, nothing contained in this
Charter shall be construed to confer any right, benefit or interest
upon any person or entity other than the parties hereto.
20.13 Time is of the essence with respect to any notice requirements and
payment obligations contained herein.
20.14 Subject to the terms and conditions of this Charter, the parties hereto
agree and acknowledge that Charterer is independent from and of Owner's
control, and Charterer hereby agrees to act pursuant to the provisions
of this Charter. Charterer is and agrees to maintain such independent
status and relationship. Any provisions of this Charter that may appear
to give Owner a measure of control over the details of the Charterer's
operations shall be deemed to mean that Charterer shall follow the
general desires of Owner but Charterer shall have authoritative control
as to the details of performing the such operations. Neither Charterer
nor any Charterer Representative shall be deemed to be the agents,
representatives or employees of Owner. Nothing herein is intended to,
or shall, create a partnership, joint venture, agency or other
relationship creating fiduciary or quasi fiduciary duties or similar
duties and obligations or otherwise subject the parties hereto joint
and
19
<PAGE> 20
several or vicarious liability or to impose any duty, obligation or
liability that would arise therefrom with respect to either or both of
the parties hereto.
20.15 The parties hereto agree to act in good faith to undertake the
restructuring of this Charter and the First Amended and Restated
Charter Agreement, dated as of even date herewith, between Owner and
Charterer relating to the Bill Shoemaker, with the intent of arriving
at a mutually agreeable Master Agreement, relating to the Vessel and
the Bill Shoemaker, within six months of delivery of the Bill Shoemaker
under a drilling contract.
[The remainder of this page is intentionally left blank.]
20
<PAGE> 21
IN WITNESS WHEREOF, the Owner and Charterer have executed this Charter as of the
day and year first above written.
(Owner) (Charterer)
RIGCO NORTH AMERICA, L.L.C. SCHLUMBERGER TECHNOLOGY
CORPORATION
(SEDCO FOREX DIVISION)
By: By:
------------------------------ ------------------------------
Title:
SCHEDULE A: VESSEL DESCRIPTION
SCHEDULE B: PERSONNEL COSTS
SCHEDULE C: DAILY DRILLING/OPERATING COSTS BUDGET
SCHEDULE D: LONG TERM MAINTENANCE AND CAPITAL EXPENDITURE PROGRAM
SCHEDULE E: WAIVER OF ON-HIRE SURVEY - ARTICLE 1.2.A.
SCHEDULE F: CERTIFICATE OF DELIVERY AND ACCEPTANCE
21
<PAGE> 1
EXHIBIT 10.26
SECOND AMENDED AND RESTATED
CHARTER
THIS SECOND AMENDED AND RESTATED CHARTER (the "Charter") is made as of the 14th
day of August, 1997, by and between:
RIGCO North America, L.L.C., a limited liability company organized under the
laws of Delaware, and having its registered office at 600 Travis, Suite 7400,
Houston, Texas 77002 (hereinafter called "Owner") of the one part; and
Schlumberger Technology Corporation (Sedco Forex Division), a company
incorporated under the laws of Texas and having its registered office at 1155
Dairy Ashford, Suite 402, Houston, Texas 77079 hereinafter called "Charterer")
of the other part.
WHEREAS:
A. Owner is the owner of a semisubmersible drilling unit known as the FPS
Laffit Pincay carrying a USA flag at time of delivery under this
Charter and subsequently changed to Bahamian flag, and having official
number 725001, together with all her engines, boilers, machinery,
masts, rigging, derricks, drawworks, blowout preventers, marine
drilling riser, lifeboats, boats, anchors, cables, chains, tackles,
cranes, fittings, tools, pumps, gear, equipment, apparel, furniture,
equipment, spare parts, top drive system and spare parts and all other
appurtenances thereto pertaining or belonging, whether on board the
Vessel or not and whether in transit or not, all as more fully
described in Schedule A (hereinafter called "Vessel");
B. Charterer and DeepFlex Production Partners L.P., an affiliate of Owner
("Deepflex"), entered into the Charter dated as of the 13th day of
October 1995 (the "Original Charter");
C. Charterer and Owner wish to amend and restate the Original Charter;
and
D. Charterer desires to charter and the Owner desires to let the Vessel
to Charterer on the terms and conditions set out herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Charter, and for other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
<PAGE> 2
ARTICLE 1. - CHARTER PERIOD, DELIVERY AND REDELIVERY
1.1. Effective upon the termination date (the "Delivery Date") of that
certain Drilling Make-Ready Agreement dated October 13, 1995 (the
"Drilling Make-Ready Contract") between Charterer and DeepFlex, Owner
hereby lets and charters bareboat to Charterer, and Charterer hereby
hires bareboat, the Vessel until termination of this Charter. This
Charter shall terminate at such time as provided in Articles 1.3 and
11.1-11.5, such period being called "Charter Period" herein.
References in this Charter to "Client" shall mean Flextrend
Development Company, L.L.C. ("Flextrend") or any other client under
any written contract with Charterer for drilling and or workover
services ("Contract"). It is anticipated that the first Contract will
be the Flextrend Contract (hereinafter defined) between Flextrend and
Charterer commencing no earlier than 20 January 1996 and no later than
1 April 1996.
1.2. The Vessel shall be delivered to Charterer in USA waters on the
Delivery Date safely moored and secured at the shipyard/mooring
location where the Vessel was prepared for operations under the
Drilling Make-Ready Contract. Charter, with Owner's assistance and
cooperation, shall at all times obtain and maintain at Owner's cost
and risk all necessary import licenses, permits, authorizations,
certificates and the like necessary for the import and use of the
Vessel in the US Gulf of Mexico and state waters (if any) where the
Contract is performed ("Area of Operations" or "GOM").
Prior to the first date on which the Vessel is to commence operations
pursuant to this Charter pursuant to the first Contract related hereto:
A. the Vessel shall be surveyed, including video taped, by a
recognized commercial marine surveyor jointly selected by
Owner and Charterer, to determine the condition of the Vessel.
The cost of such survey shall be considered as an Operating
expense as defined under Article 3 and be charged to the
Owner. A copy of such report and video tape will be kept by
Owner and Charterer.
B. Owner and Charterer shall enter into the Drilling Make-Ready
Contract under which Owner shall contract Charterer to prepare
the Vessel and her appurtenances for operations in the area of
operations to the satisfaction of the Certifying Authorities,
Owner, Charterer, and Client.
1.3. Except in the event of a Total Loss and subject to mutual agreement
otherwise, at the end of the Charter Period, the Vessel shall be
redelivered by the Charterer to Owner at the McDermott wharf at Harbor
Island, Texas, or such other nearest safe port if such port is not
accessible. Except as otherwise provided in Article 7, (i) any costs
related to redelivery will either be recovered from Client
2
<PAGE> 3
via demobilization fees, or considered as Operating Expenses and paid
for by Owner, and (ii) in no case will these costs be borne by
Charterer.
Prior to redelivery, the Vessel shall be surveyed, including video
taped, by a recognized commercial marine surveyor jointly selected by
Owner and Charterer, to determine the condition thereof. The cost of
such survey shall be considered as an Operating expense as defined
under Article 3 and be charged to the Owner. Such survey may be
commenced while the Vessel is under tow. A copy of each report and
video tape will be kept by Owner and Charterer.
ARTICLE 2. - CONDITION OF OWNER'S VESSEL AND EQUIPMENT
Owner warrants that on the Delivery Date and, to its knowledge or except as
otherwise known to Charterer, the Vessel shall be seaworthy and able to float
safely and is fully licensed, permitted, certified and otherwise qualified to
operate in the GOM and that on delivery the Vessel is classed by ABS as ABS
Maltese Cross +Al and has a USCG Certificate of Inspection, with no outstanding
recommendations that would prevent the unit from operating; and that no dry
docking or cessation of operations during this Charter will be required as a
result of any existing condition to comply with any license, permits,
classification, certification or other requirements.
Owner agrees to assume all liability for claims, demands, losses, damages and
expenses arising directly out of a breach by Owner of the above warranties and
further agrees to defend, indemnify and hold Charterer harmless in this regard.
ARTICLE 3. - CHARTERHIRE
3.1. During the term of this Charter, payments between Owner and Charterer
shall be as follows:
A. Prior to First Contract:
from the Delivery Date until the first date on which
fees are payable to Charterer under the Flextrend
Contract or any other Contract, Owner shall pay
Charterer (i) a management fee of 2,800 United States
Dollars ("USD") per day, (ii) personnel complement
costs in accordance with Schedule B, (iii) insurance
payments set forth in Article 4.1(D), and (iv)
reimbursement for all reasonable out-of-pocket
expenses, third party engineering fees, demurrage,
wharfage, sales or value added taxes, Certifying
Authority fees, duties, fees and costs related to the
maintenance, operation, modification, transport and
towing, stocking, insuring, fueling, inspection, and,
subject to the terms and conditions of this Charter,
capital expenditure and repair and replacement with
regard to the Vessel and equipment related to the
Vessel.
3
<PAGE> 4
Thereafter, Owner shall pay Charterer the fees
provided in B. and C. below. No charterhire shall be
payable by Charterer to Owner.
B. Flextrend Contract and Dover Contract:
1) if Charterer and Flextrend enter into a Contract (the
"Flextrend Contract") for drilling on Garden Banks
117, any lump sum collected for modification,
mobilization, demobilization or similar fees should
be passed through directly to Owner without regard to
or any impact on the arrangements set forth in 2)
below;
2) Charterhire shall be the relevant dayrate, turnkey
and other amounts payable (collectively, the
"Dayrate") under the Flextrend Contract or, if
applicable, the Contract between Charterer and Dover
Technology, Inc. covering the Belize prospect (the
"Dover Contract") received by Charterer LESS Two
Thousand Eight Hundred United States Dollars (2800
USD), as adjusted pursuant to Article 3.3, per day
and Charterer's operating expenses. Operating
expenses shall be defined in this Article 3.1.B.2)
as:
a) Personnel complement costs based on the costs
in Schedule B;
b) Charterer's in-house engineering support
provided by Charterer's Research and
Engineering Department at a cost of 800 USD
per day, if consented to by Owner;
c) Any reasonable out-of-pocket expenses, third
party engineering fees, demurrage, wharfage,
sales or value added taxes, Certifying
Authority fees, duties, fees and costs
related to the maintenance, operation,
modification, transport and towing, stocking,
insuring, fueling, inspection, and, subject
to the terms and conditions of this Charter,
capital expenditure and repair and
replacement with regard to the Vessel and
equipment related to the Vessel;
d) All other payments Owner is to pay Charterer
pursuant to this Charter, including, without
limitation, the insurance payments provided
for in Article 4; and
e) "Shared Costs," being 5% of the difference
between the relevant Dayrate paid to
Charterer and the amounts described in a)
through d) above.
4
<PAGE> 5
C. Contracts covering any property in which an Owner Affiliate
(herein defined) directly or indirectly owns an interest:
1) Charterhire shall be the relevant Dayrate payable to
Charterer under each such Contract LESS Four Thousand
Eight Hundred Dollars (4800 USD), as adjusted
pursuant to Article 3.3, per day and Charterer's
operating expenses. Operating expenses shall be
defined in this Article 3.1.C.1) as:
a) Personnel complement costs based on the costs
in Schedule B;
b) Charterer's in-house engineering support
provided by Charterer's Research and
Engineering Department at a cost of 800 USD
per day, if consented to by Owner;
c) All reasonable out-of-pocket expenses, third
party engineering fees, demurrage, wharfage,
sales or value added taxes, Certifying
Authority fees, duties, fees and costs
related to the maintenance, operation,
modification, transport and towing, stocking,
insuring, fueling, inspection, and, subject
to the terms and conditions of this Charter,
capital expenditure and repair and
replacement with regard to the Vessel and
equipment related to the Vessel;
d) Ten percent (10%) of the gross day rate,
turnkey or similar fees (excluding add-ons,
reimbursables and similar items) payable to
Charterer pursuant to the relevant Contract;
e) All other payments Owner is required to pay
Charterer pursuant to this Charter,
including, without limitation, the insurance
payments provided for in Article 4; and
f) "Shared Costs," being 5% of the difference
between the relevant Dayrate paid to
Charterer and the amounts described in a)
through e) above.
For purposes of this Charter, the terms:
"Owner Affiliate" means Owner, DeepTech International Inc. and
their Affiliates (herein defined) and any entity in which Owner,
DeepTech International Inc. or any of their Affiliates owns
(directly or indirectly) 20% or more of the interest therein.
5
<PAGE> 6
"Affiliate" means, with respect to a relevant individual or
entity, any other individual or entity controlled by, controlling
or under common control with the relevant individual or entity; as
used herein, the term control (including its derivatives and
similar terms) means the power, directly or indirectly, to direct
or cause the direction of the management and policies of such
relevant individual or entity, by ownership of voting interest,
contract or otherwise.
D. Other Contracts not covered by B. and C. above:
1) Charterhire shall be the relevant Dayrate payable to
Charterer under each Contract LESS Four Thousand Eight
Hundred Dollars (4800 USD), as adjusted pursuant to
Article 3.3, per day and Charterer's operating
expenses. Operating expenses shall be defined in this
Article 3.1.D.1) as:
a) Personnel complement costs based on the costs
in Schedule B;
b) Charterer's in-house engineering support
provided by Charterer's Research and
Engineering Department at a cost of 800 USD
per day, if consented to by Owner;
c) All reasonable out-of-pocket expenses, third
party engineering fees, demurrage, wharfage,
sales or value added taxes, Certifying
Authority fees, duties, fees and costs related
to the maintenance, operation, modification,
transport and towing, stocking, insuring,
fueling, inspection, and, subject to the terms
and conditions of this Charter, capital
expenditure and repair and replacement with
regard to the Vessel and equipment related to
the Vessel;
d) Ten percent (10%) of the gross dayrate,
turnkey or similar fees (excluding add-ons,
reimbursables and similar items) payable to
Charterer pursuant to the relevant Contract;
e) All other payments Owner is to pay Charterer
pursuant to this Charter, including, without
limitation, the insurance payments provided
for in Article 4; and
6
<PAGE> 7
f) "Shared Costs," being 5% of the difference
between the relevant Dayrate, payable to
Charterer in the amounts described in a)
through e) above.
E. For periods when the Vessel is not under Contract or is under
Contract but no Dayrate is payable to Charterer, no
Charterhire shall be payable by Charterer to Owner, and
Charterer shall be entitled to a fee from Owner of 2,800
USD/day, as adjusted pursuant to Article 3.3, plus
reimbursement of Charterer's operating expenses defined in
this Article 3.1 but excluding the items described in B.2.(b)
and (e), C.1.(b), (d), and (f) and D.1.(b), (d) and (f), and
Charterer shall be under no obligation to provide services
associated with the excluded items.
3.2. Except as provided in 3.3 below Charterer's management fee of 4,800
USD/day shall not be reduced if the Dayrate payable is less than
operating expenses plus the management fee.
3.3. In the event that Charterer is operating at Repair Rate as defined in
any other Contract(s), Charterer's fee of Four Thousand Eight Hundred
United States Dollars (4800 USD) per day shall be reduced as follows:
a) reduced by 25% for repair hours from 12-24 hours during any
calendar month.
b) reduced by 50% for repair hours from 24-48 hours during any
calendar month.
c) reduced by 75% for repair hours from 48-72 hours during any
calendar month.
d) reduced to Zero after 72 hours at repair rate during any
calendar month.
3.4. The daily management fee payable under this Charter shall be prorated
to the nearest hour.
3.5. Charterer shall make payment of amounts due to Owner hereunder (i) as
soon as reasonably practicable (but not more than ten (10) days) after
Charterer receives payment pursuant to the Flextrend Contract and the
Dover Contract and (ii) ten (10) days after payment is due under any
Contract other than those described in (i) above.
In the event such amount is not paid to Owner when due, Charterer shall
pay interest on the same at the rate of 12% per annum from the due date
until paid.
For amounts due under 3.1A, and in the event no Dayrate is received as
described in articles 3.1.B., 3.1.C. or 3.1.D hereabove Charterer shall
invoice the Owner on
7
<PAGE> 8
the first day of each month, for amounts earned during the previous
month and for the reimbursable operating expense items. Owner shall
make payment of such invoices within thirty (30) days of receipt of
Charterer's invoice. In the event Owner wishes to dispute the
correctness of any invoice, Owner shall give Charterer notice of
dispute within ten (10) days of receipt of Charterer's invoice. In
such a case, Owner shall have the right to withhold payment on such
disputed invoices until settlement of the dispute. Owner shall
however pay undisputed portions of any invoice within the time
specified above.
In the event any correctly prepared and undisputed portion of any
invoice is not paid within thirty (30) days of Owner's receipt of the
same, Owner shall pay interest on the same at the rate of 12% per annum
from the due date until paid.
During any period in which there is not Contract in effect, Charterer
shall have the right to require Owner to provide reasonable security
for Owner's payment obligations to Charterer during such period. Such
security shall be (i) in the form of a letter of credit, cash
pre-payments or other arrangements mutually acceptable to the parties
hereto and (ii) in a varying amount not less than the positive
difference, if any, between then existing amounts payable by Charterer
pursuant to this Charter to (x) third-parties and (y) Owner.
3.6. Increase in Charterer's Personnel
A. Under the terms of any Contract between Client/s and
Charterer, Client may, at any time, with Charterer's approval,
require Charterer to increase the number of Charterer's
Personnel and the day rates. In no such event shall Charterer
increase Charterer's personnel complement without receiving at
least equal dayrate compensation from Client. In the event of
such increases in personnel and costs, Charterer's Personnel
Costs as defined in Schedule B shall be adjusted accordingly
with such costs being passed on to Owner so long as such
adjustments do not reduce the amount payable hereunder to
Owner.
B. Upon the occurrence and during the continuation of any
material event, circumstance or condition which is required to
be remedied pursuant to any applicable Contract, Charterer may
increase the number of Charterer's personnel complement to the
extent reasonably necessary to effect such remedy; provided,
that Charterer shall immediately provide Company with a
detailed written notice describing such event, circumstance or
condition, the proposed remedy (including timing and costs)
and any other relevant information. To the extent reasonably
practicable, Contractor shall coordinate and cooperate with
Company to effect such remedy using proposals and procedures
most economically beneficial to Company.
8
<PAGE> 9
3.7. Variation of Rates
Since certain expenses related to the operation of the Vessel are
passed through to the Owner at cost, except for Personnel Costs which
are provided for in Schedule B, and certain insurance costs which are
provided for in Article 4, expenses subtracted from the Dayrate under
this Charter shall be varied as follows:
A. if Personnel Costs provided for in the Schedule B increase
after February 1, 1996, including all payroll burden and
benefits paid by Charterer for its employees due to a
corporate wage increase by Charterer, then the rates provided
for in Schedule B shall increase a like amount no sooner than
1 February 1996 subject to approval by Owner, which approval
shall not be withheld unreasonably.
B. if Client or Owner requires Charterer to increase the number
of Charterer's Personnel, then the rates provided for in
Schedule B shall, subject to 3.6, increase in relation
thereto, including the costs of including labor burden and
benefits.
C. if upon periodic review, which reviews shall occur at least
quarterly, by Owner and Charterer, the burdens and costs
reflected in Schedule B for Jones Act liability insurance,
travel, safety, training, raises, bonuses, and relocation
expenses are, in reasonable, good faith, mutually agreed to be
more or less than the actual costs, then appropriate
adjustments shall be made to the burdens and actuals in
Schedule B as mutually agreed, in reasonable, good faith, by
Owner and Charterer.
D. if at any time the management/shorebased personnel shown in
Schedule B are not committing, directly or indirectly, all or
substantially all of their business time to the Vessel,
invoiced personnel costs related thereto from Charterer to
Owner pursuant to this Charter shall be reduced accordingly to
reflect work time not chargeable to the Vessel. It being the
intention of the parties hereto that the Personnel Costs
related to such management/shorebased personnel are in
exchange for such personnel committing all or substantially
all of their business time to the Vessel.
3.8. Payments to Owner shall be paid into the following bank account or to
such other bank account as Owner may designate from time to time with
thirty (30) days prior notice:
Hibernia National Bank
New Orleans, Louisiana
ABA No. 065-000-090
For Credit to:
RIGCO North America, L.L.C.
Receivables Collateral Account
Account No. 812378783
Attention: Mr. Bruce Ross
9
<PAGE> 10
Payments to Charterer shall be paid into the following bank account or
to such other bank account as Charterer may designate from time to time
with thirty (30) days prior notice:
Citibank N.A.
111 Wall Street
New York, New York
ABA No. 021000089
For Credit to: Sedco Forex Division of
Schlumberger Technology Corporation
Account No. 40692435
All payments are to be in US Dollars.
3.9. Charterer shall, and shall cause each of its subcontractors, vendors
and other representatives to, keep complete and accurate records of
all costs, expenses and expenditures in connection with this Charter.
To the extent necessary or appropriate to verify the amounts billed to
Owner pursuant to this Charter and for a period of two years after the
termination of this Charter, Owner or its designated representatives,
after ten (10) days' prior written notice to Charterer, shall have the
right during normal business hours to audit or examine all such books
and records relating to such transactions.
3.10. The amounts set forth in Articles 3.1.C.1, 3.1.D.1, 3.2 and 3.3 shall
be $2,800 and the percentage set forth in Article 3.1.C.1.d shall be
5%, until the earlier of (i) October 1, 1997 or (ii) the performance
of any Drilling Order for Tatham Offshore, Inc. ("TOFF") pursuant to
that certain Master Drilling Agreement dated September 19, 1996,
between TOFF and Charter, as amended.
ARTICLE 4. - INSURANCE
4.1. Charterer agrees to carry insurance or, to the extent permitted by
law, self insure at Charterer's option at least equal to the
following:
A. On its employees, Employers Liability and Worker's
Compensation Insurance required by law, including all
applicable endorsements, including endorsements for claims
under the Jones Act, providing limits of liability as required
under law or as applicable for no less than 1,000,000 USD per
occurrence.
B. Comprehensive Third Party Liability Insurance, including
Marine Liability Insurance, covering Charterer's liability.
Such insurance shall have a limit of no less than 1,000,000
USD combined single limit per occurrence, irrespective of the
foregoing.
C. Charterer shall carry excess liability insurance in amounts
not less than 50,000,000 USD per occurrence in addition to and
in excess of all
10
<PAGE> 11
primary liability coverage carried by Charterer, including,
but not limited to insurance required under Articles 4.1.A-B
above.
D. During the Charter Period, Charterer agrees to provide
insurance coverage set forth in Articles 4.1.B. - C. above at
a cost to Owner of 100 USD/day.
4.2. Owner agrees at its sole cost and expense to maintain insurance
coverage at least equal to the following:
A. On its employees, Employer's Liability and Worker's
Compensation Insurance required by law, including all
applicable endorsements, including endorsements for claims
under the Jones Act.
B. Comprehensive Third Party Liability Insurance, including
Marine Liability Insurance, covering Owner's Liability. Such
Insurance shall have a limit of no less than 1,000,000 USD
combined single limit per occurrence.
C. All Risk Marine Hull and Machinery Insurance including
Collision Liability covering the Vessel and other equipment
belonging to the Vessel and owned by Owner for the full value
thereof but not less than 75,000,000 USD with a deductible not
to exceed 500,000 USD. Owner shall be named as the insured
and sole loss payee of such policy and all proceeds related
thereto shall be paid directly to Owner.
D. Removal of Wreck Insurance for the Vessel and Machinery not
less than a limit of 25,000,000 USD with a deductible not to
exceed 50,000 USD.
4.3. Each party shall further cause the insurances provided by them
hereunder to be endorsed to provide that the policies will not be
canceled or changed for any reason whatsoever unless at least thirty
(30) days prior written notice has been given to the other party,
except in the event of war risk, in which case a seven (7) day notice
shall apply.
4.4. The insurances provided by 4.1 and 4.2 (A) and (B) shall be endorsed
to provide to the effect that the underwriters waive all rights of
subrogation against the other party and that the other party and its
owners, parent, affiliated and subsidiary companies shall be named as
additional insureds on the policies (except Employer's Liability and
Worker's Compensation) to the extent of the contractual obligations
created herein.
The insurances provided by 4.2 (C) and (D) shall be endorsed to provide
the effect that the underwriters waive all rights of subrogation
against Charterer and Client and that Charterer and its owners, parent,
affiliated and subsidiary companies shall be named as additional
insureds on the policies.
11
<PAGE> 12
4.5. Each party agrees that it will not cancel or voluntarily permit or
allow to be done any act by which any insurance provided by it may be
suspended, impaired or canceled. Each party shall, furnish the other
with certificates of the policies evidencing the insurance required
herein.
4.6. Charterer shall promptly furnish Owner with full information regarding
any casualty or other accident or damage to the Vessel.
4.7. Each party agrees to carry (at its expense) insurance adequate to
cover its indemnity obligations pursuant to this Charter.
ARTICLE 5. - OPERATION OF THE VESSEL
5.1. Charterer shall during the Charter Period:
A. have the exclusive dominion, possession, control and command
of the Vessel and the Owner hereby relinquishes to Charterer
all dominion, possession, control and command of the Vessel;
B. except as otherwise provided in this Charter, man, victual,
navigate, operate, supply and fuel the Vessel, personnel costs
and other operating costs to be paid by Owner as provided in
Article 3; and
C. operate the Vessel in a good and workmanlike manner, as a
prudent operator and in a manner consistent with accepted
domestic practice and practices exercised by Charterer with
regard to its own fleet.
5.2. Charterer shall keep the Vessel and her appurtenances in a good state
of repair and in efficient operating condition.
5.3. Charterer shall keep the Vessel seaworthy and able to float safely and
otherwise qualified to operate in the GOM and classed ABS as ABS
Maltese Cross +A1, and shall maintain the USCG Certificate of
Inspection and/or USCG Letter of Compliance and Bahamian flag
certificates and other required certificates in force with Owner's
cooperation at all times. If any temporary approval from ABS and/or
the USCG is in place on Delivery Date, Owner shall be responsible for
any costs related to retaining ABS class and or USCG issuance of
necessary replacement Certificate of Inspection.
5.4. All repair, maintenance, classification and certification which is not
specified for Charterer's account herein, shall be for Owner's
account. Charterer is authorized to procure such repair, maintenance,
classification and certification on Owner's behalf and Owner shall
reimburse Charterer its costs on demand, failing which Charterer may
withhold same from amounts it owes Owner.
12
<PAGE> 13
5.5. No individual expenditure, or aggregate expenditures, in excess of
25,000 USD shall be committed to or made without Owners' prior written
consent except to the extent of reasonable expenditures made in good
faith by Charterer as required to protect lives of personnel and
serious damage to equipment and the Vessel; in which case, Charterer
shall immediately notify Owner of each such expenditure individually.
Charterer shall not enter into or offer to enter into any Contract or
other agreement or arrangement related to or affecting the Vessel
without Owner's prior written consent, which consent may be granted or
withheld in Owner's sole discretion. Charterer agrees to timely
enforce all of its rights and remedies and perform in an efficient and
workmanlike manner all of its obligations under each Contract.
5.6. Charterer shall use commercially reasonable efforts to ensure that the
costs of operating the Vessel are equal to or less than the amounts
set forth in the Daily Drilling/Operating Costs Budget set forth in
Schedule C.
ARTICLE 6. - TAXES
6.1. Each of Owner and Charterer shall be responsible for all matters in
connection with any license, permit, accounting and reporting
requirement, and the like in connection with its employees including
making and submitting reports to the proper agencies and withholding
taxes, social security system, workmen's compensation and Medicare
premiums and submitting the same to the proper authorities. Any
payments resulting from the above responsibilities will be for the
account of Owner or Charterer, as applicable.
6.2. Each of Owner and Charterer shall be responsible for all taxes levied
on its personnel and/or invoices.
ARTICLE 7. - LIABILITIES
7.1. Except to the extent resulting from the Gross Negligence (herein
defined) or willful misconduct of any indemnified party, Charterer
agrees to release, defend, indemnify and hold each of Owner and its
owners, parent, affiliates, contractors and sub-contractors, and its
and their directors, officers, employees and representatives excluding
any hereinafter defined Charterer Representative ("Owner
Representatives") harmless from and against any claims, loss, damages
and liability, including all cost and expenses of defense, attorney's
fees and court costs ("Losses"), in respect of:
A. any death or injury suffered by any of Charterer and its
owners, parent, affiliates, contractors and sub-contractors,
and its and their directors, officers, employees or
representatives ("Charterer Representatives"); and
13
<PAGE> 14
B. any loss of or damage to property owned by any Charterer
Representative.
7.2. Except to the extent resulting from the Gross Negligence or willful
misconduct of any indemnified party and subject to Article 4.1(C.),
Owner agrees to release, defend, indemnify and hold each Charterer
Representative harmless from, any Losses in respect of:
A. death or injury suffered by any Owner Representative; and
B. loss of or damage to and removal of wreck of the Vessel or any
property owned or provided by Owner or owned and provided by
any Owner Representative.
7.3. Each party's liability towards third parties shall be settled in
accordance with the applicable law, except as otherwise provided in
this Charter.
7.4. The indemnities provided for in 7.1 and 7.2 above apply without regard
to the cause or causes thereof including, without limitation, breach
of contract, representation or warranty, or simple negligence, whether
active, passive, sole or concurrent, even if on the part of the party
seeking the benefit of the indemnity, whether an action is founded on
statute, common law, maritime law or theory of strict liability.
7.5. Notwithstanding anything to the contrary in this Charter, a party's
damages resulting from a breach or violation of any representation,
warranty, covenant or condition contained herein shall be limited to
actual direct damages, and shall not include any other damages,
including, without limitation, loss of profit and other indirect,
special, consequential, incidental or punitive damages.
7.6. For purposes of Articles 7.1 and 7.2, the term "Gross Negligence"
shall have the meaning ascribed to it in the jurisprudence of the
applicable jurisdiction (i.e. in Texas, such term is currently
interpreted as meaning, among other things, conduct that is so
shocking to common sensibility that it would support belief that the
act or omission complained of was a result of conscious indifference
to the right or welfare of the person affected by it. 53 Tex. Jr.3d,
Negligence Section 55fn.).
ARTICLE 8. - USE OF EQUIPMENT AND SPARES
Charterer shall be entitled to use, without additional payment to Owner, all
furniture, fittings, and other equipment on board and forming part of the
Vessel, provided that at the end of the Charter Period, the same shall, without
prejudice to 5.2 and 7.2 be returned to the Owner, or replaced in the same good
order and condition as received, fair wear and tear excepted.
14
<PAGE> 15
ARTICLE 9. - CHANGE, ALTERATIONS, REPLACEMENTS
9.1. Charterer shall make no structural changes or alterations to the
Vessel unless prior written approval has been obtained from the Owner.
Owner agrees that Charterer shall have the right to make any emergency
repairs or replacements reasonably required to safeguard the Vessel
and the personnel and equipment thereon. Such replacements shall be
for Owner's account and such repairs shall be for Owner's or
Charterer's account as specified in Article 5.
All structural changes or alterations made under this Article 9.1 shall
comply with the Vessel's classification society's requirements and the
requirements of the USCG and/or Bahamian Registry.
9.2. Unless otherwise agreed in writing between Owner and Charterer, any
installations or addition to the Vessel paid for by Charterer and not
reimbursed by Owner, which can be removed at the end of the term of
this Charter without damage to the Vessel, shall remain the property
of the Charterer and Charterer shall remove all such installations or
additions prior to or as soon as possible after redelivery and,
subject to 5.2 and 7.2 and fair wear and tear, shall restore the
Vessel to its original condition.
9.3. Charterer shall not change the name or markings of the Vessel without
the prior written consent of the Owner.
9.4. Capital expenditures and modifications shall be for Owner's account if
approved in writing by Owner, including, without limitation, the
modifications pre-approved by Owner as shown in the Long Term
Maintenance and Capital Expenditure Program set forth in Schedule D,
which program shall be mutually reviewed and adjusted by Owner and
Charterer at least annually.
ARTICLE 10. - LIENS
10.1. Charterer agrees and warrants that it will not allow any lien arising
out of Charterer's failure to pay its debts when due or any liability
or claim incurred or made against Charterer or for which Charterer
accepts responsibility under this Charter to attach to the Vessel.
Charterer further agrees that neither Charterer, nor the master of the
Vessel nor any other person shall have the right, power or authority
to, and Charterer shall not allow any such party to, create, incur, or
permit to exist on the Vessel any lien or encumbrance whatsoever.
Charterer shall indemnify and hold harmless the Owner and Lender
against any such liens upon the Vessel.
10.2. Charterer agrees to carry a copy of this Charter, and on demand to
exhibit the same to any person having business with the Charterer
which might give rise to any lien or encumbrance thereon, other than
liens for crew's wages and salvage.
15
<PAGE> 16
10.3. Should the Vessel be arrested by reason of debt, liability, or claim
incurred by or made against Charterer or for which Charterer assumed
responsibility under this Charter, Charterer shall at its cost take
all reasonable steps to secure release of the Vessel within a
reasonable period of time.
ARTICLE 11. - TERMINATION OF CHARTER PERIOD
11.1. Either Charterer or Owner shall have the right to terminate this
Charter (without any payment to the other party except for amounts
payable through the termination date), in its sole discretion, by
giving the other party at least sixty (60) days prior written notice
of such termination. The termination shall become effective on the
later to occur of the following, to the extent each is applicable:
(i) sixty (60) days after the delivery of such notice of termination
or (ii) upon the expiration date of any Contract effective at the time
such notice is given, if any (including any renewal options approved
by Owner pursuant to Article 5.5 hereof that may be exercised with
respect thereto).
11.2. This Charter shall automatically be terminated upon the earlier to
occur of the following: (i) five years from the date hereof, unless
the parties hereto agree in writing to extend the term of this Charter
or (ii) the time of a total loss of the Vessel, whether actual,
constructive or compromised (such as capture, seizure, terrorist acts,
war, nationalization or inability to export) as determined by the
Vessel's underwriters. In any case, the Charter shall continue for
the time required to complete any Contract in effect, if any,
(including any renewal options approved by Owner pursuant to Article
5.5 hereof that may be exercised with respect thereto) and
demobilization of the Vessel.
11.3. This Charterer may be terminated in accordance with any provision in
this Charter expressly providing for termination rights.
11.4. If any material defect or deficiency in the Vessel or her
appurtenances affects the continued safe operation and use of the
Vessel or her appurtenances and the repair or replacement required to
remedy the defect or deficiency is Owner's responsibility and for
Owner's account hereunder, Charterer shall be entitled to request
Owner to repair or otherwise remedy such condition. If Owner has not
commenced any such necessary repair or remedy procedures within sixty
(60) days of receipt of such written request, Charterer may terminate
this Charter and shall have no obligation to pay Owner any amounts
other than amounts of Charterhire already earned.
11.5. In the event of termination under Article 11.2(ii) above, termination
shall take effect immediately and no payments or other action by
Charterer shall be due to Owner after that date except for payment of
Charterhire already earned. In the case of termination other than
under Article 11.2(ii) above, Charterer shall as soon as reasonably
possible after termination tow the Vessel to the stack
16
<PAGE> 17
location at the McDermott wharf at Harbor Island, Texas. In the event
the McDermott's facility is not available is not accessible, then to
the nearest safe port. Except to the extent provided in Article 7,
(i) any costs related to redelivery will either be recovered from
Clients via demobilization fees, or considered as Operating Expenses
and paid for by Owner, and (ii) in no case will these costs be borne
by Charterer.
ARTICLE 12. - ASSIGNMENT AND SUBCHARTERING
12.1. Owner (including a transferee thereof) may assign, alienate or
otherwise transfer all or any portion of its rights, title and
interest and delegate any of its obligations arising pursuant to this
Charter.
12.2. Charterer agrees not to assign, transfer or otherwise alienate any of
its rights, title, interest or obligations under this Charter or to
subcharter the Vessel to any individual or entity other than an
affiliate or subsidiary of Charterer which remains an affiliate or
subsidiary of Charterer without the prior written consent of Owner,
which consent shall not be unreasonably withheld.
12.3. Unless otherwise agreed to by the parties hereto (including a
transferee of a party hereto), both the transferor and the transferee
(other than a mortgagee, pledgee or other holder of a security
interest) shall be jointly and severally responsible and primarily
liable for the full and timely performance of all covenants,
agreements and other obligations, and the timely payment and discharge
of all liabilities, costs and other expenses, arising (directly or
indirectly) pursuant to this Charter. Upon transfer of all or any
portion of its rights, title and interest in and to this Charter, the
transferor shall promptly provide the other parties hereto with a copy
of such transfer document.
ARTICLE 13. - CONDITIONS PRECEDENT [INTENTIONALLY OMITTED]
ARTICLE 14. - CHOICE OF LAW AND NOTICES
14.1. TO THE EXTENT THE LAW OF ANOTHER JURISDICTION IS NOT REQUIRED TO BE
APPLIED, (i) THE INDEMNITY PROVISIONS OF THIS CHARTER SHALL BE
GOVERNED AND INTERPRETED IN ACCORDANCE WITH FEDERAL MARITIME LAWS AND
(ii) THE REMAINDER OF THIS CHARTER SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS; IN THE
CASE OF (i) AND (ii) ABOVE, WITHOUT REGARD TO ANY CONFLICT OR CHOICE
OF LAW RULES OR PROCEDURES WHICH IF APPLIED MIGHT PERMIT OR REQUIRE
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
17
<PAGE> 18
14.2. Notice shall be deemed properly given if delivered in writing in
person to the named Representative of the other party or by telex or
by telefax to the numbers below, or by registered mail to the
addresses below:
FOR THE OWNER:
Attention: Harvey Fleisher
RIGCO North America, L.L.C.
600 Travis
Suite 7400
Houston, Texas 77002
Telephone 713 224-7400
Telefax 713 224-7574
FOR THE CHARTERER:
Attention: John Powers
Schlumberger Technology Corporation (Sedco Forex Division)
1155 Dairy Ashford, Suite 402
Houston, Texas 77079
Telephone: 281 556-3863
Telefax 281 558-3756
ARTICLE 15. - DEFAULT
15.1. If at any time a party (i) shall fail to pay any amount when due and
payable hereunder, (ii) shall be in default of any of the material
terms, conditions or provisions of this Charter, or (iii) shall be
dissolved or be adjudged a bankrupt, or shall file or have a petition
in bankruptcy filed against it, or shall make a general assignment for
the benefit of creditors, or if a receiver shall be appointed for said
party, the other party may, without prejudice to any other rights
which it may have under this Charter, exercise any one or more of the
alternatives provided for herein.
15.2. Upon the occurrence of an event of default, including those described
above, and at any time thereafter so long as the same shall be
continuing, the non-defaulting party may, by written notice at its
option, declare the other party to be in default, and:
18
<PAGE> 19
(i) If not cured within 15 days after receipt of said notice,
declare all earned and unpaid amounts, and other sums payable
hereunder to be immediately due and payable; and
(ii) Without prejudice to other rights to terminate set out in this
Charter, the defaulting party may terminate this Charter by
giving at least 15 days advance written notice of the breach,
provided that this Charter shall not terminate if the
defaulting party remedies the breach within said 15 days, but
no such termination shall release or relieve defaulting party
from any of its obligations or liabilities under this Charter.
ARTICLE 16. - REPRESENTATIONS
16.1. Charterer represents, warrants, covenants, and agrees to and with
Owner that (a) Charterer is a corporation duly organized, validly
existing, and in good standing under the laws of the country or state
of its incorporation, with the corporate power to own its property and
assets, and is duly qualified in each jurisdiction where the nature of
its operations requires such qualification; (b) the execution,
delivery, and performance of this Charter (i) are within Charterer's
power, (ii) have been duly authorized by all necessary corporate
action, including any necessary board of directors or shareholders'
action, (iii) do not contravene Charterer's articles or certificate of
incorporation or by-laws, and (iv) do not contravene any law, any
order of any court or other agency of government, or any agreement or
instrument or contractual restriction binding on or affecting any of
its property, or constitute a default thereunder.
16.2. Owner represents, warrants, covenants, and agrees to and with
Charterer that (a) Owner is a limited partnership duly organized,
validly existing, and in good standing under the laws of the country
or state of its formation, with the partnership power to own its
property and assets, and is duly qualified in each jurisdiction where
the nature of its operations requires such qualification; (b) the
execution, delivery, and performance of this Charter (i) are within
Owner's power, (ii) have been duly authorized by all necessary
corporate action, including any necessary board of directors,
shareholders' or other appropriate body action, (iii) do not
contravene Owner's articles or certificate of incorporation or by-laws
or other organizational documents, and (iv) do not contravene any law,
any order of any court or other agency of government, or any agreement
or instrument or contractual restriction binding on or affecting any
of its property, or constitute a default thereunder.
16.3. EXCEPT AS EXPRESSLY PROVIDED IN THIS CHARTER, EACH OF CHARTERER AND
OWNER EXPRESSLY DISCLAIM, WAIVE AND NEGATE ANY AND ALL REPRESENTATIONS
OR WARRANTIES, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY, FITNESS AND TITLE.
19
<PAGE> 20
ARTICLE 17. - FORCE MAJEURE
17.1. The term "Force Majeure" as used in this Charter shall mean any act,
event, cause or occurrences which are unforeseeable and unavoidable
rendering a party unable to perform its obligations on account of
strikes, riots, war (declared or undeclared) or warlike operations,
terrorist acts, insurrection, fire, storm (or other natural
catastrophe), any unavoidable delay in obtaining supplies or materials
(other than action or delay caused by Charterer or Owner), any act of
any government authority or any other cause whether or not similar to
the causes herein specified which is not within the reasonable control
of the Party claiming relief under this Clause;
17.2. If any party is rendered unable, wholly or in part by Force Majeure to
perform its obligations under this Charter other than financial
obligations, it is agreed that performance of such obligations by such
party, so far as they are affected by Force Majeure, shall be excused
from the inception of such inability until it is corrected, but for no
longer period. The party claiming an inability to perform shall, as
soon as possible after the occurrence of the Force Majeure event,
notify the other party of such event and its inability to perform.
The party claiming inability to perform shall promptly use all due
endeavors to overcome the Force Majeure event.
17.3. Should the Force Majeure event last for more than thirty (30) days,
either party shall be entitled to terminate this Charter.
ARTICLE 18. - CONFIDENTIALITY
18.1. All information acquired by one party regarding the business or
operations of the other party, other than information which either:
- is part of the public domain,
- becomes part of the public domain other than through
the fault of the parties,
- is already known by the Parties at the same time of
disclosure,
- is required to be disclosed to third parties
according to applicable law, is to be treated as
confidential and not to be used or discussed by
either party for any other purpose than for the
performance of this Charter for the maximum
enforceable period allowed by applicable law relative
to such undertakings.
ARTICLE 19. - CHARTERER'S CONTINUING OBLIGATIONS:
19.1. Charterer shall be obligated under this Charter to operate the Vessel
in a fashion consistent with (i) all applicable laws, rules,
regulations and orders, (ii) the standards of a prudent operator in
the offshore drilling industry and (iii) how Charterer would operate
one of his own Vessels. Charterer shall use his best
20
<PAGE> 21
efforts to secure additional work for the Vessel through a marketing
effort within the Area of Operations. Owners shall be timely
consulted and kept aware of future work prospects for the Vessel.
19.2. During the Charter Period, Charterer shall use all reasonable efforts
to give Owner at least ninety (90) days prior written notice before
conducting any marketing in the US Gulf of Mexico of any equipment
that is competitive with the Vessel, the semisubmersible drilling rig
the FPS Bill Shoemaker, official number 366166 (the "Bill Shoemaker")
(provided such rig continues under the management of Charterer), or
any other drilling rig owned by Owner or any affiliate or subsidiary
of Owner and managed by Charterer. It is expressly understood and
agreed that in the event of the acquisition of existing equipment in
the Gulf of Mexico by Charterer, Charterer may not be able to, and
will not be required to, give such notice.
ARTICLE 20. - MISCELLANEOUS
20.1. This Charter and the other agreements executed pursuant hereto, if
any, constitute the entire agreement and supersede all prior (oral or
written) or oral contemporaneous proposals or agreements, all previous
negotiations and all other communications or understandings between
the parties hereto with respect to the subject matter hereof.
20.2. All amendments, supplements and modifications to this Charter shall be
in writing and signed by all of the parties hereto.
20.3. This Charter may be executed in multiple counterparts, each of which,
when executed, shall be deemed an original, and all of which shall
constitute but one and the same instrument.
20.4. All personal pronouns used in this Charter, whether used in the
masculine, feminine or neuter gender, shall include all other genders;
the singular shall include the plural, and vice versa. Articles,
sections and other titles or headings are for convenience only, and
neither limit nor amplify the provisions of the Charter itself, and
all references herein to articles, sections or subdivisions thereof
shall refer to the corresponding article, section or subdivision
thereof of this Charter unless specific reference is made to such
articles, sections or subdivisions of another document or instrument.
20.5. All exhibits, schedules and the like contained herein are integrally
related to this Charter, and are hereby made a part of this Charter
for all purposes.
20.6. Subject to the terms and conditions set forth in this Charter, each of
the parties hereto agrees to use all reasonable efforts to take, or to
cause to be taken, all actions, and to do, or to cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations to consummate and make
21
<PAGE> 22
effective the transactions contemplated by this Charter. In case, at
any time after the execution of this Charter, any further action is
necessary or desirable to carry out its purposes, the proper officers
or directors of the parties hereto shall take or cause to be taken all
such necessary action.
20.7. Each of the parties hereto shall pay all costs and expenses incurred
or to be incurred by such party in negotiating and performing the
transactions contemplated by this Charter.
20.8. Any term or provision of this Charter that is invalid or unenforceable
in any jurisdiction shall be ineffective as to such jurisdiction, to
the extent of such invalidity or unenforceability, without rendering
invalid or unenforceable the remaining terms and provisions of this
Charter or affecting the validity or enforceability of any terms and
provisions of this Charter in any other jurisdiction. If any
provision of this Charter is so broad as to be unenforceable, each
provision shall be interpreted to be only so broad as is enforceable.
A bankruptcy or similar trustee must accept or, to the extent
permitted by law, reject this Charter in its entirety.
20.9. This Charter shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, successors, assigns and
personal representatives.
20.10. Neither action taken (including, without limitation, any investigation
by or on behalf of any party) nor inaction pursuant to this Charter,
shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by
the party not committing such action or inaction. A waiver by any
party hereto of a particular right, including, without limitation,
breach of any provision of this Charter, shall not operate or be
construed as a subsequent waiver of that same right or a waiver of any
other right.
20.11. The rights, obligations and remedies created by this Charter are
cumulative and in addition to any other rights, obligations or
remedies otherwise available at law or in equity. Nothing herein
shall be considered an election of remedies. Without being subject to
the limitations required by common law, any party may enforce this
Charter by an injunction or specific performance. In addition, any
successful party is entitled to costs related to enforcing this
Charter, including, without limitation, attorneys' fees, court costs
and settlement and arbitration expenses.
20.12. Except as expressly provided in this Charter, nothing contained in
this Charter shall be construed to confer any right, benefit or
interest upon any person or entity other than the parties hereto.
22
<PAGE> 23
20.13. Time is of the essence with respect to any notice requirements and
payment obligations contained herein.
20.14. Subject to the terms and conditions of this Charter, the parties
hereto agree and acknowledge that Charterer is independent from and of
Owner's control, and Charterer hereby agrees to act pursuant to the
provisions of this Charter. Charterer is and agrees to maintain such
independent status and relationship. Any provisions of this Charter
that may appear to give Owner a measure of control over the details of
the Charterer's operations shall be deemed to mean that Charterer
shall follow the general desires of Owner but Charterer shall have
authoritative control as to the details of performing the such
operations. Neither Charterer nor any Charterer Representative shall
be deemed to be the agents, representatives or employees of Owner.
Nothing herein is intended to, or shall, create a partnership, joint
venture, agency or other relationship creating fiduciary or quasi
fiduciary duties or similar duties and obligations or otherwise
subject the parties hereto joint and several or vicarious liability or
to impose any duty, obligation or liability that would arise therefrom
with respect to either or both of the parties hereto.
20.15. The parties hereto agree to act in good faith to undertake the
restructuring of this Charter and the First Amended and Restated
Charter Agreement, dated as of even date herewith, between Owner and
Charterer relating to the Bill Shoemaker, with the intent of arriving
at a mutually agreeable Master Agreement, relating to the Vessel and
the Bill Shoemaker, within six months of delivery of the Bill
Shoemaker under a drilling contract.
[The remainder of this page is intentionally left blank.]
23
<PAGE> 24
IN WITNESS WHEREOF, the Owner and Charterer have executed this Charter as of
the day and year first above written.
(Owner) (Charterer)
RIGCO NORTH AMERICA, L.L.C. SCHLUMBERGER TECHNOLOGY
CORPORATION (SEDCO FOREX
DIVISION)
By: By:
-------------------------- ---------------------------
Title: Title:
----------------------- ------------------------
Schedule A: Vessel Description
Schedule B: Personnel Costs
Schedule C: Daily Drilling/Operating Costs Budget
Schedule D: Long Term Maintenance and Capital Expenditure Program
Schedule E: Waiver of On-Hire Survey - Article 1.2.A.
Schedule F: Certificate of Delivery and Acceptance
24
<PAGE> 1
EXHIBIT 10.28
GLOBAL AMENDMENT and ASSIGNMENT AND ACCEPTANCE, dated as of October
9, 1996 (this "Global Amendment"), among: i) RIGCO NORTH AMERICA, L.L.C., a
Delaware limited liability corporation (the "Borrower"); ii) the several
lenders and other financial institutions listed on the signature pages of this
Global Amendment (individually, a "Lender", and collectively, the "Lenders")
and iii) BHF-BANK AKTIENGESELLSCHAFT, as Administrative Agent (the
"Administrative Agent") iv) HIBERNIA NATIONAL BANK, as Collateral and
Documentation Agent (the "Collateral and Documentation Agent") and v) LEHMAN
COMMERCIAL PAPER INC., as Syndication Agent, Arranger and as a Lender ("LCPI").
W I T N E S S E T H :
WHEREAS, the Borrower and LCPI are parties to the Credit
Agreement (as amended, supplemented or otherwise modified prior to the date
hereof, the "Credit Agreement") and the other Loan Documents thereunder, each
dated as of September 30, 1996;
WHEREAS, the parties wish to amend the Credit Agreement and
the other Loan Documents to, among other things, add the Lenders as parties to
the Credit Agreement, replace LCPI, as administrative agent and collateral and
documentation agent with the Administrative Agent and the Collateral and
Documentation Agent, respectively, and to effectuate certain other changes
requested by the Lenders, all as set forth in this Global Amendment;
NOW THEREFORE, in consideration of the premises, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS.
1.1 Defined Terms. Unless otherwise defined herein and
except as set forth in this Global Amendment, terms defined in the Credit
Agreement are used herein as therein defined.
SECTION 2. AMENDMENT OF CREDIT AGREEMENT.
2.1 Amendment to Subsection 2.10. Subsection 2.10 of the
Credit Agreement is hereby amended by deleting such subsection in its entirety
and substituting in lieu thereof the following new subsection 2.10:
"2.10 Fees. The Borrower shall pay to the Arranger
an annual agent's fee in an amount equal to $25,000, payable on the
Closing Date and on the first anniversary thereof. The Arranger
hereby acknowledges that it has received from the Borrower the agent's
fee payable on the Closing Date. The Arranger shall pay to each of
the Administrative Agent and the Collateral and Documentation Agent
for their own accounts an annual agent's fee in an amount equal to
$25,000, payable on each of the Second Closing Date and on the first
anniversary of the Closing Date."
<PAGE> 2
2
2.2 Amendment to Subsection 3.3. Subsection 3.3 of the
Credit Agreement is hereby amended as follows:
(a) by inserting the phrase "and the other Loan Parties"
immediately following the word "Subsidiaries" in the second line
thereof; and
(b) inserting the phrase "and the other Loan Parties
(other than the Borrower)" immediately following the word "Borrower"
in the third line thereof and immediately following the word
"Borrower" in the seventh line thereof.
2.3 Amendment to Section 5. Section 5 of the Credit
Agreement is hereby amended by inserting, immediately after Subsection 5.14,
the following new subsection 5.15:
"5.15 Monthly Schedule. Within 10 days after the
end of each calendar month, provide each Lender with a
schedule of the number of days each Rig was in use during such
calendar month and the average day rate payable with respect
to such Rig during such month."
2.4 Amendment to Subsection 5.7. Subsection 5.7 of the
Credit Agreement is hereby amended by inserting the phrase ", and the
Collateral and Documentation Agent" immediately following the words
"Administrative Agent" in the first line thereof.
2.5 Amendment to Subsection 5.8. Subsection 5.8 of the
Credit Agreement is hereby amended by adding the phrase "and the operators of
the Rigs" immediately following the word "subtenants" in the second line
thereof.
2.6 Amendment to Subsection 9.1. Subsection 9.1 of the
Credit Agreement is hereby amended as follows:
(a) by adding the phrase "or increase any Commitment
thereunder" immediately following the words "payment thereof" at the
end of clause (i) of the proviso thereof;
(b) by adding the phrase "without the written consent of
all of the Lenders" immediately following the word "Collateral" in the
second line of clause (iv) of the proviso thereof; and
(c) by deleting the phrase ",in each case" immediately
following the term "subsection 2.5" in the second line of clause (iv)
of the proviso thereof.
2.7 Amendment to Subsection 9.2. Subsection 9.2 of the
Credit Agreement is hereby amended as follows:
(a) by deleting the name and address of the
Administrative Agent therein and substituting in lieu thereof the
following:
<PAGE> 3
3
BHF-Bank Aktiengesellschaft
590 Madison Avenue
New York, New York 10022
Attention: Amanda Montgomery
Fax: (212) 756-5536
(b) by deleting the name and address of the Collateral
and Documentation Agent therein and substituting in lieu thereof the
following:
Hibernia National Bank
313 Carondelet Street
New Orleans, Louisiana 70130
Attention: Frank Russo
Fax: (504) 533-5494
2.8 Amendment to Subsection 9.15. Subsection 9.15 of the
Credit Agreement is hereby amended by inserting the phrase "or prospective
Transferee" immediately following the word "Transferee" in the fifth line
thereof.
2.9 Amendment to Schedule I. The Credit Agreement is
hereby amended by inserting as a new Schedule I the Schedule I attached hereto.
SECTION 3. AMENDMENT OF OTHER LOAN DOCUMENTS.
3.1 Amendment to Section 5.3(e) of the Borrower Security
Agreement. Section 5.3(e) of the Borrower Security Agreement is hereby amended
by inserting immediately after the word "shall" in the second line thereof the
following phrase ", after consulting with the Administrative Agent to ensure
that no Default or Event of Default has occurred and is continuing,".
3.2 Amendment to Warrant Agreement. (a) the Warrant
Agreement is hereby amended to reflect that the Borrower will, on the Effective
Date, issue, in exchange for the Warrant delivered to an affiliate of LCPI on
the Closing Date, new Warrants (the "New Warrants") to each Lender (or its
affiliate), each such New Warrant representing the ownership interest in the
Borrower specified by the Arranger to the Borrower;
(b) Subsection 2.1 of the Warrant Agreement is hereby
amended by deleting such subsection in its entirety and substituting in lieu
thereof the following new subsection 2.1:
"2.1. Issuance of Warrants. The Company
hereby agrees that, upon receipt for cancellation of the
Warrant issued on the Closing Date in favor of an Affiliate of
the Arranger, it will, on the Second Closing Date, issue in
favor of the Persons specified on Exhibit B hereto, Warrants
representing the percentage of Interests in the Company
opposite such Person's name on Exhibit B. On the Second
Closing Date the Company shall deliver to such Persons Warrant
Certificates evidencing the Warrants issued to such Persons.
Each Warrant issued
<PAGE> 4
4
on the Closing Date shall entitle the Holder thereof to
purchase from the Company the percentage of Interests in the
Company (after giving effect to any such exercise of the
Warrants) set forth opposite such Person's name on Exhibit B
(subject to adjustment as provided in Section 4)."
(c) Exhibit B to the Warrant Agreement is hereby amended
to reflect the information specified by the Arranger to the Borrower with
respect to the ownership interests in the Borrower held by the Lenders (or
their affiliates) and represented by the New Warrants and the Company agrees to
adjust the Warrant Register to reflect the issuance on the Second Closing Date
of the New Warrants in favor of the Lenders (or their affiliates) and the
retirement of the Warrant issued on the Closing Date.
SECTION 4. REPLACEMENT OF ADMINISTRATIVE AGENT AND
COLLATERAL AND DOCUMENTATION AGENT.
Pursuant to subsection 8.9 of the Credit Agreement, LCPI
hereby resigns as administrative agent and collateral and documentation agent
under the Credit Agreement and the other Loan Documents and LCPI and each of
the Lenders hereby appoint BHF-Bank Aktiengesellschaft as administrative agent
and Hibernia National Bank as collateral and documentation agent under the
Credit Agreement and the other Loan Documents and such parties hereby accept
such appointments. The Borrower hereby consents to such resignation and
appointments. Each of the Credit Agreement and the other Loan Documents are
hereby amended to reflect such resignation and appointments and BHF-Bank
Aktiengesellschaft shall be treated as the Administrative Agent and Hibernia
National Bank shall be treated as the Collateral and Documentation Agent under
the Credit Agreement and the other Loan Documents.
SECTION 5. ADDITION OF LENDERS.
By their signature below each of the Lenders (other than LCPI
which is already a Lender) shall become a Lender party to the Credit Agreement
and the other Loan Documents with all rights, powers and obligations of a
Lender thereunder and with an aggregate Commitment as set forth on Schedule I
attached hereto. All notices to the Lenders under the Credit Agreement shall
be given to the Lenders at the address specified on Schedule I hereto. On the
Effective Date each of the Lenders shall transfer in immediately available
funds to LCPI at an account previously instructed by LCPI to each such Lender
the amount set forth opposite its name on Schedule I hereto.
SECTION 6. MISCELLANEOUS.
6.1 Effectiveness. The amendments provided for herein shall
become effective as of October 9, 1996 (the "Effective Date") upon the
satisfaction of the following condition precedent:
(a) the Administrative Agent shall have received
counterparts of this Global Amendment, duly executed and delivered by
the Borrower and each of the other parties hereto;
<PAGE> 5
5
(b) UCC financing statements shall have been executed by
the appropriate parties and assignments of the Ship Mortgages shall
have been executed and filed in the appropriate filing office (with an
accompanying opinion of Bahamian counsel with respect to such
assignments), in each case to reflect the replacement of LCPI with
Hibernia National Bank as Collateral and Documentation Agent, and such
further actions as may be reasonably requested by the Arranger in
connection with the modifications and events contemplated hereby shall
have been taken; and
(c) LCPI (or its affiliate) shall have surrendered the
Warrant issued to its affiliate on the Closing Date and the Borrower
shall have executed and delivered the New Warrants to each Lender (or
its affiliate), each such New Warrant representing the ownership
interest in the Borrower notified by the Arranger to the Borrower.
6.2 Representations and Warranties. After giving effect to
the amendments contained herein, on the Effective Date, the Borrower hereby
confirms, reaffirms and restates the representations and warranties set forth
in Section 3 of the Credit Agreement; provided that each reference in such
Section 3 to "this Agreement" shall be deemed to be a reference both to this
Global Amendment and to the Credit Agreement as amended by this Global
Amendment.
6.3 Continuing Effect; No Other Amendments. Except as
expressly amended or waived hereby, all of the terms and provisions of the
Credit Agreement and the other Loan Documents are and shall remain in full
force and effect. The amendments contained herein shall not constitute an
amendment or waiver of any other provision of the Credit Agreement or the other
Loan Documents or for any purpose except as expressly set forth herein.
6.4 No Default. No Default or Event of Default shall have
occurred and be continuing as of the Effective Date after giving effect to this
Global Amendment.
6.5 Counterparts. This Global Amendment may be executed in
any number of counterparts by the parties hereto, each of which counterparts
when so executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
6.6 GOVERNING LAW. THIS GLOBAL AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
<PAGE> 6
6
IN WITNESS WHEREOF, the parties hereto have caused this Global
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
RIGCO NORTH AMERICA, L.L.C.
By:
Title:
BHF-BANK AKTIENGESELLSCHAFT, as
Administrative Agent and as a Lender
By:
Title:
By:
Title:
HIBERNIA NATIONAL BANK, as Collateral and
Documentation Agent and as a Lender
By:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By:
Title:
PRIME INCOME TRUST
By:
<PAGE> 7
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:
Title:
PROTECTIVE LIFE INSURANCE COMPANY
By:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT L.P.,
as Investment Adviser
By:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
Title:
<PAGE> 8
SCHEDULE I
<TABLE>
<CAPTION>
Lender Commitment
------ ----------
<S> <C>
BHF-BANK AKTIENGESELLSCHAFT 9,800,000
590 Madison Avenue
New York, NY 10022
Attention: Paul Travers
Fax: (212) 756-5536
DEAN WITTER PRIME INCOME TRUST 9,800,000
Two World Trade Center, 72nd Floor
New York, NY 10048
Attention: Rafael Scolari
Fax: (212) 392-5345
HIBERNIA NATIONAL BANK 3,000,000
313 Carondelet Street
New Orleans, LA 70130
Attention: Bruce Ross
Fax: (504) 533-5434
LEHMAN COMMERCIAL PAPER INC. 16,300,000
3 World Financial center
New York, NY 10285
Attention: Robert Chambers
Fax: (212) 528-6600
MERRILL LYNCH PRIME RATE PORTFOLIO 4,900,000
Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, NJ 08536
Attention: Doug Henderson
Fax: (609) 282-2757
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. 4,900,000
Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, NJ 08536
Attention: Doug Henderson
Fax: (609) 282-2757
</TABLE>
<PAGE> 9
9
<TABLE>
<S> <C>
PROTECTIVE LIFE INSURANCE COMPANY 9,800,000
1150 Two Galleria Tower
13455 Noel Road, Suite 1150
Dallas, TX 75240
Attention: Mark Okada
Fax: (214) 233-4343
VAN KAMPEN AMERICAN CAPITAL 6,500,000
PRIME RATE INCOME TRUST
1 Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Jeffrey Maillet
Fax: (630) 684-6740
</TABLE>
<PAGE> 1
EXHIBIT 10.30
THIRD AMENDMENT
THIRD AMENDMENT, dated as of May 13, 1997 (this "Third
Amendment"), to the Credit Agreement, dated as of September 30, 1996 (as amended
by the Global Amendment and Assignment and Acceptance, dated as of October 9,
1996, the Second Amendment, dated as of April 23, 1997 and as may be further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among RIGCO NORTH AMERICA, L.L.C., a Delaware limited liability
company (the "Borrower"), the several banks and other financial institutions
from time to time parties thereto (the "Lenders"), LEHMAN COMMERCIAL PAPER INC.
("LCPI"), as Advisor, Syndication Agent and Arranger, HIBERNIA NATIONAL BANK, as
Collateral and Documentation Agent and BHF-BANK AKTIENGESELLSCHAFT, as
Administrative Agent.
W I T N E S S E T H
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain Loans to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders amend,
and the Lenders have agreed to amend, certain of the provisions of the Credit
Agreement, upon the terms and subject to the conditions set forth below;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. As used herein, terms defined in this Third
Amendment or in the Credit Agreement are used herein as so defined.
2. Amendment to Subsection 5.13. Subsection 5.13 of the Credit
Agreement is hereby amended by deleting the date "May 15, 1997" in the second
line thereof and substituting in lieu thereof the date "June 15, 1997".
3. Effectiveness. The amendments provided for herein shall
become effective on the date (the "Effective Date") of satisfaction of the
following condition precedent:
(a) The Administrative Agent shall have received counterparts
of this Third Amendment, duly executed and delivered by the Borrower and
each of the other parties hereto.
(b) All limited liability company and other proceedings, and
all documents, instruments and other legal matters in connection with the
transactions contemplated by this Third Amendment shall be satisfactory in
form and substance to the Arranger and the Administrative Agent.
4. Representations and Warranties. After giving effect to the
amendments contained herein, on the Effective Date, the Borrower hereby
confirms, reaffirms and restates the representations and warranties set forth in
Section 3 of the Credit Agreement; provided that each
<PAGE> 2
2
reference in such Section 3 to "this Agreement" shall be deemed to be a
reference both to this Third Amendment and to the Credit Agreement as amended by
this Third Amendment.
5. Continuing Effect; No Other Amendments. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendments contained herein shall not constitute an amendment or
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any purpose except as expressly set forth herein.
6. No Default. No Default or Event of Default shall have
occurred and be continuing as of the Effective Date after giving effect to this
Third Amendment.
7. Costs and Expenses. The Borrower agrees to pay the
reasonable costs and expenses of the Administrative Agent, the Collateral and
Documentation Agent and the Arranger in connection with this Third Amendment,
including without limitation, legal fees and expenses.
8. Counterparts. This Third Amendment may be executed in any
number of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
9. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties have caused this Third
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
RIGCO NORTH AMERICA, L.L.C.
By:
Title:
BHF-BANK AKTIENGESELLSCHAFT, as
Administrative Agent and
as a Lender
By:
Title:
By:
Title:
HIBERNIA NATIONAL BANK, as Collateral and
Documentation Agent and as a Lender
By:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:
Title:
<PAGE> 4
4
PROTECTIVE LIFE INSURANCE COMPANY
By:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT
L.P., as Investment Adviser
By:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
Title:
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT L.P., as
Investment Adviser
By:
Title:
ML CBO IV (CAYMAN) LTD.
By: Protective Asset Management, L.L.C.,
as Collateral Manager
By:
Title:
<PAGE> 1
EXHIBIT 10.31
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of July 31, 1997 (this "Fourth
Amendment"), to the Credit Agreement, dated as of September 30, 1996 (as amended
by the Global Amendment and Assignment and Acceptance, dated as of October 9,
1996, the Second Amendment, dated as of April 23, 1997, the Third Amendment,
dated as of May 13, 1997 and as may be further amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among RIGCO NORTH
AMERICA, L.L.C., a Delaware limited liability company (the "Borrower"), the
several banks and other financial institutions from time to time parties thereto
(the "Lenders"), LEHMAN COMMERCIAL PAPER INC. ("LCPI"), as Advisor, Syndication
Agent and Arranger, HIBERNIA NATIONAL BANK, as Collateral and Documentation
Agent and BHF-BANK AKTIENGESELLSCHAFT, as Administrative Agent.
W I T N E S S E T H
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain Loans to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders amend,
and the Lenders have agreed to amend, certain of the provisions of the Credit
Agreement, upon the terms and subject to the conditions set forth below;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. (a) As used herein, terms defined in this
Fourth Amendment or in the Credit Agreement are used herein as so defined.
(b) The definition of the term "Permitted Issuance" contained
in subsection 1.1 of the Credit Agreement is hereby amended by deleting the
amount "$5,000,000" in the fourth line thereof and substituting in lieu thereof
the amount "$20,000,000".
2. Amendment to Subsection 5.13. Subsection 5.13 of the Credit
Agreement is hereby amended by deleting the number "$48,000,000" in the last
line thereof and substituting in lieu thereof the number "$56,000,000".
3. Amendment to Subsection 6.1. Subsection 6.1 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following:
"6.1 Financial Condition Covenants.
(a) Maintenance of Net Worth. Permit Net Worth at the last day
of any fiscal quarter set forth below to be less than the amount set
forth opposite such fiscal quarter below (provided, however, to the
extent not included in Net Income in accordance with GAAP during the
fiscal quarter then ended or in any previous fiscal quarter, Net Worth
shall include any Mobilization Fees actually received by the Borrower
during the fiscal quarter then ended and provided, further, to the
extent deducted in computing Net Worth in accordance with GAAP during
the fiscal
<PAGE> 2
2
quarter then ended or in any previous fiscal quarter, Net Worth shall
include the amount of any deferred corporate income taxes of the
Borrower (less any reductions in deferred corporate income taxes of the
Borrower during any of such periods) resulting from an election by the
Borrower to be treated as a corporation for U.S. federal income tax
purposes):
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
--------------------- ------
<S> <C>
December 31, 1996 $3,000,000
March 31, 1997 $3,000,000
June 30, 1997 $3,000,000
September 30, 1997 $5,000,000
December 31, 1997 $6,000,000
March 31, 1998 $6,000,000
June 30, 1998 $6,000,000
September 30, 1998 $6,000,000
</TABLE>
(b) Maintenance of EBITDA to Interest Expense Ratio. Permit
the ratio of (i) EBITDA for any period of four consecutive fiscal
quarters ending with any fiscal quarter set forth below to (ii) Cash
Interest Expense for such period of four consecutive fiscal quarters to
be less than the ratio set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- -----
<S> <C>
March 31, 1997 .50 to 1.00
June 30, 1997 .50 to 1.00
September 30, 1997 1.25 to 1.00
December 31, 1997 1.75 to 1.00
March 31, 1998 2.25 to 1.00
June 30, 1998 2.75 to 1.00
September 30, 1998 3.00 to 1.00
</TABLE>
(c) Maintenance of EBITDA. Permit EBITDA for any period of
four consecutive fiscal quarters ending with any fiscal quarter set
forth below to be less than the amount set forth opposite such fiscal
quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
--------------------- ------
<S> <C>
March 31, 1997 $ 1,750,000
June 30, 1997 $ 1,750,000
September 30, 1997 $ 9,000,000
December 31, 1997 $14,000,000
March 31, 1998 $20,000,000
June 30, 1998 $20,000,000
September 30, 1998 $21,000,000
</TABLE>
(d) Maintenance of Working Capital. Permit at any time prior
to the date on which the Shoemaker is delivered to commence work under
a Drilling Contract Working Capital to be less than $500,000."
<PAGE> 3
3
4. Consent. The Lenders hereby consent to the amendment of the
Charter with respect to the Pincay (the "Pincay Charter") to the extent such
amendment (i) increases the daily payments by the Borrower to the Charterer
thereunder from $2,800 to $5,000 and (ii) eliminates the participation discount
rate in the event the Pincay is deployed for drilling activities on behalf of
affiliates of the Borrower.
5. Waiver. The Lenders hereby waive any Default or Event of
Default which may have occurred prior to the date hereof resulting solely from
the failure of the upgrade contemplated by the Shoemaker Upgrade Agreement to be
completed by June 15, 1997 (it being a condition to such waiver that such
upgrade was completed on July 9, 1997).
6. Effectiveness. The amendments provided for herein shall
become effective on the date (the "Effective Date") of satisfaction of the
following condition precedent:
(a) The Administrative Agent shall have received counterparts
of this Fourth Amendment, duly executed and delivered by the Borrower
and each of the other parties hereto.
(b) The Lenders shall have received and be reasonably
satisfied with the amendment to the Pincay Charter referred to in
paragraph 4.
(c) The Lenders shall have received satisfactory revised
financial projections of the Borrower for the period of July 1997
through June 1998.
(d) All governmental and third party approvals (including
landlords' and other consents) necessary or advisable in connection
with this Fourth Amendment shall have been obtained and be in full
force and effect, and all applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority
which would restrain, prevent or otherwise impose materially adverse
conditions on the Credit Agreement as amended by this Fourth Amendment.
(e) All limited liability company and other proceedings, and
all documents, instruments and other legal matters in connection with
the transactions contemplated by this Fourth Amendment shall be
satisfactory in form and substance to the Arranger and the
Administrative Agent.
7. Representations and Warranties. After giving effect to the
amendments contained herein, on the Effective Date, the Borrower hereby
confirms, reaffirms and restates the representations and warranties set forth in
Section 3 of the Credit Agreement; provided that each reference in such Section
3 to "this Agreement" shall be deemed to be a reference both to this Fourth
Amendment and to the Credit Agreement as amended by this Fourth Amendment.
8. Continuing Effect; No Other Amendments. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendments contained herein shall not constitute an amendment or
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any purpose except as expressly set forth herein.
<PAGE> 4
4
9. No Default. Other than as contemplated by paragraph 5
above, no Default or Event of Default shall have occurred and be continuing as
of the Effective Date after giving effect to this Fourth Amendment.
10. Costs and Expenses. The Borrower agrees to pay the
reasonable costs and expenses of the Administrative Agent, the Collateral and
Documentation Agent and the Arranger in connection with this Fourth Amendment,
including, without limitation, legal fees and expenses.
11. Counterparts. This Fourth Amendment may be executed in any
number of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
12. GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
<PAGE> 5
5
IN WITNESS WHEREOF, the parties have caused this Fourth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
RIGCO NORTH AMERICA, L.L.C.
By:
Title:
BHF-BANK AKTIENGESELLSCHAFT, as
Administrative Agent and as a Lender
By:
Title:
By:
Title:
HIBERNIA NATIONAL BANK, as Collateral and
Documentation Agent and as a Lender
By:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:
Title:
<PAGE> 6
6
PROTECTIVE LIFE INSURANCE COMPANY
By:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT L.P.,
as Investment Adviser
By:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
Title:
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT L.P.,
as Investment Adviser
By:
Title:
ML CBO IV (CAYMAN) LTD.
By: Protective Asset Management, L.L.C.,
as Collateral Manager
By:
Title:
<PAGE> 1
EXHIBIT 10.32
FIFTH AMENDMENT
FIFTH AMENDMENT, dated as of June 16, 1998 (this "Fifth Amendment"),
to the Credit Agreement, dated as of September 30, 1996 (as amended by the
Global Amendment and Assignment and Acceptance, dated as of October 9, 1996,
the Second Amendment, dated as of April 23, 1997, the Third Amendment dated as
of May 13, 1997, the Fourth Amendment dated as of June 15, 1997, and as may be
further amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among RIGCO NORTH AMERICA, L.L.C., a Delaware limited
liability company (the "Borrower"), the several banks and other financial
institutions from time to time parties thereto (the "Lenders"), LEHMAN
COMMERCIAL PAPER INC. ("LCPI"), as Advisor, Syndication Agent and Arranger,
HIBERNIA NATIONAL BANK, as Collateral and Documentation Agent and BHF-BANK
AKTIENGESELLSCHAFT, as Administrative Agent.
W I T N E S S E T H
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make, and have made, certain Loans to the Borrower;
WHEREAS, DeepTech and El Paso Natural Gas Company ("El Paso") have
entered into an Agreement and Plan of Merger dated February 27, 1998 (the
"Merger Agreement") and DeepTech, El Paso and certain of their affiliates have
entered, or will enter, into certain additional agreements (along with the
Merger Agreement, the "Reorganization Documents") pursuant to which (i) DPSI
and its Subsidiaries will become Subsidiaries of Tatham Offshore, Inc. ("TOFF")
as a result of DeepTech's contribution to TOFF of 100% of the Capital Stock of
DPSI and all of the then remaining indebtedness owed from DPSI to DeepTech (the
"Contribution"), (ii) the tax basis in the Pincay will be "stepped-up" by up to
$48 million in the Step-Up Transactions (as hereinafter defined), (iii)
DeepTech will spin-off TOFF pursuant to a rights offering (the "Rights
Offering") to the DeepTech stockholders (the "Spin-Off"), (iv) El Paso will
acquire DeepTech pursuant to a merger (the "Merger") and (v) the Management
Agreement may be amended and assigned to TOFF or terminated and replaced
(hereinafter, the transactions described in or contemplated by this recital or
the Reorganization Documents may be referred to as the "Reorganization
Transactions");
WHEREAS, the Lenders' consent is required with respect to certain
aspects of the Reorganization Transactions, including, without limitation,
DeepTech no longer being affiliated with the Borrower and the Borrower
transferring certain of its assets to an affiliate in connection with the
Step-Up Transactions;
WHEREAS, the Borrower desires to effect the Reorganization
Transactions while maintaining the existence of the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders amend, and the
Lenders have agreed to amend, certain of the provisions of the Credit
Agreement, upon the terms and subject to the conditions set forth below;
1
<PAGE> 2
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINED TERMS. As used herein, terms defined in this Fifth
Amendment or in the Credit Agreement are used herein as so defined.
2. AMENDMENT TO SUBSECTION 1.1 (DEFINED TERMS). Subsection 1.1 of
the Credit Agreement is hereby amended as follows:
(i) adding the following definitions:.
"First Amendment to Deed of Covenants": the First
Amendment to Deed of Covenants dated as of even date
with the First Amendment to Ship Mortgage between the
Borrower and the Collateral and Documentation Agent.
"First Amendment to Ship Mortgage": the First
Amendment to Ship Mortgage and related First
Amendment to Deed of Covenants dated as of even date
with the Fifth Amendment issued by the Borrower in
favor of the Collateral and Documentation Agent, as
the same may be modified from time to time, granting
a mortgage on the Borrower's 25% undivided interest
in the Pincay to secure the Borrower's obligations
under this Agreement, which Ship Mortgage and Deed of
Covenants shall be substantially in the form of the
Ship Mortgage and related Deed of Covenants initially
executed by the Borrower granting a mortgage on the
Pincay.
"Fifth Amendment": the Fifth Amendment, dated as of
June 16, 1998, to this Agreement.
"First Amendment to Parent Pledge Agreement": the
First Amendment to Parent Pledge Agreement dated as
of even date with the Fifth Amendment executed and
delivered by FPS V in favor of the Lenders.
"FPS V/FPS VI Guarantee": the Guarantee dated as of
even date with the Fifth Amendment issued by FPS V
and FPS VI in favor of the Lenders.
"FPS V Acquisition, Assignment and Assumption
Agreement": the Acquisition, Assignment and
Assumption dated as of even date with the Fifth
Amendment between FPS V and the Borrower.
"FPS V Purchase Note": the Promissory Note dated as
of even date with the Fifth Amendment issued by FPS V
in favor of the Borrower in the original principal
amount of $15 million.
"FPS VI": FPS VI, L.L.C., a Delaware limited
liability company formed and initially owned by the
Borrower.
2
<PAGE> 3
"FPS VI Contribution and Assumption Agreement": the
Contribution and Assumption Agreement dated as of
even date with the Fifth Amendment between FPS VI and
the Borrower.
"FPS VI Deed of Covenants": the Deed of Covenants
dated as of even date with the FPS VI Ship Mortgage
between FPS VI and the Collateral and Documentation
Agent.
"FPS VI Security Agreement": the Security Agreement
dated as of even date with the Fifth Amendment issued
by FPS VI in favor of the Collateral and
Documentation Agent.
"FPS VI Ship Mortgage": the Ship Mortgage and related
Deed of Covenants dated as of even date with the
Fifth Amendment issued by FPS VI in favor of the
Collateral and Documentation Agent, as the same may
be modified from time to time, granting a mortgage on
FPS VI's 75% undivided interest in the Pincay to
secure FPS VI's obligations under the FPS V/FPS VI
Guarantee, which Ship Mortgage and Deed of Covenants
shall be substantially in the form of the Ship
Mortgage and related Deed of Covenants initially
executed by the Borrower granting a mortgage on the
Pincay.
"Merger Agreement": as defined in the recitals to
the Fifth Amendment.
"Pincay Assets and Liabilities": the assets and
liabilities which will be transferred from the
Borrower to (i) FPS VI in connection with the Step-Up
Transactions, including, without limitation, a 75%
undivided interest in the Pincay and related
equipment and 75% of the Borrower's rights, title and
interest in, and obligations with respect to, the
related equipment, and any agreements, documents or
instruments related to any of the foregoing, and (ii)
FPS V in connection with the Step-Up Transactions,
including, without limitation, the Capital Stock of
FPS VI, $42,281,250 of the PIK Note, the FPS V
Purchase Note and any agreements, documents or
instruments related to the foregoing.
"PIK Note": The Subordinated Promissory Note dated
September 30, 1996 issued by the Borrower, as maker,
in favor of DPSI, as lender, in the original
principal amount of $40,055,853.
"Reorganization Documents": as defined in the
recitals to the Fifth Amendment.
"Reorganization Transactions": as defined in the
recitals to the Fifth Amendment.
"Rights Offering": as defined in the recitals to the
Fifth Amendment.
3
<PAGE> 4
"Step-Up Transactions": the series of transactions
pursuant to which (i) the Pincay Assets and
Liabilities will be transferred from the Borrower to
FPS V and FPS VI, (ii) FPS V will give $57,281,250 in
consideration to the Borrower in the form of the
assumption of $42,281,250 of the PIK Note and the
issuance of the FPS V Purchase Note, and (iii) all of
the Capital Stock of FPS VI will be transferred to
FPS V.
"Step-Up Transactions Loan Documents": the FPS V/FPS
VI Guarantee, FPS VI Security Agreement, First
Amendment to Parent Pledge Agreement, FPS VI Ship
Mortgage, FPS VI Deed of Covenants, First Amendment
to Ship Mortgage and First Amendment to Deed of
Covenants.
"TOFF": as defined in the recitals to the Fifth
Amendment.
(ii) amending the definition of the term "Asset Sale" by adding
at the end thereof, after the phrase "Subsidiary of the Borrower" and
before the period, the phrase, "or FPS VI, except for any sale, lease,
sale-leaseback, assignment or other disposition made as a part of the
Step-Up Transactions.
(iii) amending the definition of the term "Change of Control"
by deleting subpart (a) of such definition and substituting in lieu thereof
the following:
(a) other than pursuant to the Rights Offering, the
acquisition by any Person or two or more Persons
acting in concert (other than the management of TOFF
as of date hereof or of the closing date of the Rights
Offering) of beneficial ownership (within the meaning
of Rule 13d-3, promulgated by the Securities and
Exchange Commission and now in effect under the
Securities Exchange Act of 1934, as amended) of 50% or
more of the issued and outstanding shares of voting
stock of TOFF;
(iv) further amending the definition of the term "Change of
Control" by deleting the term "DeepTech" each time it appears therein and
substituting in lieu thereof the term, "TOFF".
(v) amending the definition of the term "Deed of Covenants" by
adding the phrase "or, as applicable, FPS VI" after the word "Borrower".
(vi) amending the definition of the term "Excess Cash Flow" by,
with respect to the items (i)-(iv) added to Net Income to arrive at Excess
Cash Flow, deleting the word "and" before "(iv)", and at the end of the
phrase contained in "(iv)" adding the following phrase:
4
<PAGE> 5
and (v) amounts payable to the Borrower pursuant to the
FPS V Purchase Note.
(vii) amending the definition of the term "Loan Documents" to
include the Step-Up Transactions Loan Documents.
(viii) amending the definition of the term "Loan Parties" to
include FPS VI.
(ix) amending the definition of the term "Management Agreement"
by adding at the end thereof, after the term "hereof" and before the period,
the phrase, ", as such agreement may be amended or replaced in connection
with the Reorganization Transactions to reflect that TOFF or one of its
Affiliates, and not DeepTech, will be providing the services provided for
therein".
(x) amending the definition of the term "Permitted Issuances" by
deleting the word "and" before "(iii)" and adding the following phrase to
the end of such definition: ", and (iv) the issuance of Capital Stock by
FPS VI in exchange for the contribution of an interest in the Pincay in
connection with the formation thereof.
(xi) amending the definition of "Pincay" by replacing the term
"Mortgage" each time it appears therein with the term "Mortgages".
(xii) amending the definition of "Ship Mortgages" to, first,
add after "(ii)" and before the word "the" the following phrase:
", as applicable, either (a)"
and, second, to add the following phrase immediately before
the period:
"or (b) the FPS VI Ship Mortgage."
3. AMENDMENT TO SUBSECTION 2.5 (MANDATORY PREPAYMENT).
Subsection (a) of Subsection 2.5 of the Credit Agreement is hereby amended by
adding after the phrase "any of its Subsidiaries" and before the word "shall,"
the phrase "or FPS VI."
Subsection (b) of Subsection 2.5 of the Credit Agreement is hereby amended by
adding after the phrase "any of its Restricted Subsidiaries" and before the word
"shall," the phrase "or FPS VI."
4. AMENDMENT TO SUBSECTION 3.13 (ERISA). Subsection 3.13 of the
Credit Agreement is hereby amended by deleting the term "DeepTech" therefrom
and substituting in lieu thereof, the term "TOFF".
5. AMENDMENT TO SUBSECTION 3.19 (MAJORITY-OWNED SUBSIDIARY).
Subsection 3.19 of the Credit Agreement is hereby amended by deleting the term
"DeepTech" therefrom and substituting in lieu thereof, the term "TOFF".
5
<PAGE> 6
6. AMENDMENT TO SUBSECTION 6.1 (FINANCIAL CONDITION COVENANTS).
Subsection 6.1 of the Credit Agreement is hereby amended by adding the
following sentence at the end thereof: "For purposes of the financial
condition covenants in this subsection 6.1, the financial condition and results
of FPS VI shall be deemed to be included with the Borrower's financial
condition and results."
7. AMENDMENT TO SUBSECTION 6.5 (LIMITATION OF FUNDAMENTAL
CHANGES). Subsection 6.5 of the Credit Agreement is hereby amended by adding
after the phrase "method of conducting business" and before the period, the
phrase ", except in connection with the Step-Up Transactions".
8. AMENDMENT TO SUBSECTION 6.6 (LIMITATION OF SALE OF ASSETS).
Subsection 6.6 of the Credit Agreement is hereby amended by adding after the
term "Subsidiary" and before the comma immediately thereafter in the second
line thereof the phrase, "and except in connection with the Step-Up
Transactions".
9. AMENDMENT TO SUBSECTION 6.9 (LIMITATION ON INVESTMENTS, LOANS
AND ADVANCES). Subsection 6.9 of the Credit Agreement is hereby amended by
adding after the parenthetical "(all of which shall be funded with the proceeds
of Permitted Issuances)" and before the period, the following:
"; and
(d) in connection with the Step-Up Transactions".
10. AMENDMENT TO SUBSECTION 6.10 (LIMITATION OF OPTIONAL PAYMENTS
AND MODIFICATIONS OF DEBT INSTRUMENTS). Subsection 6.10 of the Credit
Agreement is hereby amended by (a) adding at the beginning thereof, before the
phrase "Make any optional payment", the phrase, "Except in connection with the
Step-Up Transactions" and (b) adding at the end thereof the following new
paragraph (c):
"or (c) amend, modify or change or consent or agree to any
amendment, modification or change to any of the terms of the
FPS V Purchase Note."
11. AMENDMENT TO SUBSECTION 6.11 (LIMITATION ON TRANSACTIONS WITH
AFFILIATES). Subsection 6.11 of the Credit Agreement is hereby amended by
adding to the third line thereof, after the phrase, "such transaction is" and
before the subparagraph "(a)", the phrase, "(i) in connection with or a part of
the Step-Up Transactions, or (ii)".
12. AMENDMENT TO SUBSECTION 6.16 (OTHER MODIFICATIONS).
Subsection 6.16 of the Credit Agreement is hereby amended by beginning such
Subsection with the phrase "Except to the extent done in connection with the
Reorganization Transactions,".
13. AMENDMENT TO SECTION 7 (EVENTS OF DEFAULT). Subsection (c) of
Section 7 of the Credit Agreement is hereby amended by deleting the word
"either" after the "(ii)" and replacing it with the word "any" and adding to
the end thereof the following phrase:
6
<PAGE> 7
"or (iii) Sections 4.4, 5.5, or 6.4 of the FPS VI Security
Agreement or Section 10 of the FPS V/FPS VI Guarantee".
Subsections (e) and (f) of Section 7 of the Credit Agreement are hereby amended
by deleting therefrom the term "DeepTech" each time it appears therein and
substituting in lieu thereof the term "TOFF".
Subsection (f) of Section 7 of the Credit Agreement is hereby amended by adding
the words "or FPS VI" after the words "or any Pledgor" each time they appear
therein.
Section 7 of the Credit Agreement is hereby amended by adding a
"Subsection (m)" that reads as follows:
"The FPS V/FPS VI Guarantee shall cease, for any reason to be
in full force and effect, or FPS V or FPS VI shall so assert."
14. AMENDMENT TO SUBSECTION 9.2 (NOTICES). Subsection 9.2 of the
Credit Agreement is hereby amended by deleting the first and second lines in
the address for the Borrower or any of its Subsidiaries set forth therein and
replacing such lines with, "c/o Tatham Offshore, Inc., 7400 Chase Tower".
15. CONSENT. The Lenders hereby consent to the Reorganization
Transactions and waive any Default or Event of Default occurring or otherwise
existing within seven days after the Effective Date that might arise under the
Credit Agreement or any other Loan Document as a result of the execution and
delivery of the Reorganization Documents or the performance of the obligations
thereunder or the consummation of the Reorganization Transactions.
16. EFFECTIVENESS. The amendments provided for herein shall
become effective on the date (the "Effective Date") of satisfaction of the
following conditions precedent:
(a) The Administrative Agent shall have received
counterparts of this Fifth Amendment, duly executed and delivered by
the Borrower and each of the other parties hereto.
(b) The Administrative Agent shall have received the
executed legal opinion of Akin, Gump, Strauss, Hauer & Feld, counsel
to the Borrower in form and substance satisfactory to the
Administrative Agent in its reasonable discretion.
(c) The Administrative Agent shall have received the
executed legal opinion of Graham, Thompson & Co., Nassau, special
counsel to the Administrative Agent with respect to matters of
Bahamian law.
(d) The execution and delivery of the Step-Up Transactions
Loan Documents.
17. REPRESENTATIONS AND WARRANTIES. After giving effect to the
amendments, terms and provisions contained herein, on the Effective Date, the
Borrower hereby confirms, reaffirms and restates the representations and
warranties set forth in Section 3 of the Credit
7
<PAGE> 8
Agreement; provided (i) that each reference in Section 3 to "this Agreement"
shall be deemed to be a reference both to this Fifth Amendment and to the
Credit Agreement as amended by this Fifth Amendment, (ii) that representations
and warranties contained in such Section 3 stated to refer to a specific
earlier date shall be true and correct in all material respects as of such
earlier date, (iii) that such confirmation, reaffirmation and restatement shall
include disclosures made by the Borrower prior to the Effective Date as if such
disclosures were (and such disclosures are hereby incorporated as if) set forth
fully herein, and (iv) with respect to the representations and warranties set
forth in Subsection 3.2 ("No Change"), the relevant reference date shall be
changed from September 30, 1996 to June 30, 1997. The Borrower represents and
warrants that this Amendment, TOFF's Form S-1 and El Paso Natural Gas Company's
Form S-4, each filed with the Securities and Exchange Commission on April 10,
1998, and the other disclosures made to LCPI and the legal counsel of the
Lenders describe the material aspects of the Reorganization Transactions.
18. CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly
amended or waived hereby or as required to be consistent with the provisions
hereof, all of the terms and provisions of the Credit Agreement and the other
Loan Documents are and shall remain in full force and effect. Except as
expressly provided herein or required to be consistent with the provisions
hereof, the amendments contained herein shall not constitute an amendment or
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any purpose except as expressly set forth herein.
19. COSTS AND EXPENSES. The Borrower agrees to pay the reasonable
costs and expenses of the Administrative Agent, the Collateral and
Documentation Agent and the Arranger in connection with this Fifth Amendment,
including without limitation, legal fees and expenses.
20. COUNTERPARTS. This Fifth Amendment may be executed in any
number of counterparts by the parties hereto, each of which counterparts when
so executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
21. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
[REMAINDER OF PAGE INTENTIONALLY BLANK.]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Fifth Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
RIGCO NORTH AMERICA, L.L.C.
----------------------------------
Dennis A. Kunetka
Senior Vice President
BHF-BANK AKTIENGESELLSCHAFT, as
Administrative Agent and as a Lender
By:
--------------------------------------
Title:
By:
--------------------------------------
Title:
HIBERNIA NATIONAL BANK, as Collateral
and Documentation Agent and as a Lender
By:
--------------------------------------
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By:
--------------------------------------
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
--------------------------------------
Title:
<PAGE> 10
MERRILL LYNCH PRIME RATE PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT,
L.P., as Investment Adviser
By:
--------------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
--------------------------------------
Title:
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT,
L.P., as Investment Adviser
By:
--------------------------------------
Title:
ML SENIOR HIGH INCOME PORTFOLIO, INC.
By:
--------------------------------------
Title:
ML CBO IV (CAYMAN) LTD.
By: PROTECTIVE ASSET MANAGEMENT, L.L.C.,
as Collateral Manager
By:
--------------------------------------
Title:
<PAGE> 11
PAMCO CAYMAN LTD.
By:
--------------------------------------
Title:
THE TORONTO-DOMINION BANK
By:
--------------------------------------
Title:
<PAGE> 1
EXHIBIT 10.33
SIXTH AMENDMENT
SIXTH AMENDMENT, dated as of September 25, 1998 (this "Sixth
Amendment"), to the Credit Agreement, dated as of September 30, 1996 (as amended
by the Global Amendment and Assignment and Acceptance, dated as of October 9,
1996, the Second Amendment, dated as of April 23, 1997, the Third Amendment,
dated as of May 13, 1997, the Fourth Amendment, dated as of July 31, 1997 and
the Fifth Amendment, dated as of June 16, 1998, and as may be further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among RIGCO NORTH AMERICA, L.L.C., a Delaware limited liability company (the
"Borrower"), the several banks and other financial institutions from time to
time parties thereto (the "Lenders"), LEHMAN COMMERCIAL PAPER INC. ("LCPI"), as
Advisor, Syndication Agent and Arranger, HIBERNIA NATIONAL BANK, as Collateral
and Documentation Agent and BHF-BANK AKTIENGESELLSCHAFT, as Administrative
Agent.
W I T N E S S E T H
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain Loans to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders amend,
and the Lenders have agreed to amend, certain of the provisions of the Credit
Agreement, upon the terms and subject to the conditions set forth below;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. As used herein, terms defined in this Sixth
Amendment or in the Credit Agreement are used herein as so defined.
2. Amendment to Subsection 2.3. Subsection 2.3 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following:
"2.3 Note. The Loan made by each Lender shall be evidenced
by a promissory note of the Borrower, substantially in the form of
Exhibit A (the "Note"), with appropriate insertions therein as to
payee, date and principal amount, payable to the order of such Lender
and in a principal amount equal to the Loan of such Lender. Each Lender
is hereby authorized to record the date and amount of each payment or
prepayment of principal of its Loan on the schedule annexed to and
constituting a part of its Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so
recorded. The Note shall (a) be dated the Closing Date, (b) provide for
the payment of interest in accordance with subsection 2.6 and (c) be
payable in installments in the amounts and on the dates set forth
below:
<PAGE> 2
2
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C> <C>
December 31, 1996 $250,000
March 31, 1997 $250,000
June 30, 1997 $250,000
September 30, 1997 $250,000
December 31, 1997 $250,000
March 31, 1998 $250,000
June 30, 1998 $250,000
September 30, 1998 $0
December 31, 1998 $0
March 31, 1999 $75,250,000"
</TABLE>
3. Amendment to Subsection 2.5(c). Subsection 2.5(c) of the
Credit Agreement is hereby amended by inserting immediately after the word
"quarter" the first time in which it appears in the first line thereof the
following: "(other than the fiscal quarters ending September 30, 1998 and
December 31, 1998)".
4. Amendment to Subsection 6.1. Subsection 6.1 of the Credit
Agreement is hereby amended by (a) adding at the end of paragraph (a) thereof
(i) under the heading Fiscal Quarter Ending, the words "December 31, 1998 and
thereafter" and (ii) under the heading Amount, the amount of "$5,000,000", (b)
adding at the end of paragraph (b) thereof (i) under the heading Fiscal Quarter
Ending, the words "December 31, 1998 and thereafter" and (ii) under the heading
Ratio, the ratio of "2.50 to 1.00" and (c) adding at the end of paragraph (c)
thereof (i) under the heading Fiscal Quarter Ending, the words "December 31,
1998 and thereafter" and (ii) under the heading Amount, the amount of
"$18,000,000".
5. Effectiveness. The amendments provided for herein shall
become effective on the date (the "Effective Date") of satisfaction of the
following conditions precedent:
(a) The Administrative Agent shall have received counterparts
of (i) this Sixth Amendment, duly executed and delivered by the
Borrower and each of the other parties hereto, (ii) the First
Amendment, dated as of the date hereof, to the Warrant Agreement, dated
as of September 30, 1996, between the Borrower and Lehman Brothers
Inc., duly executed and delivered by the parties thereto and (iii) the
First Amendment, dated as of the date hereof, to the Warrant Agreement,
dated as of June 16, 1998, between FPS VI, L.L.C. and Lehman Brothers
Inc., duly executed and delivered by the parties thereto.
(b) All governmental and third party approvals (including
landlords' and other consents) necessary or advisable in connection
with this Sixth Amendment shall have been obtained and be in full force
and effect, and all applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority
which would restrain, prevent or otherwise impose materially adverse
conditions on the Credit Agreement as amended by this Sixth Amendment.
(c) All limited liability company and other proceedings, and
all documents, instruments and other legal matters in connection with
the transactions contemplated by
<PAGE> 3
3
this Sixth Amendment shall be satisfactory in form and substance to the
Arranger and the Administrative Agent.
(d) Each of the Lenders shall have received an amendment fee
in an amount equal to 0.50% of the principal amount of the Loans held
by such Lender on the date hereof.
6. Representations and Warranties. After giving effect to the
amendments contained herein, on the Effective Date, the Borrower hereby
confirms, reaffirms and restates the representations and warranties set forth in
Section 3 of the Credit Agreement; provided that each reference in such Section
3 to "this Agreement" shall be deemed to be a reference both to this Sixth
Amendment and to the Credit Agreement as amended by this Sixth Amendment.
7. Continuing Effect; No Other Amendments. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendments contained herein shall not constitute an amendment or
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any purpose except as expressly set forth herein.
8. No Default. No Default or Event of Default shall have
occurred and be continuing as of the Effective Date after giving effect to this
Sixth Amendment.
9. Costs and Expenses. The Borrower agrees to pay the
reasonable costs and expenses of the Administrative Agent, the Collateral and
Documentation Agent and the Arranger in connection with this Sixth Amendment,
including, without limitation, legal fees and expenses.
10. Counterparts. This Sixth Amendment may be executed in any
number of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
11. GOVERNING LAW. THIS SIXTH AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
<PAGE> 4
4
IN WITNESS WHEREOF, the parties have caused this Sixth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
RIGCO NORTH AMERICA, L.L.C.
By:
Title:
BHF-BANK AKTIENGESELLSCHAFT, as
Administrative Agent and as a Lender
By:
Title:
By:
Title:
HIBERNIA NATIONAL BANK, as Collateral and
Documentation Agent and as a Lender
By:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:
Title:
<PAGE> 5
5
MERRILL LYNCH PRIME RATE PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT
L.P., as Investment Adviser
By:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
Title:
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT L.P., as
Investment Adviser
By:
Title:
ML SENIOR HIGH INCOME PORTFOLIO, INC.
By:
Title:
<PAGE> 1
EXHIBIT 10.34
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of June
16, 1998 by and between DeepFlex Production Services, Inc. ("DPSI") and RIGCO
North America, L.L.C. ("RIGCO").
WHEREAS, RIGCO and DPSI executed a Management Agreement dated September
25, 1996, whereby RIGCO received the benefit of management services which
DeepTech International Inc. ("DeepTech") had agreed to provide to DPSI, and for
which management services RIGCO reimbursed DPSI (the "Original Agreement");
WHEREAS, the agreement for management services between DPSI and
DeepTech will be terminated effective upon the closing of the merger of DeepTech
with and into El Paso Energy Corporation, or under certain conditions, a
subsidiary thereof which is scheduled to occur no later than September 30, 1998;
and
WHEREAS, DPSI and RIGCO desire to enter into an agreement whereby DPSI
will provide management services to RIGCO to replace those currently being
provided to RIGCO under the soon to be terminated Original Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which are hereby acknowledged,
RIGCO and DPSI hereby stipulate and agree as set forth below.
I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meaning ascribed thereto:
"Affiliates" means, with respect to either Party, entities that
directly or indirectly through one or more intermediaries Control, or are
Controlled by, or under, common Control with such Party.
"Agreement" shall have the meaning set forth in the preamble.
"Control" (including its derivatives) shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of an entity, whether through the ownership of voting
securities, by contract or otherwise.
"DeepTech" shall have the meaning set forth in the recitals.
"DPSI" shall have the meaning set forth in the preamble.
"Effective Date" means the date first written in the preamble.
<PAGE> 2
"Fiscal Year" shall mean the period from July 1 through June 30.
"FPS III" shall mean FPS III, Inc., a Delaware corporation.
"FPS V" shall mean FPS V, Inc., a Delaware corporation.
"Original Agreement" shall have the meaning set forth in the recitals
to this Agreement above.
"Overhead" shall mean DPSI's operating, selling, general,
administrative and other similar expenses for any period as determined by DPSI.
"Parties" means collectively DPSI and RIGCO. "Party" means individually
DPSI or RIGCO.
"Person" shall mean any individual or entity, including any
partnership, corporation, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"Term" means the period from the Effective Date hereof until this
Agreement is terminated pursuant to Article 5.
II.
DUTIES AND OBLIGATIONS OF DEEPTECH
2.1 Management Services. DPSI agrees to provide non-exclusive
management and other related services to RIGCO and Affiliates controlled by it
which include, but are not limited to, services related to acquisitions to be
made by RIGCO, cash management, review of significant operating and financial
matters, initiation and review of significant business opportunities and such
other management services as the parties may from time to time agree.
III.
COMPENSATION, EXPENSES AND PAYMENT
3.1 Fee and Expenses. The annual compensation (prorated for any portion
of a year) due DPSI from RIGCO for services provided pursuant to this Agreement
shall be equal to the amount of DPSI's Overhead allocated to RIGCO plus all out
of pocket expenses incurred by DPSI for the benefit of RIGCO. Such allocation
shall be based on the relationship between the DPSI resources expended in
connection with RIGCO and the total DPSI resources. Such relationship shall be
determined using any mutually agreed basis, including a time and space analysis.
3.2 Payment. For purposes of accounting and periodic payment, before
the first day of each calendar month, DPSI shall present RIGCO with an invoice
which reflects an amount equal to DPSI's best estimate as to (i) RIGCO's share
of DPSI's Overhead for that month, if any, plus (ii) all reimbursable amounts
incurred by DPSI for the direct benefit of RIGCO. RIGCO
2
<PAGE> 3
shall pay such sum on or before the first day of that calendar month. On or
before September 1 of each calendar year, DPSI shall furnish a statement to
RIGCO detailing (i) the actual amount, if any, of DPSI's Overhead for the
immediately preceding Fiscal Year, (ii) payments made from RIGCO to DPSI for
such Fiscal Year, and (iii) any adjustment balance due to/from DPSI. Within
fifteen days of the date of such statement, DPSI or RIGCO, as applicable, shall
remit the balance due.
3.3 Uncompensated Services. It is recognized by the Parties that DPSI
is the sole stockholder of FPS III and FPS V, each of which currently owns a
fifty percent (50%) membership interest in RIGCO. It is expressly acknowledged
and agreed by the Parties that the compensation to DPSI provided for in this
Agreement is solely to compensate DPSI for the management services provided to
RIGCO, and that DPSI, FPS III and FPS V are not and shall not be compensated for
any activities related to their status as stockholders or members, as
applicable.
IV.
ACCESS TO INFORMATION, BOOKS AND RECORDS
DPSI and its duly authorized representatives shall have complete access
to RIGCO's offices, facilities and records wherever located, in order to
discharge DPSI's responsibilities hereunder; provided, however, RIGCO shall
provide and make available to DPSI and its duly authorized representatives at
DPSI's Houston offices, at DPSI's request, all such records required by DPSI to
perform its duties pursuant to this Agreement. All records and materials
furnished to DPSI by RIGCO in performance of this Agreement shall at all times
during the Term remain the property of RIGCO. For a period of one year after the
end of each Fiscal Year, RIGCO shall have the right to inspect and audit the
books and records of DPSI to the extent necessary to verify RIGCO's
proportionate share of DPSI's Overhead attributable to such Fiscal Year.
V.
TERM AND TERMINATION OF THE AGREEMENT
5.1 Initial Term. This Agreement shall be effective from the Effective
Date and shall continue for five years thereafter (the "Initial Term"); subject,
however, to the terms of Section 5.2 hereof. At the end of the Initial Term,
this Agreement shall continue in force and effect for subsequent one (1) year
periods unless terminated by either Party ninety (90) days prior to the
anniversary date of the Effective Date.
5.2 Termination. This Agreement may be sooner terminated on the first
to occur of the following:
(a) Termination by Mutual Agreement
In the event the Parties shall mutually agree in writing, this
Agreement may be terminated on the terms and dates stipulated
therein.
3
<PAGE> 4
(b) Optional Termination
After the Initial Term, either Party may, ninety (90) days prior
to any anniversary of the Effective Date, provide to the other
Party written notice of its intent to terminate this Agreement on
such anniversary date, whereupon this Agreement shall terminate on
the anniversary date specified in such notice.
(c) Uncorrected Material Breach
In the event either Party shall fail to discharge any of its
material obligations hereunder, or shall commit a material breach
of this Agreement, and such default or breach shall continue for a
period of thirty (30) days after the other Party has served notice
of such default, this Agreement may then be terminated at the
option of the non-breaching Party by notice thereof to the
breaching Party.
5.3 Effects of Termination. Except for covenants or other provisions
herein that, by their terms, expressly extend beyond the Term, the Parties'
obligations hereunder are limited to the Term.
5.4 RIGCO's Remedies. If DPSI shall at any time owe or otherwise become
liable to RIGCO for any amount pursuant to the terms of this Agreement, in
addition to RIGCO's other rights hereunder, at law or in equity, RIGCO shall
have the right to offset any such amount against any amount held by RIGCO for
the account of DPSI and against any amount otherwise due or to become due to
DPSI from RIGCO.
VI.
INDEMNIFICATION OF DPSI
RIGCO hereby agrees to indemnify and hold harmless DPSI from and
against any and all claims, courses of action, liabilities, damages, costs,
charges, fees, expenses (including reasonable attorneys' fees and expenses to be
reimbursed as incurred), suits, orders, judgments, adjudications and losses of
whatever nature and kind which DPSI or its Affiliates or designees or for which
DPSI or its Affiliates or designees become liable as the result of the
performance of DPSI's obligations and duties pursuant to this Agreement,
including DPSI's negligence; provided, DPSI shall not be indemnified for gross
negligence or willful misconduct on the part of DPSI.
VII.
MISCELLANEOUS
7.1 Relationship of Parties. This Agreement does not create a
partnership, joint venture or association; nor does this Agreement, or the
operations hereunder, create the relationship of lessor and lessee or bailor and
bailee. Nothing contained in this Agreement or in any agreement made pursuant
hereto shall ever be construed to create a partnership, joint venture or
association, or the relationship of lessor and lessee or bailor and bailee, or
to impose any duty, obligation or liability that would arise therefrom with
respect to either or both of the Parties.
4
<PAGE> 5
Specifically, but not by way of limitation, except as otherwise expressly
provided for herein, nothing contained herein shall be construed as imposing
any responsibility on DPSI for the debts or obligations of RIGCO or any of its
Affiliates. It is expressly understood that DPSI is hereby engaged by RIGCO to
provide management and operational services as an agent of RIGCO. DPSI, its
Affiliates and designees shall have the right to render similar services for
other business entities and persons, including its own, whether or not engaged
in the same business as RIGCO, and may enter into such other business
activities as DPSI and its Affiliates, in their sole discretion, may determine.
7.2 No Third Party Beneficiaries. Except to the extent a third party is
expressly given rights herein, any agreement herein contained, expressed or
implied, shall be only for the benefit of the Parties and their respective legal
representatives, successors, and assigns, and such agreements or assumption
shall not inure to the benefit of any other party whomsoever, it being the
intention of the Parties hereto that no person or entity shall be deemed a third
party beneficiary of this Agreement except to the extent a third party is
expressly given rights herein.
7.3 General Representations. Each Party represents and warrants that on
the date hereof: (1) it is a corporation or limited liability company, duly
established, validly existing and in good standing under the laws of its state
or jurisdiction of formation, with power and authority to carry on the business
in which it is engaged and to perform its respective obligations under this
Agreement; (2) the execution and delivery of this Agreement have been duly
authorized and approved by all requisite corporate action; (3) it has all the
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder, and, upon execution, the Agreement will
constitute a valid, legal and binding obligation of each Party; and (4) the
execution and delivery of this Agreement do not, and consummation of the
transactions contemplated herein will not, violate any of the provisions of its
charter or bylaws or any applicable state or federal laws applicable to them.
7.4 Notices. Any notice, demand, or communication required, permitted,
or desired to be given hereunder shall be deemed effectively given when
personally delivered or mailed by prepaid certified mail, return receipt
requested, addressed as follows:
If to DPSI, to: DeepFlex Production Services, Inc.
7500 Chase Tower
600 Travis
Houston, Texas 77002
(713) 224-7400
Attention: Chief Financial Officer
If to RIGCO, to: RIGCO North America, L.L.C.
7400 Chase Tower
600 Travis
Houston, Texas 77002
Attention: Chief Financial Officer
5
<PAGE> 6
or to such other address and to the attention of such other persons or officers
as either Party may designate by written notice pursuant to this Section 7.4.
7.5 GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED AND
SHALL BE INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES
WHICH, IF APPLIED, MIGHT PERMIT OR REQUIRE THE APPLICATION OF THE LAWS.
7.6 Assignment. No assignment of this Agreement or any of the rights or
obligations set forth herein by either Party shall be valid without the specific
written consent of the other Party; provided, however, that any Party shall have
the right, without the other Party's consent, to (i) assign its rights and
obligations under this Agreement to any Affiliate, and any such Affiliate may
reassign such rights and obligations so long as such rights and obligations are
not assigned to any Person other than an Affiliate of such Party, and (ii)
mortgage, pledge, encumber or otherwise impress a lien or security interest upon
its rights and interest in and to this Agreement.
7.7 Waiver of Breach. The waiver by either Party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or any other
provision hereof.
7.8 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further accord between the Parties except
as may herein specifically be provided to the contrary; provided, however, that
at the request of either Party, the other Party shall execute such additional
instruments and take such additional actions as shall be necessary to effectuate
this Agreement.
7.9 Severability. In the event any provision of this Agreement is held
to be unenforceable for any reason, such provision shall be severable from this
Agreement if it is capable of being identified with and apportioned to
reciprocal consideration or to the extent that it is a provision that is not
essential and the absence of which would not have prevented the Parties from
entering into this Agreement. The unenforceability of a provision that has been
performed shall not be grounds for invalidation of this Agreement under
circumstances in which the true controversy between the Parties does not involve
such provision.
7.10 Article and Section Headings. The article and section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
7.11 Amendments and Contract Execution. This Agreement and amendments
hereto shall be in writing and executed in multiple copies by duly authorized
agents of the Parties. Each multiple copy shall be deemed an original, but all
multiple copies together shall constitute one and the same instrument.
6
<PAGE> 7
7.12 Entire Agreement. This Agreement supersedes all previous contracts
between the Parties and constitutes the entire Agreement between the Parties
with respect to the subject matter of this Agreement, and no changes in or
additions to this Agreement shall be recognized unless incorporated herein by
written amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized representatives as of the day and
year first above written.
DPSI: DeepFlex Production Services, Inc.
By:
--------------------------------
Donald V. Weir
Vice President
RIGCO: RIGCO North America, L.L.C.
By:
--------------------------------
Dennis A. Kunetka
Senior Vice President
8
<PAGE> 1
EXHIBIT 10.35
RESTRUCTURING AGREEMENT
This Restructuring Agreement is dated as of September 22, 1997 by and
between DeepTech International Inc. ("DeepTech"), a Delaware corporation, and
Tatham Offshore, Inc. ("Tatham Offshore"), a Delaware corporation. DeepTech
and Tatham Offshore may be referred to herein collectively as the "Parties" or
individually as a "Party."
RECITALS
WHEREAS, Tatham Offshore issued to DeepTech the Notes (defined herein)
under which Tatham Offshore makes periodic interest payments;
WHEREAS, Tatham Offshore has proposed, and DeepTech has accepted, an
arrangement whereby DeepTech will forgive the next two scheduled payments under
the Notes and, on or before January 31, 1998, return the Notes to Tatham
Offshore in consideration for the right to exercise one of three options; and
WHEREAS, under such options, DeepTech has the right to receive (i)
common stock of Tatham Offshore, (ii) all of the capital stock of TODI (defined
herein), certain rights under the Drilling Order (defined herein) and cash, or
(iii) preferred stock of Tatham Offshore and cash;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained 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:
ARTICLE I.
DEFINITIONS
1.1 SPECIFIC DEFINITIONS. The following capitalized terms shall have the
meanings ascribed to them in this Section 1.1.
"Acquired Stock" means any Common Stock or Senior Preferred Stock
acquired by DeepTech pursuant to Article II.
"Affiliate" means, with respect to any relevant Person, or any other
Person that directly or indirectly controls, is controlled by or is under
common control with, such relevant Person in question. For purposes of this
definition, the term "control" (including its derivatives and similar terms)
means the direct or indirect ability to direct the management and policy of the
relevant Person, whether by ownership or control of voting interests, contract
or otherwise.
<PAGE> 2
"Agreement" means this Restructuring Agreement (including any exhibits,
supplements and other attachments), as amended, restated, supplemented or
otherwise modified from time to time.
"Applicable Interest Payments" means all future interest payments due to
DeepTech from Tatham Offshore pursuant to Section 2.3 of the First Note and the
Second Note, including the payments due on October 1, 1997, and January 1,
1997.
"Cash Equivalents" means cash, cash equivalents or unrestricted, freely
tradable marketable securities issued by an "investment grade" company listed
on the New York Stock Exchange, the American Stock Exchange or the NASDAQ.
"Commission" means the Securities and Exchange Commission or any other
federal agency then administering the Securities Act, the Exchange Act, and
other federal securities laws.
"Common Stock" means common stock, $0.01 par value per share, with one
vote per share, issued by Tatham Offshore, as adjusted from time to time to
reflect any reorganization or recapitalization, including, without limitation,
the issuance or cancellation of shares in connection with a stock split or
stock dividend.
"DeepTech" shall have the meaning ascribed to it in the preamble to this
Agreement.
"DeepTech Holder" means either DeepTech or, if DeepTech is not a Holder,
any Affiliate of DeepTech which is a Holder.
"Demand Registration" shall have the meaning ascribed to it in Section
1.(a) of Exhibit "B".
"Drilling Order" means that certain drilling order dated September 19,
1996 by and between Tatham Offshore and Sedco, as further modified by that
certain letter agreement dated August 14, 1997 and executed August 29, 1997
between Tatham Offshore and Sedco.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Farm-Out" means an agreement or other arrangement in which the owner
of a working interest in an oil and gas lease or similar instrument delivers
the contractual right to earn an interest in such oil and gas lease or similar
instrument to another party in exchange for such other party (i) satisfying
certain obligations, (ii) performing or causing the performance of certain
actions and/or (iii) satisfying certain conditions.
2
<PAGE> 3
"First Note" means that certain 11 3/4% Subordinated Convertible
Promissory Note dated February 14, 1994 in the amount of $34,000,000 issued by
Tatham Offshore to DeepTech, as amended, restated, supplemented or otherwise
modified from time to time.
"Holder" means any holder of any Acquired Stock.
"Inspectors" shall have the meaning ascribed to it in Section 3.a.(vi)
of Exhibit B.
"Laws" means the laws, rules, regulations, decrees and orders of the
United States of America and all other governmental authorities having
jurisdiction, whether such Laws now exist or hereafter come into effect.
"Lien" means mortgages, deeds of trust, liens, pledges, security
interests, leases, conditional sale contracts, claims, rights of first refusal,
options, charges, liabilities, obligations, agreements, privileges, liberties,
easements, rights-of-way, limitations, reservations, restrictions and other
defects or encumbrances of any kind.
"Market Price" means (i) if there shall then be a public market for
the Common Stock, the average of the closing prices for the ten (10) trading
days immediately preceding the date on which DeepTech delivers or is deemed to
have delivered the notice contemplated by Section 2.6, or (ii) if there shall
then be no public market for the Common Stock, the value as of the date on
which DeepTech delivers or is deemed to have delivered the notice contemplated
by Section 2.6 as determined by an appraisal of the Common Stock conducted by a
nationally-reputable qualified independent appraiser.
"Note Purchase Agreement" means that certain Subordinated Convertible
Note Purchase Agreement dated as of February 14, 1994 by and between Tatham
Offshore and DeepTech, as amended, restated, supplemented or otherwise modified
from time to time.
"Notes" means, collectively, the First Note and the Second Note.
"Option" shall have the meaning ascribed to it in Section 2.2.
"Option Exercise Period" shall have the meaning ascribed to it in
Section 2.5.
"Option Expiration Time" shall have the meaning ascribed to it in
Section 2.5.
"Party" or "Parties" shall have the meaning ascribed to it in the
preamble to this Agreement.
3
<PAGE> 4
"Permitted Transaction" means any transaction, or series of related
transactions, (i) providing fair value and (ii) the terms of which are no less
favorable than could be obtained from a non-Affiliated Person in an arms-length
transaction.
"Person" means any individual or entity, including, without
limitation, any corporation, limited liability company, partnership (general or
limited), joint venture, association, joint stock company, trust,
unincorporated organization or government (including any board, agency,
political subdivision or other body thereof).
"Records" shall have the meaning ascribed to it in Section 3.a.(vi) of
Exhibit B.
"Registered Security Holders" shall have the meaning ascribed to it in
Section 2 of Exhibit B.
"Registrable Securities" means each share evidenced by any Acquired
Stock from the date of issuance pursuant to this Agreement until the earlier to
occur of (i) the date on which such share of Acquired Stock ceases to be a
Restricted Security or (ii) the date on which a Demand Registration is effected
pursuant to Exhibit B.
"Registration Expenses" shall have the meaning ascribed to it in
Section 4 of Exhibit B.
"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 and Tatham Offshore has delivered new
certificates or other evidences of ownership for them not subject to any legal
or other restriction on transfer under the Securities Act or under state
securities laws and not bearing the legend specified in Section 3.1.
"Second Note" means that certain 11 3/4% Subordinated Convertible
Promissory Note dated June 30, 1994 in the amount of $26,000,000 issued by
Tatham Offshore to DeepTech, as amended, restated, supplemented or otherwise
modified from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Sedco" means Schlumberger Technology Corporation - Sedco Forex
Division.
"Senior Preferred Stock" means the 6% Senior Preferred Stock having a
liquidation preference value equal to $60 million with the designated rights
and preferences set forth in that certain Certificate of Designation of
Preferences and Rights of 6% Senior Preferred Stock of Tatham Offshore attached
hereto as Exhibit "A."
4
<PAGE> 5
"Sunday Silence" means (i) the oil and gas property located in the
Outer Continental Shelf in the Gulf of Mexico and comprised of Ewing Bank
Blocks 958, 959, 1002 and 1003, which together constitute a field that is
comprised of 20,160 gross acres located approximately six miles south of Ewing
Bank Blocks 914 and 915 in water depths ranging from 1,400 to 1,600 feet and in
which Tatham Offshore has a 100% working interest, (ii) equipment, facilities,
wells or assets located thereon, used in connection therewith or related
thereto and owned by Tatham Offshore or TODI and (iii) any agreements, rights
or other arrangements related thereto and owned by Tatham Offshore or TODI (but
excluding the Drilling Order).
"Tatham Offshore" shall have the meaning ascribed to it in the
preamble to this Agreement.
"TODI" means Tatham Offshore Development, Inc., a Delaware corporation
which is wholly owned by Tatham Offshore.
"TODI Interest" shall have the meaning ascribed to it in Section
4.3(a).
"Transfer" or "Transferred" means a voluntary or involuntary sale,
assignment, transfer, conveyance, exchange, bequest, devise, gift or any other
alienation (in each case, with or without consideration) of any rights,
interests or obligations in the subject property.
1.2 TERMS DEFINED IN THE NOTE PURCHASE AGREEMENT. Capitalized
terms used in this Agreement, but not defined herein, shall have the meanings
ascribed to such terms in the Note Purchase Agreement.
1.3 GENERAL DEFINITIONS. Capitalized terms used in this Agreement
and not defined in Section 1.1 or the Note Purchase Agreement shall have the
meanings ascribed to them elsewhere in this Agreement.
ARTICLE II.
RESTRUCTURING ARRANGEMENT
2.1 FORBEARANCE. DeepTech hereby relinquishes and forfeits its
right to receive, and forgives Tatham Offshore's obligation to pay, the
Applicable Interest Payments.
2.2 RESTRUCTURING OPTION. At any time during the Option Exercise
Period, DeepTech shall have the option (the "Option") to consummate any one of
the following transactions:
5
<PAGE> 6
(a) Conversion. DeepTech may convert all or, to the
extent provided in Section 2.3(b)(i), a portion of the principal
amount outstanding under the Notes into shares of Common Stock at the
Market Price; or
(b) Sale of TODI. Subject to Section 2.3, Tatham
Offshore shall sell for $60 million to DeepTech or an Affiliate of
DeepTech (i) all of the outstanding capital stock of TODI and (ii) all
of the right, title and interest of Tatham Offshore under the Drilling
Order as it relates to the substitute rig in such agreement. Tatham
Offshore shall contemporaneously apply the proceeds from such sale to
the prepayment in full of the Notes; or
(c) Purchase of Senior Preferred Stock. Tatham Offshore
shall issue 6,000,000 shares of Senior Preferred Stock to DeepTech for
$60 million payable in cash. Tatham Offshore shall contemporaneously
apply all of the proceeds from such issuance to the prepayment in full
of the Notes.
2.3 PRIOR TO EXERCISE OF OPTION.
(a) Except to the extent expressly permitted in Section
2.3(b) below, Tatham Offshore may not Transfer any interest in TODI or
the Drilling Order or allow TODI to Transfer any interest in Sunday
Silence prior to exercise or deemed exercise of the Option.
(b) Prior to the exercise of the Option by DeepTech,
Tatham Offshore may:
(i) Sell all (but not a portion) of its interest
in TODI or allow TODI to sell all (but not a portion) of TODI's
interest in Sunday Silence. In either case, such sale must be a
Permitted Transaction for Cash Equivalents, without reserving any
rights, title or interest (including, without limitation, any
reversionary, back-in, overriding royalty, or working interest) of any
kind. Fifty percent (50%) of the proceeds of such sale shall be paid
directly by the purchaser into an escrow account to which DeepTech is
a party and held in escrow until DeepTech exercises or is deemed to
have exercised the Option. If such sale takes place, then in lieu of
the transaction described in Section 2.2(b) above, DeepTech shall have
the right to (i) require the escrow agent to apply the proceeds in
escrow to the prepayment of the Notes and (ii) convert the remaining
outstanding principal balance of the Notes into Common Stock at the
Market Price pursuant to Section 2.2(a) above; or
(ii) Permit TODI to enter into a Farm-Out in a
Permitted Transaction with respect to Sunday Silence, provided that
(A) any consideration paid in connection with such Farm-Out shall be
paid directly into escrow and held in escrow until DeepTech exercises
or is deemed to have exercised the Option, and (B) both the
creditworthiness of the farmee and the development
6
<PAGE> 7
program contemplated by the Farmout are acceptable to DeepTech;
provided, further, that DeepTech shall not unreasonably delay or
withhold its consent with respect thereto.
2.4 DEEMED EXERCISE. If DeepTech fails to timely deliver written
notice of its exercise of the Option as provided in Section 2.6, DeepTech will
be deemed to have exercised Section 2.2(b) of the Option effective as of the
Option Expiration Time.
2.5 OPTION PERIOD. The period during which the Option may be
exercised by DeepTech (the "Option Exercise Period") shall commence as of the
date hereof and terminate at midnight (the "Option Expiration Time") on
December 31, 1997, unless extended prior to such time by written request of the
board of Directors of DeepTech for a maximum of thirty (30) days.
2.6 MANNER OF EXERCISE. During the term of this Agreement,
DeepTech may exercise the Option by (i) delivering at any time prior to the
Option Exercise Time to Tatham Offshore written notice of the transaction in
Section 2.2 that it elects to consummate and (ii) in the case of the
transactions specified in Section 2.2(b) or 2.2(c), tender the purchase price
in immediately available funds to Tatham Offshore. Tatham Offshore shall
immediately apply any funds paid to it pursuant to (ii) to the prepayment in
full of the Notes. The Option shall also be deemed exercised if DeepTech fails
to deliver such notice and the election in Section 2.4 above is made. The
transaction contemplated by Section 2.2 shall be effective as of the exercise
or deemed exercise date thereof and shall be closed as soon as reasonably
practicable thereafter.
2.7 ESCROW. Prior to the time that DeepTech exercises or is
deemed to have exercised the Option, none of the proceeds deposited into escrow
pursuant to Sections 2.3(b)(i) or 2.3(b)(ii) shall be distributed without the
consent of DeepTech. If DeepTech exercises the Option, then the escrow agent
shall apply the proceeds to the outstanding principal and interest on the
Notes. If DeepTech is deemed to have exercised the Option, then the escrow
agent shall distribute the proceeds in any manner Tatham Offshore desires.
2.8 GOVERNMENTAL CONSENT OR APPROVAL. If any governmental consent
or approval is required in connection with the exercise of any of the Options,
DeepTech shall have a reasonable amount of time to obtain such consent or
approval. Tatham Offshore shall use reasonable, good faith efforts to
cooperate with DeepTech and to assist in timely obtaining such consent or
approval.
7
<PAGE> 8
ARTICLE III
SECURITIES
3.1 RESTRICTIVE LEGEND. All Acquired Stock shall be Restricted
Securities and each certificate representing the Acquired Stock shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH
SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED, EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE CORPORATION OF
SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
3.2 REGISTRATION RIGHTS. The Holder of the Acquired Stock shall
have the right to require Tatham Offshore to register the Acquired Stock in
accordance with the terms and conditions set forth in Exhibit B attached
hereto.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES BY BOTH DEEPTECH AND TATHAM
OFFSHORE. Each of the Parties, with respect to itself and its property, hereby
represents and warrants to the other as follows:
(a) It is duly formed and validly existing and in good
standing under the laws of the state of formation, with power and
authority to carry on the business in which it is engaged and to
perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement have
been duly authorized and approved by all requisite corporate,
partnership, limited liability company or other applicable action.
8
<PAGE> 9
(c) It has all the requisite corporate, partnership,
limited liability company or other applicable power and authority to
enter into this Agreement and perform its respective obligations
hereunder and thereunder.
(d) The execution and delivery of this Agreement do not,
and consummation of the transactions contemplated herein will not,
violate any of the provisions of its organizational documents or any
agreement pursuant to which it is bound or, to its knowledge, any
applicable Laws.
(e) There are no pending suits or, to its knowledge,
actions or other proceedings or suits which have been threatened to be
instituted against it, in which it is a party and which affect the
consummation of the transactions contemplated hereby or, in any
material respect, its business or prospects. It does not believe, in
good faith, that any circumstances, events or conditions have occurred
which reasonably could be expected (based on its knowledge and
experience) to form the basis for a suit, action or other proceeding
against it which, if adversely determined, reasonably could be
expected to materially and adversely affect it.
(f) This Agreement is, and will be, valid, binding and
enforceable against it in accordance with its terms, subject to
bankruptcy, moratorium, insolvency and other Laws generally affecting
creditors' rights and general principles of equity (whether applied in
a proceeding in a court of law or equity).
4.2 REPRESENTATION AND WARRANTIES BY DEEPTECH. DeepTech warrants
to Tatham Offshore as follows:
(a) It has been furnished with such information about
Tatham Offshore and the Common Stock and Preferred Stock as it has
requested and with such information as necessary to comply with any
and all applicable securities laws.
(b) It has made its own independent inquiry and
investigation into, and based thereon, has formed an independent
judgment concerning Tatham Offshore and the Common Stock and Senior
Preferred Stock.
(c) It has adequate means of providing for its current
needs and possible individual contingencies and is able to bear the
economic risks of this investment and has a sufficient net worth to
sustain a loss of its entire investment in Tatham Offshore in the
event such loss should occur.
(d) It has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of an investment in Tatham Offshore.
9
<PAGE> 10
(e) It is an "accredited" investor within the meaning of
"accredited investor" under Regulation D of the Securities Act (as
amended, "Regulation D").
(f) It is not an issuer or an affiliate thereof, an
underwriter or dealer.
(g) It understands and agrees that the following
restrictions and limitations may be applicable to its purchase and
resales, pledges, hypothecation or other transfers of the Common Stock
and the Senior Preferred Stock pursuant to any applicable securities
rule or regulation (which may include Rule 144 or Regulation D and/or
the regulations promulgated thereunder):
(i) It agrees that the Shares shall not be sold,
pledged, hypothecated or otherwise transferred unless it is
registered under the Securities Act of 1933 and applicable
state securities laws or an exemption from such registration
is available; and
(ii) A legend will be placed on any certificate(s)
or other document(s) evidencing the investment in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS INVESTMENT OR
DOCUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED, EXCEPT UPON DELIVERY TO THE CORPORATION
OF AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR
SUCH TRANSFER OR THE SUBMISSION TO THE CORPORATION OF
SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE
CORPORATION TO THE EFFECT THAT ANY SUCH TRANSFER
SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS
OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
10
<PAGE> 11
4.3 REPRESENTATIONS AND WARRANTIES BY TATHAM OFFSHORE. Tatham
Offshore warrants to DeepTech as follows:
(a) It is the rightful owner of 100% of the common stock
of TODI (the "TODI Interest"), free and clear of all liens and
encumbrances.
(b) The TODI Interest constitutes all of the ownership
interest in TODI.
ARTICLE V.
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior (oral or written) or oral contemporaneous
proposals or agreements, all previous negotiations and all other communications
or understandings between the Parties with respect to the subject matter
hereof.
5.2 AMENDMENT AND MODIFICATION. All amendments, supplements and
modifications to this Agreement shall be in writing and signed by each of the
Parties.
5.3 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which, when executed, shall be deemed an original, and
all of which shall constitute but one and the same instrument.
5.4 PARTIES BOUND BY AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Parties and their respective
successors and assigns.
5.5 TERMINOLOGY. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and vice versa. Articles
and other titles or headings are for convenience only, and neither limit nor
amplify the provisions of the Agreement itself, and all references herein to
articles, sections or subdivisions thereof shall refer to the corresponding
article, section or subdivision thereof of this Agreement unless specific
reference is made to such articles, sections or subdivisions of another
document or instrument.
5.6 LAWS AND REGULATIONS. This Agreement and all of the terms and
conditions contained herein, and the respective obligations of the Parties, are
subject to all valid and applicable Laws.
5.7 GOVERNING LAW. THIS AGREEMENT 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.
11
<PAGE> 12
5.8 EXHIBITS AND SCHEDULES. All exhibits, schedules and the like
contained herein or attached hereto are integrally related to this Agreement,
and are hereby incorporated and made a part of this Agreement for all purposes.
5.9 NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing (including telex, facsimile, telecopier or
similar writing) and sent to the address of the Party set forth below, or to
such other more recent address of which the sending Party actually has received
written notice:
(a) if to DeepTech, to:
DeepTech International Inc.
Attn: President
7500 Texas Commerce Tower
600 Travis Street
Houston, TX 77002
(b) if to Tatham Offshore, to:
Tatham Offshore, Inc.
Attn: President
7400 Texas Commerce Tower
600 Travis Street
Houston, TX 77002
Each such notice, demand or other communication shall be effective, if
given by registered or certified mail, return receipt requested, as of the
third day after the date indicated on the mailing certificate, or if given by
any other means, when delivered at the address specified in this Section 5.9.
5.10 FURTHER ASSURANCES. Subject to the terms and conditions set
forth in this Agreement, each of the Parties agrees to use all reasonable
efforts to take, or to cause to be taken, all actions, and to do, or to cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case, at any time after the execution of this Agreement, if
any further action is necessary or desirable to carry out its purposes, the
proper officers or directors of the Parties shall take or cause to be taken all
such necessary action.
5.11 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. The representations, warranties, covenants and agreements given by
the Parties shall survive this Agreement without regard to any action taken
pursuant to this Agreement, including, without limitation, the execution of any
documents affecting an interest in real property or any investigation made by
the Party asserting the breach thereof.
12
<PAGE> 13
5.12 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall be ineffective as to such
jurisdiction, to the extent of such invalidity or unenforceability, without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any terms and
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable. A bankruptcy or similar
trustee must accept or, to the extent permitted by law, reject this Agreement
in its entirety.
5.13 ASSIGNMENT. No Party shall assign any or all of its rights,
interest, title or obligations under this Agreement to any other Person without
the express prior written consent of the other Party, which consent may not be
unreasonably withheld or delayed; provided that, with respect to its rights,
title and interest, either Party shall have the right to (i) make a Transfer to
an Affiliate which remains an Affiliate, (ii) mortgage, pledge, encumber or
otherwise impress a Lien or security interest upon its rights, title and
interest in and to this Agreement, (iii) make a Transfer pursuant to any
security interest arrangement described in (ii) above, including, without
limitation, any judicial or non-judicial foreclosure and any Transfer from the
holder of such security interest to another Person, (iv) make a Transfer in
connection with the sale of all or substantially all of the assets of such
Party, or (v) participate in a merger, consolidation, share exchange,
conversion or other form of statutory reorganization with another Person if
there is a sole surviving Person. Except for the permitted Transfers described
above, an attempted Transfer made without the prior written consent of the
non-Transferring Party is void ab initio. Unless otherwise expressly agreed to
in writing by the Parties, a Transferring Party shall continue to be primarily
responsible and liable for all obligations, liabilities and other expenses
arising from or related to this Agreement.
5.14 WAIVERS. Neither action taken (including, without limitation,
any investigation by or on behalf of either Party) nor inaction pursuant to
this Agreement, shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by the Party
not committing such action or inaction. A waiver by either Party of a
particular right, including, without limitation, breach of any provision of
this Agreement, shall not operate or be construed as a subsequent waiver of
that same right or a waiver of any other right.
5.15 REMEDIES. Except as expressly provided herein, the rights,
obligations and remedies created by this Agreement are cumulative and in
addition to any other rights, obligations or remedies otherwise available at
law or in equity. Nothing herein shall be considered an election of remedies.
Without being subject to the limitations required by common law, either Party
may enforce this Agreement by an injunction or specific performance. In
addition, any successful Party is entitled to costs related to enforcing this
Agreement, including, without limitation, attorneys' fees, court costs and
settlement and arbitration expenses.
13
<PAGE> 14
5.16 NO THIRD PARTY BENEFICIARIES. Except to the extent a third
party is expressly given rights herein, any agreement herein contained,
expressed or implied, shall be only for the benefit of the Parties and their
respective legal representatives, successors, and assigns, and such agreements
shall not inure to the benefit of any other Person whomsoever, it being the
intention of the Parties that no Person shall be deemed a third party
beneficiary of this Agreement except to the extent a third party is expressly
given rights herein.
5.17 NO MERGER. The rights and obligations created by this
Agreement are separate and independent from and in addition to any rights and
obligations created by any other agreements between the Parties, including,
without limitation, the Note Purchase Agreement and the Notes between DeepTech
and Tatham Offshore. Accordingly, none of the representations, warranties,
covenants or indemnities included in any other agreements between the Parties
shall be merged into this Agreement or otherwise restrict or limit the effect
of this Agreement, but each shall survive as provided in each such agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
14
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
DEEPTECH INTERNATIONAL INC.
By:
-------------------------
Printed Name:
-------------------------
Title:
-------------------------
TATHAM OFFSHORE, INC.
By:
-------------------------
Printed Name:
-------------------------
Title:
-------------------------
Exhibit A: Certificate of Designation of Preferences and Rights of 6%
Senior Preferred Stock of Tatham Offshore, Inc.
Exhibit B: Registration Rights
<PAGE> 16
EXHIBIT A
CERTIFICATE OF DESIGNATION OF
PREFERENCES AND RIGHTS OF
6% SENIOR PREFERRED STOCK
OF
TATHAM OFFSHORE, INC.
TATHAM OFFSHORE, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), does hereby certify that
pursuant to the authority conferred on the Board of Directors of the Company
(the "Board") by the Restated Certificate of Incorporation of the Company (as
amended, the "Certificate of Incorporation") and in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), at meetings of the Board
held August 20, 1997 and November 13, 1997, the Board adopted the following
resolutions establishing a series of 6,000,000 shares of 6% Senior Preferred
Stock of the Company with the rights, preferences and designations described
below.
FURTHER RESOLVED, 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 hereby
creates a class of 6% Senior Preferred Stock, par value $0.01 per
share (the "6% Senior Preferred Stock");
FURTHER RESOLVED, that the designation and amount of the 6%
Senior Preferred Stock and the voting powers, preferences and
relative, participating, optional and other special rights of the
shares of the 6% Senior Preferred Stock, and the qualifications,
limitations or restrictions thereof, shall be provided for in a
resolution or resolutions adopted by the Board, pursuant to authority
expressly vested in it by the provisions of such Certificate of
Incorporation;
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 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" and other derivatives
thereof have a meaning correlative to the foregoing.
A-1
<PAGE> 17
"Business Combination" means the sale, lease, exchange or transfer of
all or substantially all of the assets of the Company (but specifically
excluding a Farm-Out) for cash, securities or other property to a Person that
is not an Affiliate of the Company or the merger, consolidation or other
business combination of the Company with or into another Person that is not an
Affiliate of the Company.
"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.
"Certificate" means this Certificate of Designation of Preferences and
Rights, as amended, restated or otherwise modified from time to time.
"Common Stock" means the Company's common stock, $0.01 par value per
share.
"Default Period" shall have the meaning ascribed to it in Section
6(i).
"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 (i)
authorized as of the initial date of this Certificate and (ii) any class of
capital stock or series of preferred stock subsequently established by the
Board, the terms of which when established do not expressly provide that such
class or series ranks on parity with or senior to the 6% Senior Preferred Stock
with respect to dividends or distributions.
"Junior Securities" shall have the meaning ascribed to it in Section 2.
"Liquidation Preference" means $10.00 per share of 6% 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 and has other rights, preferences and
designations, all as provided in its Certificate of Designation or other
constitutive document, as amended, restated or modified from time to time.
"Parity Dividend Securities" means Parity Securities authorized as of
the initial date of this Certificate and any class of capital stock or series
of preferred stock established by
A-2
<PAGE> 18
the Board, the terms of which expressly provide that such class or series ranks
on a parity with the 6% Senior Preferred Stock with respect to dividends or
distributions.
"Parity Securities" shall have the meaning ascribed to it 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.
"Record Date" means December 26, 1995.
"Redemption Date" means any date set by the Board for redeeming all or
a portion of the 6% Senior Preferred Stock pursuant to a redemption under
Section 7.
"Redemption Price" means $10.00 per share of 6% Senior Preferred
Stock.
"Senior Dividend Securities" means the Senior Securities authorized as
of the initial date of this Certificate (of which there are none) 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 senior to the
6% Senior Preferred Stock with respect to dividends or distributions.
"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 and have other rights, preferences
and designations, all as provided in its Certificate of Designation or other
constitutive document, as amended, restated or modified from time to time.
"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 and have other rights, preferences
and designations, all as provided in its Certificate of Designation or other
constitutive document, as amended, restated or modified from time to time.
"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 and have other rights, preferences
and designations, all as provided in its Certificate of Designation or other
constitutive document, as amended, restated or modified from time to time.
A-3
<PAGE> 19
"6% Senior Preferred Stock" means the 6% Senior Preferred Stock, $0.01
par value per share, of the Company created by this Certificate, each share of
which shall accrue dividends at a rate of 6% on the Liquidation Preference and
have other rights, preferences and designations, all as provided in this
Certificate.
"9% 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% per annum on the liquidated preference of
$1,000.00 per share and have other rights, preferences and designations, all as
provided in its Certificate of Designation or other constitutive document, as
amended, restated or modified from time to time.
"Trading Reference Price" means the lowest average of the closing
prices of the Common Stock on the Nasdaq National Market for any five
consecutive trading days during the period commencing on the Record Date and
continuing through and including June 30, 1996 or, if the Common Stock is not
listed on the Nasdaq National Market, the principal stock exchange on which the
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 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.
Capitalized terms used herein but not otherwise defined in this
Section 1 shall have the meanings ascribed to them throughout this Certificate.
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 "6% Senior Preferred Stock," par value $.01 per share. The 6%
Senior Preferred Stock will rank, upon liquidation, winding-up and dissolution,
(i) senior to the Common Stock, the 9% Senior Preferred 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 6%
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 6% 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
A-4
<PAGE> 20
established by the Board the terms of which expressly provide that such class
or series will rank senior to the 6% Senior Preferred Stock (the "Senior
Securities"). As of the date hereof, there are no Parity Securities or Senior
Securities. With respect to dividends or distributions, the 6% Senior
Preferred Stock will rank (i) senior to the Junior Securities and any other
Junior Dividend Securities; (ii) on parity with the Parity Securities and any
Parity Dividend Securities; and (iii) junior to the Senior Securities and any
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 6% 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 consent of
at least a majority-in-interest of the holders of 6% Senior Preferred Stock.
SECTION 3. AUTHORIZED NUMBER. The number of shares constituting the
6% Senior Preferred Stock shall be 6,000,000 shares.
SECTION 4. DIVIDENDS. Holders of shares of the 6% 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 6% of the Liquidation Preference (or $10.00 per share, subject to
adjustment), payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year, commencing March 31, 1998. 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 the date on which each share of 6% Senior Preferred Stock is
issued. Dividends payable on the 6% 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 6% 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 securities except for Senior Dividend Securities,
if any, for any period unless full cumulative dividends shall have been paid or
set apart for such payment on the 6% Senior Preferred Stock. If full dividends
are not so paid, the 6% 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 6% Senior Preferred Stock and Parity
Dividend Securities bear to each other the same ratio that the accumulated
dividends per share on the shares of 6% 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 6% Senior Preferred Stock. Notwithstanding the
A-5
<PAGE> 21
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 6% Senior Preferred Stock shall receive an 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 6% Senior Preferred
Stock and any Parity Securities, the holders of the 6% 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 6% 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. LIMITED VOTING RIGHTS.
Except to the extent as hereinafter expressly provided or as otherwise
required by applicable law, the 6% Senior Preferred Stock shall not have the
right to vote (individually, as a series, class or in the aggregate) on any
matter.
(i) In the event that dividends on the 6% Senior
Preferred Stock, if any, are then declared but not paid as of the relevant
dividend date and remain unpaid in cash for six subsequent quarterly periods,
the maximum authorized number of directors of the Company will be increased as
necessary to allow the holders of 6% Senior Preferred Stock to elect twenty
percent (20%) of the directors on the basis of one vote per each $10.00 amount
of liquidation preference (exclusive of accumulated dividends). So long as any
shares of 6% Senior Preferred Stock shall be outstanding, the holders of 6%
Senior Preferred Stock shall retain the right to vote and elect such
number/percentage of directors until all dividends on the 6% Senior Preferred
Stock, if any, which are then declared but not paid as of the relevant dividend
date, are paid in full or declared and set aside for payment. Such period is
hereinafter referred to as a "Default Period".
A-6
<PAGE> 22
(ii) So long as any shares of 6% Senior Preferred Stock
shall be outstanding, during any Default Period, such voting right of the
holders of 6% Senior Preferred Stock may be exercised initially at a special
meeting called pursuant to Section 6(iii) below or at any annual meeting of
stockholders. The absence of a quorum of holders of Common Stock or any class
thereof shall not affect the exercise of such voting rights by the holders of
6% Senior Preferred Stock.
(iii) Unless the holders of 6% Senior Preferred Stock have,
during an existing Default Period, previously exercised their right to elect
directors, the Board may order, or any stockholder or stockholders owning in
the aggregate not less than 25% of the outstanding shares of 6% Senior
Preferred Stock may request, the calling of a special meeting of holders of 6%
Senior Preferred Stock, which meeting shall thereupon be called by the
President, a Vice President or the Secretary of the Company. Notice of such
meeting and of any annual meeting at which holders of 6% Senior Preferred Stock
are entitled to vote pursuant to this paragraph shall be given to each holder
of record of 6% Senior Preferred Stock by mailing a copy of such notice to such
holder at such holder's last address as the same appears on the stock register
of the Company. Such meeting shall be called for a time not less than 45 nor
more than 90 days after such order or request. Notwithstanding the provisions
of this paragraph, no such special meeting shall be called during the period
within 90 days immediately preceding the date fixed for the next annual meeting
of stockholders.
(iv) During any Default Period, the holders of Common
Stock, and other classes of stock of the Company, if applicable, shall continue
to be entitled to elect all of the directors unless and until the holders of 6%
Senior Preferred Stock shall have exercised their right to elect twenty percent
(20%) of the directors voting as a class, after the exercise of which right (1)
the directors so elected by the holders of 6% Senior Preferred Stock shall
continue in office until the earlier of (A) such time as their successors shall
have been elected by such holders or (B) the expiration of the Default Period,
and (2) any vacancy in the Board may be filled by vote of the remaining
directors theretofore elected by the holders of the class of stock which
elected the director whose office shall have become vacant. References in this
paragraph to directors elected by holders of a particular class of stock shall
include directors elected by such directors to fill vacancies as provided in
clause (2) of the foregoing sentence.
(v) Immediately upon the expiration of a Default Period,
(1) the right of the holders of 6% Senior Preferred Stock to elect directors
shall cease, (2) the term of any directors elected by the holders of 6% Senior
Preferred Stock shall terminate, and (3) subject to immediately preceding
Section 6(iv)(2), the number of directors shall be such number as may be
provided for in the Certificate of Incorporation or bylaws irrespective of any
increase made pursuant to the provisions of Section 6(i) of this section (such
number being subject, however, to change thereafter in any manner provided by
law or in the Certificate of Incorporation or bylaws).
A-7
<PAGE> 23
SECTION 7. REDEMPTION.
(a) The Company (i) shall redeem outstanding shares of 6% Senior
Preferred Stock at the Redemption Price upon the occurrence of a Business
Combination and (ii) may, but shall have no obligation to, redeem outstanding
shares of 6% Senior Preferred Stock at any time, in each case subject to the
terms set forth below.
(b) In connection with a Business Combination, the Company, prior
to the consummation of the Business Combination, shall redeem all outstanding
shares of 6% Senior Preferred Stock; provided, however, that if upon the
Redemption Date the funds of the Company legally available for such redemption
are insufficient to redeem all the shares of 6% Senior Preferred Stock, then
the funds of the Company, to the extent legally available for such purpose,
shall be used to redeem such shares. If fewer than all the outstanding shares
of 6% Senior Preferred Stock are to be redeemed, the shares of 6% Senior
Preferred Stock to be redeemed shall be determined pro rata as nearly as
practicable, or by such other method as the Board may determine to be fair and
appropriate. At any time and from time to time thereafter as additional funds
become legally available for the redemption of shares, such funds shall
promptly be used to redeem such additional shares that are required to be
redeemed.
(c) Before the Company may optionally redeem any or all of the
outstanding shares of the Junior Securities, the Parity Securities or the
Senior Securities, the Company shall redeem all of the outstanding shares of 6%
Senior Preferred Stock.
(d) If fewer than all the outstanding shares of 6% Senior
Preferred Stock are to be redeemed, the shares of 6% Senior Preferred Stock to
be redeemed shall be determined pro rata as nearly as practicable, or by such
other method as the Board may determine to be fair and appropriate.
(e) Procedures for Redemption.
(i) In the event the Company shall redeem shares of 6%
Senior Preferred Stock pursuant to Section 7(a), notice of such
redemption shall be given by first class mail, postage prepaid, mailed
not less than 10 days nor more than 60 days prior to the Redemption
Date, to each holder of record of the shares to be redeemed at such
holder's address as the same appears on the stock register of the
Company. Each such notice shall state: (i) the Redemption Date; (ii)
the number of shares of 6% Senior Preferred Stock to be redeemed and,
if less than all the shares held by such holder are to be redeemed
from such holder, the number of shares to be redeemed from such
holder; (iii) the Redemption Price; and (iv) the place or places where
certificates for such shares are to be surrendered for payment of the
Redemption Price. Any notice given in such manner shall be
conclusively deemed to have been duly given whether or not such notice
is in fact received.
(ii) Notice having been mailed as aforesaid, from and
after the Redemption Date (unless the Company shall fail to provide
money for the payment
A-8
<PAGE> 24
of the Redemption Price of the shares called for redemption), the
shares of 6% Senior Preferred Stock so called for redemption shall no
longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Company (except the right to receive
from the Company the Redemption Price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board
shall so require and the notice shall so state), such shares shall be
redeemed by the Company at the Redemption Price. In case fewer than
all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without
cost to the holder thereof.
SECTION 8. 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 6% Senior Preferred Stock, to
such holder's address as the same appears on the stock register of the Company,
and (ii) in the case of the Company, to the Company's principal executive
offices to the attention of the Company's secretary.
SECTION 9. AMENDMENTS AND WAIVERS. Any right, preference, privilege
or power of, or restriction provided for the benefit of, the 6% 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 at least a majority-in-interest of the shares
of 6% Senior Preferred Stock then outstanding, and any amendment or waiver so
effected shall be binding upon the Company and all holders of the 6% Senior
Preferred Stock.
SECTION 10. PREEMPTIVE RIGHTS. The 6% Senior Preferred Stock is not
entitled to any preemptive rights with respect of any securities of the
Company.
SECTION 11. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-9
<PAGE> 25
IN WITNESS WHEREOF, Tatham Offshore, Inc. has caused this Certificate
of Designation to be duly executed by its duly authorized officer and attested
this [_] day of December, 1997.
TATHAM OFFSHORE, INC.
By:
-------------------------
Printed Name:
-------------------------
Title:
-------------------------
ATTEST:
- --------------------------------------------
Printed Name:
------------------------
Title:
------------------------
A-10
<PAGE> 26
EXHIBIT B
REGISTRATION RIGHTS
1. Demand Registration Rights
a. Request for Registration. For two (2) years after the date on
which the Acquired Stock is issued pursuant to this Agreement, any Holder
owning at least a majority of the shares of the Acquired Stock may make a
written request to Tatham Offshore for registration (the "Demand Registration")
under the Securities Act of the Registrable Securities at any time. The
Holders shall be entitled to three (3) Demand Registrations with respect to the
Registrable Securities, regardless of the number of shares covered by such
Registration; provided that, if any of the shares that a Holder requested to be
included in a Demand Registration is excluded from such Demand Registration
because of Section 1.(c) of this Exhibit, 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. Within ten days after receipt of such request,
Tatham Offshore shall give written notice of such registration request to all
other Holders of the Registrable Securities, if any, and include in such
registration all Registrable Securities with respect to which Tatham Offshore
has received written requests for inclusion therein within fifteen business
days after the receipt by the applicable Holder of Tatham Offshore's notice.
Each such request will also specify the aggregate number of shares of
Registrable Securities to be registered and the intended method of disposition
thereof.
b. Effective Registration and Expenses. A registration will not
count as a Demand Registration until it has become effective; provided,
however, that if a registration does not become effective solely because of any
act or omission on the part of any Holder, such registration shall nevertheless
count as a Demand Registration. In any registration initiated as a Demand
Registration, Tatham Offshore will pay all Registration Expenses in connection
therewith.
c. Priority on Demand Registrations. If the Holders of at least
a majority of shares of an issue of Registrable Securities to be registered in
a Demand Registration 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 Tatham
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,
Tatham 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 by their Holders.
B-1
<PAGE> 27
d. Selection of Underwriters. If any Demand Registration is in
the form of an underwritten offering, Tatham Offshore will select and obtain
the investment banker or investment bankers and manager or managers that will
administer the offering; provided that such investment bankers and managers
must be reasonably satisfactory to the DeepTech Holder or, if there is no
DeepTech Holder, a majority-in-interest of the Holders.
2. Piggyback Registration.
For two (2) years after the date on which the Acquired Stock is
issued, if Tatham 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 Tatham 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 Tatham 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 Tatham Offshore. The notice shall
offer to include in such filing the aggregate number of shares of Acquired
Stock as such Holder may request. Nothing in this Section 2 shall preclude
Tatham Offshore from discontinuing the registration of its securities being
effected on its behalf under this Section 2 at any time prior to the effective
date of the registration relating thereto.
3. Registration Procedures
a. For Demand Registration.
Tatham Offshore will use commercially reasonable efforts to
effect a Demand Registration requested by a Holder in accordance with
the intended method of disposition thereof as quickly as practicable.
Such efforts by Tatham Offshore shall include:
(i) preparing and filing with 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 Tatham 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-2
<PAGE> 28
(ii) 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 90
days 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 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;
(iii) as soon as reasonably practicable, furnishing to each
seller of Registrable Securities to be included in the Demand
Registration copies 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
such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(iv) 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 such
seller to consummate the disposition of the Registrable Securities
owned by such seller in such jurisdictions; provided that Tatham
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;
(v) 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 Tatham Offshore to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities;
(vi) 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 Tatham
Offshore (collectively, the "Records"), and cause Tatham 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 Tatham Offshore has determined,
B-3
<PAGE> 29
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 will give notice to Tatham
Offshore and allow Tatham Offshore to undertake appropriate action to
prevent disclosure of the Records or other information deemed
confidential; and
(vii) if required by applicable listing requirements, cause
all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by Tatham Offshore are
then listed, provided that the applicable listing requirements are
satisfied.
Tatham Offshore may require each seller of Registrable
Securities under a Demand Registration to furnish to Tatham Offshore
information regarding the distribution of such securities as Tatham
Offshore may from time to time request.
b. For Piggyback Registration.
If the Holder desires to have the Acquired Stock registered
under Section 2 of this Exhibit, such Holder shall advise Tatham
Offshore in writing within fifteen (15) days after the date of receipt
of such offer from Tatham Offshore, setting forth the amount of the
Acquired Stock for which registration is requested. Tatham Offshore
shall thereupon include in such filing the number of shares of the
Acquired Stock for which registration is so requested, subject to the
next sentence, and shall use its best efforts to effect registration
of such Acquired Stock under the Securities Act. If the managing
underwriter of a proposed public offering shall advise Tatham Offshore
in writing that, in its opinion, the distribution of the Acquired
Stock requested to be included in the registration concurrently with
the securities being registered by Tatham Offshore or any Registered
Security Holder would materially and adversely affect the distribution
of such securities by Tatham Offshore or such Registered Security
Holders, then the Holder and the Registered Security Holders shall
reduce the number of securities intended to be distributed through
such offering on a pro rata basis.
4. Registration Expenses
All expenses incident to Tatham 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
B-4
<PAGE> 30
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 Tatham Offshore are then listed, and fees and
disbursements of counsel for Tatham Offshore and its independent certified
public accountants, securities acts liability insurance (if Tatham Offshore
elects to obtain such insurance), and the fees and expenses of any special
experts retained by Tatham Offshore in connection with such registration, fees
and expenses of other persons retained by Tatham Offshore (but not including
any underwriting discounts or commissions or transfer taxes attributable to the
sale of Registrable Securities) will be borne by Tatham Offshore (all such
expenses referred to herein as the "Registration Expenses").
5. Indemnification; Contribution
a. Indemnification by Tatham Offshore. Tatham 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 such 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 Tatham
Offshore by such Holder expressly for use therein.
b. Indemnification by Holder of Registrable Securities. In
connection with any Demand Registration in which a Holder is participating,
each such Holder will furnish to Tatham Offshore in writing such information
with respect to such Holder as Tatham Offshore reasonably requests for use in
connection with any such registration statement or prospectus and agrees to
indemnify, to the extent permitted by law, Tatham Offshore, the underwriters
and each of their respective directors and officers and each person who
controls Tatham 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
Holder in any event shall be liable for any amount in excess of the net
proceeds received from such Holder's sale of its shares of Acquired Stock.
B-5
<PAGE> 31
c. 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 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.
6. 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.
7. Rule 144
Tatham Offshore covenants that (i) it will file the reports required
to be filed by it under the Securities Act and the Exchange Act 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.
B-6
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Subsidiary Name Incorporation
- ---------------- ----------------
<S> <C>
North Atlantic Pipeline Company,
L.L.C. Delaware
North Atlantic Pipeline Partners, L.P. Delaware
North Atlantic Pipeline Partners, L.P. Newfoundland, Canada
North Atlantic Pipeline Company Nova Scotia, Canada
Tatham Offshore (Jersey) Ltd. Jersey, Channel Islands
Tatham Offshore Canada Limited Nova Scotia, Canada
Berg Masters Limited Newfoundland, Canada
North Atlantic Hydrocarbons Marketing, Inc. Newfoundland, Canada
DeepFlex Production Services, Inc. Delaware
d/b/a in Texas as
Eddie Delahoussaye-
FPS II, Inc.
FPS II, Inc. Delaware
FPS III, Inc. Delaware
FPS IV, Inc. Delaware
FPS V, Inc. Delaware
FPS VI, Inc. Delaware
DeepFlex Holdings, L.L.C. Delaware
RIGCO North America, L.L.C. Delaware
DeepFlex Production Partners, L.P. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (33-96274) of our report dated September 28, 1998
relating to the financial statements of Tatham Offshore, Inc. for the year
ended June 30, 1998 appearing on page F-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TATHAM
OFFSHORE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30,
1998 INCLUDED IN ITS FORM 10-K FOR THE PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,689
<SECURITIES> 0
<RECEIVABLES> 3,471
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,327
<PP&E> 135,754
<DEPRECIATION> 26,762
<TOTAL-ASSETS> 153,418
<CURRENT-LIABILITIES> 74,342
<BONDS> 0
0
180
<COMMON> 300
<OTHER-SE> 74,930
<TOTAL-LIABILITY-AND-EQUITY> 153,418
<SALES> 11,540
<TOTAL-REVENUES> 11,540
<CGS> 5,666
<TOTAL-COSTS> 5,815
<OTHER-EXPENSES> 3,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,966
<INCOME-PRETAX> (4,811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,811)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
