<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-22892
TATHAM OFFSHORE, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 76-0269967
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Five Post Oak Park
4400 Post Oak Parkway, Suite 1550
Houston, Texas 77027
(Address of Principal Executive Offices, including Zip Code)
(713) 621-3996
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
As of January 31, 2000, there were outstanding 26,074,590 shares of
common stock, par value $0.01 per share, of the Registrant.
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<PAGE> 2
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION.....................................................................3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1999 (unaudited) and June 30, 1999.............3
Unaudited Consolidated Statement of Operations for the Three and Six Months
Ended December 31, 1999 and 1998, respectively............................................4
Unaudited Consolidated Statement of Cash Flows for the Six Months
Ended December 31, 1999 and 1998..........................................................5
Consolidated Statement of Stockholders' Equity for the
Six Months Ended December 31, 1999 (unaudited)............................................6
Notes to Consolidated Financial Statements...................................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS............................................................................21
PART II.OTHER INFORMATION........................................................................22
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES.......................................................................................24
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1999 1999
------ ------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,715 $ 486
Accounts receivable 10 16,076
Prepaid expenses 28 168
------------- -------------
Total current assets 4,753 16,730
------------- -------------
Property and equipment 2,402 146,487
Less - accumulated depreciation 92 12,204
------------- -------------
Property and equipment, net 2,310 134,283
------------- -------------
Restricted cash 170 170
Deferred costs 13,825 12,591
Equity investments (Note 3) 72,483 --
------------- -------------
Total assets $ 93,541 $ 163,774
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 899 $ 10,102
Accounts payable to affiliates 6,144 8,082
Demand note 4,000 --
Long-term debt currently payable -- 58,148
Long-term debt to affiliate currently payable 28,699 26,519
------------- -------------
Total current liabilities 39,742 102,851
------------- -------------
Commitments and contingencies (Note 6)
Stockholders' equity (Note 4):
Preferred stock, $0.01 par value, 110,000,000 shares
authorized as of December 31, 1999 and June 30, 1999,
17,578,946 and 17,579,717 shares issued and outstanding
at December 31, 1999 and June 30, 1999, respectively 176 176
Common stock, $0.01 par value, 250,000,000 shares
authorized as of December 31, 1999 and June 30, 1999,
26,074,590 and 26,074,321 shares issued and outstanding
as of December 31, 1999 and June 30, 1999, respectively 261 261
Additional paid-in capital 186,217 186,217
Accumulated deficit (132,855) (125,731)
------------- -------------
53,799 60,923
------------- -------------
Total liabilities and stockholders' equity $ 93,541 $ 163,774
============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 4
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
------------------------ ------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue:
Drilling services $ -- $ 10,177 $ -- $ 22,277
---------- ---------- ---------- ----------
-- 10,177 -- 22,277
---------- ---------- ---------- ----------
Costs and expenses:
Drilling operating expenses -- 4,386 -- 11,929
Depreciation 22 1,390 43 2,773
Loss from equity investments (Note 3) 4,006 -- 4,164 --
Management fee -- -- -- 155
General and administrative expenses 46 1,867 494 3,040
---------- ---------- ---------- ----------
4,074 7,643 4,701 17,897
---------- ---------- ---------- ----------
Operating income (loss) (4,074) 2,534 (4,701) 4,380
Interest and other income 15 17 51 49
Interest and other financing costs -- (1,732) -- (4,061)
Interest expense and other financing costs - affiliates (1,358) (952) (2,810) (1,512)
---------- ---------- ---------- ----------
Net loss from continuing operations (5,417) (133) (7,460) (1,144)
Discontinued operations (Note 2)
Gain (loss) from oil and gas operations 336 -- 336 (221)
---------- ---------- ---------- ----------
Net loss (5,081) (133) (7,124) (1,365)
Preferred stock dividends (776) (764) (1,553) (1,528)
---------- ---------- ---------- ----------
Net loss allocable to common shareholders $ (5,857) $ (897) $ (8,677) $ (2,893)
========== ========== ========== ==========
Weighted average number of shares 26,075 26,074 26,075 27,077
========== ========== ========== ==========
Basic and diluted loss per common share
from continuing operations (Note 5) $ (0.24) $ (0.03) $ (0.35) $ (0.10)
========== ========== ========== ==========
Basic and diluted loss per common share from
discontinued operations (Note 5) $ 0.02 $ (0.00) $ 0.02 $ (0.01)
========== ========== ========== ==========
Basic and diluted loss per common share $ (0.22) $ (0.03) $ (0.33) $ (0.11)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 5
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months
Ended December 31,
------------------------
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,124) $ (1,365)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 43 3,031
Amortization of debt issue costs -- 1,134
Noncash interest expense 2,810 1,164
Loss from equity investments 4,164 --
Changes in operating working capital (net of effect of deconsolidating):
(Increase) decrease in accounts receivable 32 (1,418)
(Increase) decrease in receivable from affiliates (758) 488
(Increase) decrease in prepaid expenses (16) 15
(Increase) decrease in accounts payable and accrued liabilities (795) 3,114
Decrease in accounts payable to affiliates (185) (2,803)
---------- ----------
Net cash provided by (used in) operating activities (1,829) 3,360
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (383) (6,095)
Deferred costs (1,235) (333)
Reduction in cash from deconsolidating rig subsidiaries (382) --
Conveyance of oil and gas properties -- (1,605)
---------- ----------
Net cash used in investing activities (2,000) (8,033)
---------- ----------
Cash flows from financing activities:
Repayment of notes payable -- (1,008)
Proceeds from demand note 4,000 --
Proceeds from notes payable to affiliate 4,058 10,890
Increase in restricted cash -- (6,270)
Debt issue costs -- (713)
---------- ----------
Net cash provided by financing activities 8,058 2,899
---------- ----------
Net increase (decrease) in cash and cash equivalents 4,229 (1,774)
Cash and cash equivalents at beginning of year 486 2,689
---------- ----------
Cash and cash equivalents at end of period $ 4,715 $ 915
========== ==========
</TABLE>
Supplemental disclosures to the Statement of Cash Flows - see Note 7.
The accompanying notes are an integral part of this financial statement.
5
<PAGE> 6
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- --------------------- Additional
Number of Number of paid-in Accumulated
Shares Par value Shares Par value capital deficit Total
--------- --------- --------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 17,580 $ 176 26,074 $ 261 $ 186,217 $(125,731) $ 60,923
Conversion of Series A Preferred Stock
into common stock (1) -- 1 -- -- -- --
Net loss for the six months ended
December 31, 1999 (unaudited) -- -- -- -- -- (7,124) (7,124)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1999 (unaudited) 17,579 $ 176 26,075 $ 261 $ 186,217 $(132,855) $ 53,799
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE> 7
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Tatham Offshore, Inc. ("Tatham Offshore" or the "Company"), a Delaware
corporation, provides offshore contract drilling services to the oil and gas
industry and is currently pursuing, through its 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"). Prior to August 14, 1998,
Tatham Offshore was an approximately 94%-owned subsidiary of DeepTech
International Inc. ("DeepTech"), a diversified energy company. In connection
with the merger of DeepTech with a subsidiary of El Paso Energy Corporation ("El
Paso Energy") and related transactions completed on or before August 14, 1998
(the "Merger"), (i) Tatham Offshore transferred its ownership of Tatham Offshore
Development, Inc. ("Tatham Development"), a Delaware corporation and former
wholly-owned subsidiary of Tatham Offshore which held interests in Ewing Bank
Blocks 958, 959, 1002 and 1003, the Sunday Silence prospect, to DeepTech, (ii)
Tatham Offshore conveyed its remaining oil and gas properties to Leviathan Gas
Pipeline Partners, L.P. ("Leviathan"), (iii) DeepTech contributed all of the
outstanding shares of capital stock of DeepFlex Production Services, Inc.
("DeepFlex") to Tatham Offshore and (iv) DeepTech divested itself of its equity
ownership interest in Tatham Offshore pursuant to a spin-off transaction
effected by a Rights Offering (the "Rights Offering"). 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, L.L.C. ("FPS VI"), wholly-owned
subsidiaries of DeepFlex, own interests in the FPS Laffit Pincay (the "Laffit
Pincay") and the FPS Bill Shoemaker (the "Bill Shoemaker" and, together with the
Laffit Pincay, the "Rigs"), both second generation semisubmersible drilling
rigs.
Pursuant to management and charter agreements, Sedco Forex Division of
Schlumberger Technology Corporation ("Sedco Forex") has marketed, managed, and
operated the Rigs. On January 22, 1999, RIGCO gave Sedco Forex a written
termination notice of the management and charter agreements for the Laffit
Pincay. Effective March 23, 1999, RIGCO took over the marketing, management and
operational responsibilities for the Laffit Pincay. On April 20, 1999, RIGCO
gave Sedco Forex a written termination notice of the management and charter
agreement for the Bill Shoemaker. Under the Bill Shoemaker management and
charter agreement, Sedco Forex continued to man and operate the rig through the
conclusion of its drilling contract with Husky Oil Operations Limited. At the
conclusion of the Husky Oil Operations Limited drilling contract on November 15,
1999, RIGCO assumed the marketing, management and operational responsibilities
for the Bill Shoemaker.
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
Pipeline Partners"). North Atlantic Pipeline Partners is the sponsor of a
proposal to construct a natural gas pipeline and related infrastructure in the
Grand Banks area offshore Newfoundland and Nova Scotia to the eastern seaboard
of the United States.
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the statements reflect all normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations for the period covered by such statements. These interim
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999.
Bankruptcy Filing by Subsidiaries
On August 9, 1999, RIGCO, FPS VI, FPS III, Inc. ("FPS III") and FPS V, Inc.
("FPS V") (collectively, the "Rig Subsidiaries"), wholly-owned subsidiaries of
DeepFlex, filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Filing"). RIGCO owns a 100% interest in the
Bill Shoemaker and a 25% undivided interest in the Laffit Pincay. FPS VI owns a
75% undivided interest in the Laffit Pincay. FPS III and FPS V are the owners of
RIGCO and FPS VI with FPS III owning a 50% interest in RIGCO and FPS V owning a
50% interest in RIGCO and a 100% interest in FPS VI. The bankruptcy proceedings
of the Rig Subsidiaries are
7
<PAGE> 8
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
administered jointly. As a result of the Bankruptcy Filing, the Rigs are being
managed by the Company's rig related subsidiaries as debtors-in-possession. The
syndicate of lenders under the Credit Facility have a secured interest in
substantially all of the assets of RIGCO and FPS VI.
As a result of the Bankruptcy Filing, financial statements presented after the
date of the Bankruptcy Filing reflect the investment in and advances to and the
results of operations of the Rig Subsidiaries on the equity method of accounting
(see Note 3). Tatham Offshore's remaining 50% or more owned subsidiaries
controlled by the Company are included in the accompanying consolidated
financial statements.
Discontinued Operations
Discontinued operations represent Tatham Offshore's oil and gas exploration and
development business transferred to DeepTech and Leviathan as discussed above.
These operations were accounted for using the successful efforts method of
accounting. Net sales from discontinued oil and gas operations were $0.9 million
for the period from July 1, 1998 through August 14, 1998. General and
administrative expenses were allocated to discontinued operations based on the
percentage of employees' time related to the discontinued operations and were
$0.3 million for the period from July 1, 1998 through August 14, 1998. Interest
expense for the period from July 1, 1998 through August 14, 1998 was allocated
100% to discontinued operations.
NOTE 2 - RELATED PARTY TRANSACTIONS:
Management Agreement
The management agreement between Tatham Offshore and DeepTech provided 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 July 1, 1997, the management agreement was
amended to provide for an annual management fee of 26% of DeepTech's overhead
expenses. During the six months ended December 31, 1998, DeepTech charged Tatham
Offshore $310,000 under this agreement. The management agreement was terminated
August 14, 1998.
Notes Payable to Affiliates
In connection with the Merger, the Company entered into a short-term financing
arrangement with Tatham Brothers, LLC ("Tatham Brothers") (the "Short-Term
Facility") to provide for funds to (i) satisfy approximately $1.6 million of
cash requirements with respect to the redemption agreement with Leviathan, (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 Tatham
Brothers Securities, LLC ("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 Facility. Tatham Brothers
is an affiliate of Mr. Thomas P. Tatham, Chairman of the Board and Chief
Executive Officer of the Company, and the parent company of TB Securities. The
original terms of the Short-Term Facility provided for an interest rate of 12%
per annum with principal and accrued interest due on January 15, 1999. On
January 15, 1999, the Company and Tatham Brothers agreed to refinance the
original $22.9 million principal plus $1.1 million accrued interest into a new
short-term loan which bears interest at the rate of 15% per annum and was due
March 31, 1999. In connection with the refinancing, the Company paid Tatham
Brothers a fee of $1.0 million in the form of a 15% subordinated convertible
note (the "Subordinated Convertible Note"). The Subordinated Convertible Note
bears interest at the rate of 15% per annum and is due on August 15, 2001.
Tatham Brothers may convert the principal amount of the Subordinated Convertible
Note and accrued unpaid interest into shares of Common Stock of the Company
based on the average market price for the five trading days prior to the end of
the previous calendar quarter. The Short-Term Facility is secured by a pledge of
DeepFlex of its interest in certain payment-in-kind Subordinated Promissory
Notes issued by RIGCO and FPS V, both subsidiaries of the Company, which had an
outstanding balance of approximately $80.7 million at December 31, 1999. On
March 31, 1999, the Company and Tatham Brothers extended the Short-Term Facility
until April 30, 1999. Pursuant to the terms of the Short-Term Facility, Tatham
Offshore was required to pay $24.1 million in principal and $0.3 million in
interest on April 30, 1999. Tatham Offshore did not make payment of such
amounts; as a result, an event of default has occurred and is continuing under
the Short-Term Facility. The default interest rate under the Short-Term Facility
is 19% per annum. The principal balance and accrued interest under the
Short-Term Facility and Subordinated Convertible Note are included in long-term
debt currently payable on the consolidated balance sheet.
8
<PAGE> 9
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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 Tatham Offshore, DeepTech, Mr. Thomas P. Tatham and El Paso Energy.
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 was 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. In exchange for certain consideration, Tatham Brothers assigned all
of its rights and interest under the Standby Agreement and the Standby
Commitment to TB Securities.
Pursuant to the Purchase Commitment Agreement, dated as of February 27, 1998 by
and between Tatham Brothers and Tatham Offshore, in consideration of the Standby
Commitment, the Company paid Tatham Brothers a fee of $6.9 million, which amount
was included in the amount payable under the Short-Term Facility.
Tatham Offshore is a guarantor of $5.0 million of a $9.0 million loan from Bank
of America, N.A. to Tatham Brothers, which proceeds were loaned to DeepFlex to
fund certain improvements to the Rigs. The loan bore interest at LIBOR plus 2%
and was due on November 30, 1999 or upon demand. On December 1, 1999, Tatham
Brothers made a principal reduction of $2.6 million and extended the note until
September 30, 2000 or upon demand. Effective February 1, 2000, the loan bears
interest at the rate of 6.5% per annum. The loan from Tatham Brothers to
DeepFlex, plus accrued interest, was included in the amount payable under the
Short-Term Facility discussed above.
In connection with the Bill Shoemaker make-ready agreement with Sedco Forex,
RIGCO obtained a $6.5 million letter of credit in January 1999 to secure payment
to Sedco Forex, and the funds used to secure such letter of credit were provided
by Mr. Thomas P. Tatham. The $6.5 million in collateral funds plus accrued
liquidated damages totaling $1.7 million are included in the accounts of RIGCO.
In exchange for providing the funds to secure the letter of credit, RIGCO paid a
fee of $500,000 to Mr. Tatham. RIGCO has agreed to pay Mr. Tatham, as liquidated
damages, $10,000 per day from February 15, 1999 until such funds are returned.
The liquidated damages payment would be in the form of a promissory note bearing
interest at the rate of 18% per annum.
Tatham Aviation, Inc. ("Tatham Aviation"), whose sole shareholder is Mr. Thomas
P. Tatham, has provided the Company use of a corporate aircraft. The agreement
between the Company and Tatham Aviation provides for the Company's reimbursement
of operating costs, insurance and carrying costs in exchange for the use of the
corporate aircraft. During the six months ended December 31, 1999, the Company
paid Tatham Aviation $912,000 under this agreement.
On February 10, 1999, Tatham Offshore issued two promissory notes, each in the
original principal amount of $1.1 million, to Tatham Brothers and a foundation
associated with Mr. Thomas P. Tatham, respectively, to secure funds to purchase
new anchor chains in connection with the Bill Shoemaker make-ready. Effective
with the purchase of the anchor chains, RIGCO and Tatham Offshore entered into
an agreement whereby RIGCO has the option to either lease or purchase the anchor
chains from Tatham Offshore. In April 1999, Tatham Offshore Canada Limited
purchased the two promissory notes for their principal amount plus accrued
interest.
On June 30, 1999, RIGCO entered into a committed draw facility with Tatham
Investment Corp., which is 100% owned by Mr. Thomas P. Tatham. Tatham Investment
Corp. agreed to loan up to $750,000 to RIGCO for working capital purposes. Loans
under this agreement bear interest at the prime rate plus 3% (on December 31,
1999, the interest rate under this facility was 11.5%) and were due on September
30, 1999. As of the date of the Bankruptcy Filing, Tatham Investment Corp. had
an unsecured claim of $338,303 under this agreement.
9
<PAGE> 10
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Effective July 1, 1999, Tatham Offshore entered into a revolving draw facility
with Tatham Investment Corp. The revolving draw facility provides for loans, at
the lender's sole discretion, by Tatham Investment Corp. to Tatham Offshore in
amounts up to $5.0 million. The revolving draw facility bears interest at the
rate of 15% per annum and is payable upon demand by the lender. Through December
31, 1999, the Company has borrowed $4.1 million under this facility which along
with accrued interest of $191,300 is included in accounts payable to affiliates
on the consolidated balance sheet. The Company has pledged all of its equity
ownership in certain wholly-owned subsidiaries of the Company as well as a
certain promissory note issued by Tatham Offshore Canada, Limited as security
under this revolving draw facility.
Other
Leviathan charged Tatham Offshore $197,500 for the period from July 1, 1998
through August 14, 1998 for commodity and platform access fees associated with
the Viosca Knoll 817 lease in accordance with certain agreements between the
parties.
During the period from July 1, 1998 through August 14, 1998, Tatham Offshore
sold all of its production to Offshore Gas Marketing, Inc. ("Offshore
Marketing"), an 80%-owned subsidiary of DeepTech. Under its agreement with
Offshore Marketing, the Company paid 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.
NOTE 3 - EQUITY INVESTMENTS:
On August 9, 1999, the Rig Subsidiaries, wholly-owned indirect subsidiaries of
Tatham Offshore, filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code. As a result of the Bankruptcy Filing, the Rig Subsidiaries are
operating their businesses and managing their property as debtors-in-possession.
Financial statements presented after the date of the Bankruptcy Filing reflect
the investment in and advances to and the results of operations of the Rig
Subsidiaries under the equity method of accounting. At December 31, 1999, the
combined assets of the Rig Subsidiaries totaled $144.1 million. Excluding
deferred income taxes, the Rig Subsidiaries had $152.4 million of total debt and
other liabilities at December 31, 1999 including $62.3 million of secured debt
under the Credit Facility. Substantially all of the remaining debt and other
liabilities are owed to affiliates of the Rig Subsidiaries. The following is
summarized combined income statement information for the subsidiaries included
in the Bankruptcy Filing.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
Revenue:
Drilling services $ 3,712 $ 13,341
Costs and expenses:
Drilling operating expenses 3,116 8,137
Depreciation 1,454 2,908
General and administrative expenses
and management fee 1,063 1,923
----------------- -----------------
5,633 12,968
----------------- -----------------
Operating income (loss) (1,921) 373
Interest income 78 85
Interest expense and other financing costs (2,163) (4,217)
Interest expense and other financing costs - affiliates -- (1,445)
----------------- -----------------
Net loss $ (4,006) $ (5,204)
================= =================
</TABLE>
10
<PAGE> 11
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY:
The following table summarizes Tatham Offshore's outstanding equity as of
December 31, 1999:
<TABLE>
<CAPTION>
Conversion/
Shares Liquidation Dividend Dividends Exchange
Equity Outstanding Preference Rate In Arrears Features
<S> <C> <C> <C> <C> <C>
Series A Preferred Stock 17,183,362(a) $1.50 per share 12% $ 10,909,000 (b)(c)
Series B Preferred Stock 74,379 $1.00 per share 8% $ 19,000 (b)(c)
Series C Preferred Stock 321,205 $0.50 per share 4% $ 19,000 (b)(c)
Common Stock 26,074,590(a) N/A -- -- --
</TABLE>
- ------------
(a) 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.
(b) 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.
(c) Redeemable at the option of Tatham Offshore on or after July 1, 1997.
NOTE 5 - EARNINGS PER SHARE:
Basic earnings per share ("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.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
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.
Effective January 25, 1998, Sedco Forex entered into a one-year contract with
Shell Offshore Inc. ("Shell") for the use of the Bill Shoemaker in the Gulf. The
Company was notified by Sedco Forex that as of November 18, 1998, Shell would
cease using the Bill Shoemaker to conduct drilling operations in the Gulf. The
Company has been paid for drilling services performed by the Bill Shoemaker for
Shell through November 18, 1998 but has not been paid for any period since that
time. At December 31, 1999, the Company had recorded a $7.5 million account
receivable from Sedco Forex related to the unpaid portion of the Shell contract.
On April 20, 1999, RIGCO gave Sedco Forex a written termination notice of the
management and charter agreement for the Bill Shoemaker. On July 26, 1999, RIGCO
filed a petition alleging more than $51 million in actual damages against
Schlumberger Technology Corporation and Schlumberger Canada, Ltd.
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.
11
<PAGE> 12
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 7 - SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
Cash paid, net of amounts capitalized
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1999 1998
(in thousands)
<S> <C> <C>
Interest $ -- $ 3,303
Taxes $ -- $ --
</TABLE>
Supplemental Disclosures of Noncash Investing and Financing Activities
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1999 1998
(in thousands)
<S> <C> <C>
Debt issued to refinance accounts payable
to affiliates $ -- $ 5,153
Senior Preferred Stock redeemed under
the Redemption Agreement $ -- $ 7,500
Debt issued to finance Rights Offering $ -- $ 6,923
</TABLE>
As discussed in Note 1, the Company has reflected the investment in and advances
to and the results of operations of the Rig Subsidiaries on the equity method of
accounting. The assets, liabilities and accumulated deficit of the Rig
Subsidiaries at June 30, 1999 were as follows (in thousands):
<TABLE>
<S> <C>
Cash $ 382
Accounts receivable 16,034
Prepaid expenses 156
Semisubmersible drilling rigs, net 132,314
Accounts payable and accrued liabilities (8,408)
Accounts payable to affiliates (6,003)
Notes payable to affiliates (79,357)
Current portion of note payable (58,148)
Deferred income taxes (10,238)
---------
Accumulated deficit $ (13,268)
=========
</TABLE>
NOTE 8 - SEGMENT INFORMATION:
The Company currently operates two business segments, the offshore contract
drilling business and the pursuit of an integrated energy related investment
strategy in Atlantic Canada. The Company is required to report summarized
financial results for operating segments and 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.
For the three and six months ended December 31, 1999, operations for the
drilling segment are included in the financial statements on the equity method
of accounting (see Note 3). For the three months ended December 31, 1998, the
drilling segment revenues totaled $10.2 million and the drilling segment profit
totaled $4.4 million. For the six months ended December 31, 1998, the drilling
segment revenues totaled $22.3 million and the drilling segment profit totaled
$7.6 million. The Canadian Investment Strategy segment had no revenues and all
costs were capitalized for the three and six months ended December 31, 1999 and
1998.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in Item 1.
"Consolidated Financial Statements" and is intended to assist in the
understanding of the Company's financial condition and results of operations for
the three and six months ended December 31, 1999.
GENERAL
Tatham Offshore, Inc. ("Tatham Offshore" or the "Company"), a Delaware
corporation, provides offshore contract drilling services to the oil and gas
industry and is currently pursuing, through its 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 has been in the oil and gas
exploration and development business, primarily in the Gulf. The Company has
refocused 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's merger (the "Merger") with a
subsidiary of El Paso Energy completed on August 14, 1998, Tatham Offshore (i)
transferred its ownership of Tatham Development, which owns oil and gas
producing properties, to DeepTech and its remaining oil and gas properties to
Leviathan, and (ii) acquired from DeepTech ownership of DeepFlex which, through
its subsidiaries, owns the Laffit Pincay and the Bill Shoemaker. The Company's
oil and gas operations in the Gulf are reflected as discontinued operations in
the financial statements. As a result of the Bankruptcy Filing as discussed
below, financial statements presented after the date of the Bankruptcy Filing
reflect the investment in and advances to and the results of operation of the
Rig Subsidiaries on the equity method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1998
Revenue from drilling services totaled $3.7 million for the three months ended
December 31, 1999 and is reflected in equity earnings. All of the revenue for
the three months ended December 31, 1999 was generated by the Bill Shoemaker.
During this period the Bill Shoemaker was under contract for the period October
1, 1999 through November 15, 1999. Revenue from drilling services totaled $10.2
million for the three months ended December 31, 1998, all of which was generated
by the Bill Shoemaker. The reduction in revenue from $10.2 million for the three
months ended December 31, 1998 to $3.7 million for the three months ended
December 31, 1999 was due to a lower day rate in effect during 1999 as well as
the lower utilization rate. The Laffit Pincay did not have a drilling contract
during either the three months ended December 31, 1998 or December 31, 1999 and
therefore did not generate any revenue.
Operating expenses for the Rigs for the three months ended December 31, 1999
totaled $3.1 million and were attributable to the management fee and direct
operating expenses for the Rigs. Operating expenses for the Rigs for the three
months ended December 31, 1999 were reflected in equity earnings. During this
period, the Bill Shoemaker's operating expenses totaled $2.3 million and the
Laffit Pincay's operating expenses totaled $0.8 million. Operating expenses for
the Laffit Pincay during this period included the costs necessary to maintain
the rig in a warm-stacked mode. Operating expenses for the three months ended
December 31, 1998 totaled $4.4 million and were attributable to the management
fee and direct operating expenses for the Rigs. During this period, the Bill
Shoemaker's operating expenses totaled $2.3 million and the Laffit Pincay's
operating expenses totaled $2.1 million. Operating expense for the Laffit Pincay
during this period included the costs necessary to maintain the rig in a
warm-stacked mode. The reduction in operating expense for the Laffit Pincay from
$2.1 million for the three month period ending December 31, 1998 to $0.8 million
for the three month period ending December 31, 1999 was due to reduced crew
requirements and the elimination of management fees payable to Sedco Forex as a
result of the termination of the Sedco Forex management agreement on March 23,
1999.
Depreciation expense for the Rigs totaled $1.5 million for the three months
ended December 31, 1999 and is reflected in equity earnings. Depreciation
expense for the Bill Shoemaker and the Laffit Pincay totaled $1.0 million and
$0.5 million, respectively. Depreciation expense totaled $1.4 million for the
three months ended December 31, 1998. Depreciation expense for the Bill
Shoemaker and the Laffit Pincay totaled $0.9 million and $0.5 million,
respectively.
13
<PAGE> 14
General and administrative expense totaled $46,000 for the three months ended
December 31, 1999 and includes staff and overhead costs for the Atlantic Canada
business. In addition, general and administrative expense relating to the Rigs
totaled $1.1 million and is reflected in equity earnings. General and
administrative expense totaled $1.9 million for the three months ended December
31, 1998. General and administrative expense for the three months ended December
31, 1998 included staff and overhead costs for the operation of the marine
services and Atlantic Canada businesses.
Operating loss for the three months ended December 31, 1999 totaled $4.1 million
as compared to operating income of $2.5 million for the three months ended
December 31, 1998. The change was due to the items discussed above.
Interest income and other for the three months ended December 31, 1999 and 1998
totaled $15,000 and $17,000, respectively, and primarily included interest
income from available cash.
Interest expense and other financing costs to affiliates for the three months
ended December 31, 1999 and 1998 totaled $1.4 million and $1.0 million,
respectively, and related to borrowings from Tatham Brothers. Interest expense
incurred by RIGCO under the Credit Facility for the three months ended December
31, 1999 totaled $2.2 million and is included in equity earnings. Interest
expense incurred by RIGCO under the Credit Facility for the three months ended
December 31, 1998 totaled $1.7 million.
On or before August 14, 1998, the Company transferred all of its oil and gas
properties in the Gulf to DeepTech and Leviathan in connection with the Merger.
For the three months ended December 31, 1999, the Company reported earnings
from discontinued operations of $336,000 due to the reversal of oil and gas
expense accruals.
Tatham Offshore eliminated all of its Senior Preferred Stock and the associated
preferred stock dividends in arrears as a result of certain Merger related
agreements and repurchased and cancelled 653,365 shares of its Series A
Preferred Stock in connection with the Rights Offering. Tatham Offshore's
remaining preferred stock dividends totaled $0.8 million for the three months
ended December 31, 1999 as compared with $0.8 million for the three months ended
December 31, 1998. After taking preferred stock dividends into account, the
Company's net loss allocable to common shareholders for the three months ended
December 31, 1999 was $5.9 million, or $0.22 per share, as compared with a net
loss allocable to common shareholders for the three months ended December 31,
1998 of $0.9 million, or $0.03 per share.
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1998
Revenue from drilling services totaled $13.3 million for the six months ended
December 31, 1999 and is reflected in equity earnings. All of the revenue for
the six months ended December 31, 1999 was generated by the Bill Shoemaker.
During this period the Bill Shoemaker was under contract for the period from
July 1, 1999 through November 15, 1999. Revenue from drilling services totaled
$22.3 million for the six months ended December 31, 1998, all of which was
generated by the Bill Shoemaker. The reduction in revenue from $22.3 million for
the six months ended December 31, 1998 to $13.3 million for the six months ended
December 31, 1999 was due to a lower average day rate in effect during 1999 as
well as the lower utilization rate. The Laffit Pincay did not have a drilling
contract during either the six months ended December 31, 1998 or December 31,
1999 and therefore did not generate any revenue.
Operating expenses for the Rigs for the six months ended December 31, 1999
totaled $8.1 million and were attributable to the management fee and direct
operating expenses for the Rigs. Operating expenses for the Rigs for the six
months ended December 31, 1999 were reflected in equity earnings. During this
period, the Bill Shoemaker's operating expenses totaled $6.6 million and the
Laffit Pincay's operating expenses totaled $1.5 million. Operating expenses for
the Laffit Pincay during this period included the costs necessary to maintain
the rig in a warm-stacked mode. Operating expenses for the six months ended
December 31, 1998 totaled $11.9 million and were attributable to the management
fee and direct operating expenses for the Rigs. During this period, the Bill
Shoemaker's operating expenses totaled $6.0 million and the Laffit Pincay's
operating expenses totaled $5.9 million. Operating expense for the Laffit Pincay
during this period included the costs necessary to maintain the rig in a
warm-stacked
14
<PAGE> 15
mode. The reduction in operating expense for the Laffit Pincay from $5.9 million
for the six month period ending December 31, 1998 to $1.5 million for the six
month period ending December 31, 1999 was due to reduced crew requirements and
the elimination of management fees payable to Sedco Forex as a result of the
termination of the Sedco Forex management agreement on March 23, 1999.
Depreciation expense for the Rigs totaled $2.9 million for the six months ended
December 31, 1999 and is reflected in equity earnings. Depreciation expense for
the Bill Shoemaker and the Laffit Pincay totaled $1.9 million and $1.0 million,
respectively. Depreciation expense totaled $2.8 million for the six months ended
December 31, 1998. Depreciation expense for the Bill Shoemaker and the Laffit
Pincay totaled $1.8 million and $1.0 million, respectively.
General and administrative expense totaled $494,000 for the six months ended
December 31, 1999. In addition, general and administrative expense relating to
the Rigs totaled $1.9 million and is reflected in equity earnings. General and
administrative expense totaled $3.2 million for the six months ended December
31, 1998. General and administrative expense includes staff and overhead costs
allocated to the Company under a management agreement with DeepTech of $0.2
million for the six months ended December 31, 1998. In connection with the
Merger, the management agreement between the Company and DeepTech was terminated
on August 14, 1998. General and administrative expense for the six months ended
December 31, 1998 included staff and overhead costs for the operation of the
marine services and Atlantic Canada businesses. General and administrative costs
attributable to discontinued operations totaled $0.3 million for the six months
ended December 31, 1998.
Operating loss for the six months ended December 31, 1999 totaled $4.7 million
as compared to operating income of $4.4 million for the six months ended
December 31, 1998. The change was due to the items discussed above.
Interest income and other for the six months ended December 31, 1999 and 1998
totaled $51,000 and $49,000, respectively, and primarily included interest
income from available cash.
Interest expense and other financing costs to affiliates for the six months
ended December 31, 1999 and 1998 totaled $2.8 million and $1.5 million,
respectively, and related to borrowings from Tatham Brothers. The Rig
Subsidiaries also incurred interest expense to affiliated entities of $1.4
million for the six months ended December 31, 1999 which is included in equity
earnings. Interest expense incurred by RIGCO under the Credit Facility for the
six months ended December 31, 1999 totaled $4.2 million and is included in
equity earnings. Interest expense incurred by RIGCO under the Credit Facility
for the six months ended December 31, 1998 totaled $4.1 million.
On or before August 14, 1998, the Company transferred all of its oil and gas
properties in the Gulf to DeepTech and Leviathan in connection with the Merger.
For the six months ended December 31, 1999, the Company reported earnings from
discontinued operations of $336,000 due to the reversal of oil and gas expense
accruals. The Company reported a net loss from discontinued operations of $0.2
million for the six months ended December 31, 1998. During the period from July
1, 1998 through August 14, 1998, the Company sold 479 million cubic feet of
natural gas and 1,200 barrels of oil at average prices of $1.86 per thousand
cubic feet of natural gas and $7.13 per barrel of oil, respectively.
Tatham Offshore eliminated all of its Senior Preferred Stock and the associated
preferred stock dividends in arrears as a result of certain Merger related
agreements and repurchased and cancelled 653,365 shares of its Series A
Preferred Stock in connection with the Rights Offering. Tatham Offshore's
remaining preferred stock dividends totaled $1.6 million for the six months
ended December 31, 1999 as compared with $1.5 million for the six months ended
December 31, 1998. After taking preferred stock dividends into account, the
Company's net loss allocable to common shareholders for the six months ended
December 31, 1999 was $8.7 million, or $0.33 per share, as compared with a net
loss allocable to common shareholders for the six months ended December 31, 1998
of $2.9 million, or $0.11 per share.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash. The Company expects to be dependent upon cash on hand, loans
under a revolving draw facility with Tatham Investment Corp. and cash generated
from its drilling services operations to pay its operating expenses and satisfy
its other obligations. The use of cash held by or generated from operations of
the Rig Subsidiaries is subject to approval of the Bankruptcy Court. 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.
On August 9, 1999, RIGCO, FPS VI, FPS III and FPS V (the "Rig Subsidiaries")
filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Filing"). RIGCO owns a 100% interest in the Bill Shoemaker and
a 25% undivided interest in the Laffit Pincay. FPS VI owns a 75% undivided
interest in the Laffit Pincay. FPS III and FPS V are the owners of RIGCO and FPS
VI with FPS III owning a 50% interest in RIGCO and FPS V owning a 50% interest
in RIGCO and a 100% interest in FPS VI. The proceedings of the Rig Subsidiaries
are administered jointly. As a result of the Bankruptcy Filing, the Rigs are
being managed by the Company's subsidiaries as debtors-in-possession. The
syndicate of lenders under the Credit Facility have a secured interest in
substantially all of the assets of RIGCO and FPS VI. Any cash received by RIGCO
and FPS VI is considered collateral for the secured lenders (the "Cash
Collateral") under the Credit Facility. RIGCO and FPS VI as
debtors-in-possession have been granted temporary permission by the Bankruptcy
Court for limited use of the Cash Collateral to pay operating and maintenance
costs for the Rigs and to pay certain limited general and administrative costs
of Tatham Offshore. See "-- Liquidity Outlook."
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. The Laffit Pincay has not been employed since mid-August 1998 and it is
uncertain as to when and at what day-rates it will be employed in the future. On
October 23, 1999, the Bill Shoemaker completed a three well contract for Husky
Oil Operations Limited. RIGCO has bid on additional day rate drilling contracts
for Husky Oil Operations Limited for the year 2000; however, as of this date,
RIGCO has not entered into a drilling contract for the Bill Shoemaker subsequent
to the three wells drilled for Husky Oil Operations Limited. See "-- Uses of
Cash" and "-- Liquidity Outlook."
In August 1998, both El Paso Energy and the Company were required to post
letters of credit in connection with certain Merger related agreements. In March
1999, the Company entered into an agreement with El Paso Energy under which (i)
each company was released of its obligation to maintain letters of credit in
favor of one another, (ii) El Paso Energy paid the Company $618,000 and (iii)
the Company released its rights to certain potential pre-merger tax attributes
of the DeepTech group. As a result of this agreement, the Company's $6.1 million
cash collateral which secured its letter of credit in favor of El Paso Energy
was released and became available for general corporate purposes.
On June 30, 1999, RIGCO entered into a committed draw facility with Tatham
Investment Corp., which is 100% owned by Mr. Thomas P. Tatham. Tatham Investment
Corp. agreed to loan up to $750,000 to RIGCO for working capital purposes. Loans
under this agreement bear interest at the prime rate plus 3% (on December 31,
1999, the interest rate under this facility was 11.5%) and were due on September
30, 1999. As of the date of the Bankruptcy Filing, Tatham Investment Corp. had
an unsecured claim of $338,303 under this agreement.
Effective July 1, 1999, Tatham Offshore entered into a revolving draw facility
with Tatham Investment Corp. The revolving draw facility provides for loans, at
the lender's sole discretion, by Tatham Investment Corp. to Tatham Offshore in
amounts up to $5.0 million. The revolving draw facility bears interest at the
rate of 15% per annum and is payable upon demand by the lender. Through December
31, 1999, the Company has borrowed $4.1 million under this facility. The Company
has pledged all of its equity ownership in certain wholly-owned subsidiaries of
the Company as well as a certain promissory note issued by Tatham Offshore
Canada, Limited.
In December 1999, North Atlantic Pipeline Partners, L.P. borrowed $4.0 million
from an unrelated party. The $4.0 million loan is evidenced by a demand note
bearing interest at the rate of 15% per annum.
Uses of Cash. The Company expects that its primary uses of cash will consist of
(i) payments on the Credit Facility, (ii) amounts necessary to fund capital
expenditures related to the Rigs that are not funded by customers,
16
<PAGE> 17
(iii) amounts necessary to staff and maintain the Rigs while they are not under
contract, and (iv) amounts necessary to pay general and administrative and other
operational expenses. The use of cash held by the Rig Subsidiaries requires
approval by the Bankruptcy Court. As a result of an agreement with the secured
lenders in February 2000, which is subject to approval by the Bankruptcy Court,
the Rig Subsidiaries will have limited use of such cash through March 31, 2000.
See "--Liquidity Outlook".
In addition, the Company will use available cash from non-rig related borrowings
to fund the pursuit of its business strategy in Atlantic Canada. Such uses will
include funding initial expenditures related to the North Atlantic Pipeline
Partners' pipeline project, the remainder of the Company's Atlantic Canada
strategy and any of the Company's other potential capital expenditures.
Oil prices declined substantially during 1998, which has caused a significant
decline in the demand for mobile offshore drilling rigs with depth ratings as
found on the Laffit Pincay and Bill Shoemaker. Although oil prices have
strengthened in recent months, the demand for RIGCO's drilling rigs has not
improved significantly. The Laffit Pincay does not have a current drilling
contract and was warm-stacked in Grand Isle Block 71, offshore Louisiana from
mid-August 1998 through early February 1999. In early February 1999, the Laffit
Pincay was relocated to a shipyard in Pascagoula, Mississippi pending the
completion of engineering studies and obtaining financing necessary to perform
certain upgrades to the rig. In addition to the Laffit Pincay, there are several
similarly equipped semisubmersibles owned by competitors currently deployed in
the Gulf that do not have current drilling contracts or commitments. Cash costs
to warm-stack the Laffit Pincay in Grand Isle Block 71 were approximately
$600,000 per month. Cash costs to maintain the Laffit Pincay in the shipyard are
approximately $250,000 per month.
Following the completion of the Husky Oil Operation Limited contract, in
mid-November 1999, the Bill Shoemaker was warm-stacked in a facility in
Newfoundland, Canada pending additional contract drilling commitments in Canada
or other suitable locations worldwide. The costs to stack the Bill Shoemaker in
Canada are approximately $300,000 per month.
North Atlantic Pipeline 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 December 31, 1999, Tatham Offshore Canada Limited, the Canadian
representative of North Atlantic Pipeline Partners, has incurred $13.8 million
in developmental costs in connection with such project and related
infrastructure projects. The Company anticipates that the ultimate capital costs
of the pipeline and related projects, if approved, could be in excess of several
billion dollars. The Company plans to obtain debt and equity financing and/or
secure joint venture partners to satisfy the capital requirements for the
Atlantic Canada projects, as required.
Liquidity Outlook. The Company intends to fund its immediate cash requirements
with cash on hand, loans under the revolving draw facility with Tatham
Investment Corp., and cash from its drilling services operations as authorized
from time to time by the Bankruptcy Court. At December 31, 1999, Tatham Offshore
had $4.7 million of cash and cash equivalents. In addition, RIGCO had $7.1
million of cash and cash equivalents at December 31, 1999. The use of cash held
by or generated from operations of the Rig Subsidiaries is subject to approval
of the Bankruptcy Court. However, to meet its debt obligations and future
capital needs with respect to Atlantic Canada, the Company will need to raise
substantial capital (equity, debt or both) or enter into other arrangements.
Drilling Operations
On September 30, 1996, RIGCO 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 Bill Shoemaker, to
fund significant upgrades to the Bill 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 Bill Shoemaker. The Credit Facility (i) originally matured
on September 30, 1998, (ii) provides for interest at the prime rate plus 3% per
annum (11.5% at December 31, 1999), payable quarterly, and (iii) is secured by
the two semisubmersible drilling rigs and all of the related assets. On
September 25, 1998, the parties to the Credit Facility amended the agreement to
(i) extend the maturity date from September 30, 1998 to March 31, 1999, (ii)
waive all principal payments until the maturity date, and (iii) extend the
expiration date on the warrants issued to the lenders under the original Credit
Facility to March 31, 1999. RIGCO paid a total of 0.5% of the outstanding
principal balance to the lenders in connection with the amendment.
17
<PAGE> 18
On March 31, 1999, the parties to the Credit Facility amended the agreement to
(i) extend the maturity to April 30, 1999, (ii) waive all principal and interest
payments until the maturity date and (iii) extend the expiration date on the
warrants issued to the lenders under the original Credit Facility to April 30,
1999. RIGCO paid a total of $100,000 to the lenders in connection with the
amendment and agreed to increase the interest rate on the outstanding principal
to the default rate under the Credit Facility (the prime rate plus 5% per annum,
which equaled 13.5% at December 31, 1999) for the period of the extension. RIGCO
did not make the principal payment or interest payment due on April 30, 1999, is
presently in default under the terms of the Credit Facility, and has filed
voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. As of the date
of the Bankruptcy Filing, amounts outstanding under the Credit Facility totaled
$58.1 million in principal and $4.1 million in accrued interest. See
"-- Subsidiary Bankruptcy Court Proceedings".
Effective January 25, 1998, Sedco Forex entered into a one-year contract with
Shell Offshore Inc. ("Shell") for the use of the Bill Shoemaker in the Gulf. The
Company was notified by Sedco Forex that as of November 18, 1998, Shell would
cease using the Bill Shoemaker to conduct drilling operations in the Gulf. The
Company has been paid for drilling services performed by the Bill Shoemaker for
Shell through November 18, 1998, but has not been paid for any period since that
time. RIGCO is seeking to recover its damages resulting from this early
termination, along with damages unrelated to the Shell contract, in the suit
against Schlumberger Technology Corporation and Schlumberger Canada, Ltd.
(collectively "Schlumberger") discussed hereafter.
Following the early release of the rig by Shell, the Bill Shoemaker was towed to
a shipyard in Galveston, Texas where it underwent significant unanticipated
refurbishments in preparation for mobilization to the Grand Banks area in
Atlantic Canada. Capital costs, including crew costs while in the shipyard, for
the make-ready totaled approximately $8.5 million. Following the make-ready, the
Bill Shoemaker was mobilized to the Grand Banks area in Atlantic Canada to
conduct a two-well program (with three options permitting up to seven additional
wells) at predetermined rates for Husky Oil Operations Limited. In connection
with the Bill Shoemaker make-ready agreement with Sedco Forex, RIGCO obtained a
letter of credit for $6.5 million to secure payment to Sedco Forex. The letter
of credit was secured with funds provided by Mr. Thomas P. Tatham, Chairman of
the Board and Chief Executive Officer of the Company. In exchange for providing
the funds to secure the letter of credit, RIGCO paid a fee of $500,000 to Mr.
Tatham. RIGCO has agreed to pay Mr. Tatham, as liquidated damages, $10,000 per
day from February 15, 1999 until such funds are returned. The liquidated damages
payment would be in the form of a promissory note bearing interest at the rate
of 18% per annum. All of the funds securing the letter of credit were drawn by
Sedco Forex for payments under the make-ready agreement.
On April 20, 1999, RIGCO gave Sedco Forex a written termination notice of the
management and charter agreement for the Bill Shoemaker. As the Company
currently does not have a replacement drilling agreement for the Bill Shoemaker,
the Company will be dependent on cash reserves generated from the Husky Oil
Operations Limited agreement, or funds from new financing arrangements, to fund
its ongoing cash requirements.
On July 26, 1999, RIGCO filed a petition in the 165th Judicial District Court in
Harris County, Texas, seeking both actual and exemplary damages from
Schlumberger for claims arising out of Schlumberger's Sedco Forex Division's
marketing, manning, management and operation of the Bill Shoemaker and Laffit
Pincay pursuant to certain charter, make-ready and other agreements and
arrangements. The allegations include claims of gross negligence, breach of
contract, fraud, negligent misrepresentation and negligence. Additionally, RIGCO
and FPS VI have alleged in bankruptcy court proceedings that the manner in which
Schlumberger performed its duties with respect to the Bill Shoemaker and Laffit
Pincay during the course of the management and charter agreements resulted in
RIGCO's financial difficulties and caused it to default on its secured debt
obligations.
Subsidiary Bankruptcy Court Proceedings
On February 9, 2000, RIGCO, FPS III, FPS IV and FPS V, as debtors-in-possession,
and the secured lenders under the Credit Facility filed a Stipulation and Order
Authorizing Continued Use of Cash Collateral and Adequate Protection with the
Bankruptcy Court (the "February 2000 Stipulation"). The February 2000
Stipulation provides that (i) the debtors-in-possession will accept an offer to
purchase the Laffit Pincay at the best commercial offer above a stated minimum,
(ii) within five business days of the acceptance of the offer,
debtors-in-possession will file with the Bankruptcy Court a motion seeking
approval of reasonable and customary proposed bankruptcy sale procedures
including the establishment of an overbid period and approval of topping fees,
(iii) within five business days of the acceptance of the offer,
debtors-in-possession shall retain a certain broker to market the Laffit Pincay,
18
<PAGE> 19
(iv) the debtors-in-possession will enter into a definitive Purchase Agreement
which is acceptable to the secured lenders for the sale of the Laffit Pincay
within 21 days after the acceptance of the offer and shall file a motion seeking
approval of the proposed sale pursuant to the terms of the Purchase Agreement
with the Bankruptcy Court, (v) the debtors-in-possession will use their best
efforts to obtain a hearing on the proposed sales procedures on February 17,
2000, a hearing on the proposed sale on March 20, 2000 and the closing of the
sale of the Laffit Pincay on or before March 31, 2000, (vi) the terms of the
Purchase Agreement or any subsequent purchase agreement approved by the
Bankruptcy Court shall provide that the sale of the Laffit Pincay will close on
or before March 31, 2000, assuming all conditions precedent to the closing have
been satisfied, (vii) upon the sale of the Laffit Pincay, the secured lenders
would receive all of the net proceeds from the sale after deduction of customary
and reasonable expenses, costs and fees associated with the sale, (viii) on or
before March 31, 2000, the debtors-in-possession will accept an offer to
purchase the Bill Shoemaker for an amount exceeding all remaining amounts owing
to the secured lenders and that the sale of the Bill Shoemaker will close no
later than June 30, 2000, (ix) if the debtors-in-possession fulfill the
conditions for the sale of the Bill Shoemaker in (viii) above, some or all of
the secured lenders will make a post-petition loan to RIGCO up to $1.6 million
(the "DIP Loan"), (x) proceeds from the sale of the Bill Shoemaker will be used
to first pay off the obligations under the DIP Loan and second to pay off all
secured obligations owed to the secured lenders under the Credit Facility, (xi)
upon approval of the Bankruptcy Court of the February 2000 Stipulation, the
debtors-in-possession will pay the secured lenders $2.0 million in partial
payment of the secured lenders' claim and (xii) debtors-in-possession will be
allowed continued use of the cash collateral through March 31, 2000 in
accordance with an agreed budget.
Atlantic Canada
The Company has refocused 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 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 including upstream exploration and production activities and
the acquisition of oil and gas concessions or license interests. The Company has
incurred approximately $13.8 million in costs associated with its Atlantic
Canada strategy.
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 Pipeline 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 Atlantic Canada 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. The Company or its Canadian subsidiaries may seek to obtain
additional equity capital to assist in the funding of the ongoing day-to-day
operations of its planned Atlantic Canada strategy.
Other
In connection with the Merger, the Company entered into a $22.9 million
short-term financing arrangement with Tatham Brothers (as amended, the
"Short-Term Facility") to provide for funds to (i) satisfy approximately $1.6
million of cash requirements with respect to the redemption agreement with
Leviathan, (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 Facility. Tatham Brothers is an
affiliate of Thomas P. Tatham and the parent company of TB Securities. The
Short-Term Facility accrued interest at the rate of 12% per annum and was due on
January 15, 1999. On January 15, 1999, the Company and Tatham Brothers agreed to
refinance the original $22.9 million principal plus $1.1 million of accrued
interest into a new short-term loan which bears interest at the rate of 15% per
annum and was due March 31, 1999. In connection with the refinancing, the
19
<PAGE> 20
Company paid Tatham Brothers a fee of $1.0 million in the form of a 15%
subordinated convertible note (the "Subordinated Convertible Note"). The
Subordinated Convertible Note bears interest at the rate of 15% per annum and is
due on August 15, 2001. Tatham Brothers may convert the principal amount of the
Subordinated Convertible Note and accrued unpaid interest into shares of Common
Stock of the Company based on the average market price for the five trading days
prior to the end of the previous calendar quarter. The Short-Term Facility is
secured by a pledge of DeepFlex of its interest in certain payment-in-kind
Subordinated Promissory Notes issued by RIGCO and FPS V, both subsidiaries of
the Company, which had an outstanding balance of approximately $80.7 million at
December 31, 1999. On March 31, 1999, the Company and Tatham Brothers extended
the Short-Term Facility until April 30, 1999. Pursuant to the terms of the
Short-Term Facility, Tatham Offshore was required to pay $24.1 million in
principal and $0.3 million in interest on April 30, 1999. Tatham Offshore did
not make payment of such amount; as a result, an Event of Default has occurred
and is continuing under the Short-Term Facility.
Tatham Offshore is a guarantor of $5.0 million of a $9.0 million loan from Bank
of America, N.A. to Tatham Brothers, which proceeds were loaned to DeepFlex to
fund certain improvements to the Rigs. The loan bore interest at LIBOR plus 2%
and was due on November 30, 1999 or upon demand. On December 1, 1999, Tatham
Brothers made a principal reduction of $2.6 million and extended the note until
September 30, 2000 or upon demand. Effective February 1, 2000, the loan bears
interest at the rate of 6.5% per annum. The loan from Tatham Brothers to
DeepFlex, plus accrued interest, was included in the amount payable under the
Short-Term Facility discussed above.
Since the Nasdaq National Market has delisted Tatham Offshore's common stock,
the holders thereof have suffered a decrease in marketability of their shares
and the liquidity of their investment in Tatham Offshore's common stock and its
preferred stocks which are convertible into common stock. This decrease in the
marketability and liquidity of the Company's common and preferred stock may have
a material adverse effect on Tatham Offshore's ability to access equity markets
in the future.
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 substantially all of its information technology software and
equipment are year 2000 compliant and that this problem will have no affect on
the Company's internal operations. The costs relating to the assessment of the
year 2000 issue have, to date, been de minimus. 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. The
Company had discussions with the operator of the Bill Shoemaker and has
performed external IT and Non-IT system reviews. Based on discussions and
reviews, the Company believes that there will be no disruption in the operation
of either of its drilling rigs as a result of the year 2000 issue. Currently,
the Company has no information concerning the year 2000 compliance status of its
customers and vendors. In the event the Company or the various companies on
which we principally rely experience year 2000 compliance problems, adverse
consequences could include the interruption of drilling services aboard the
Rigs, delays in shipments of materials and supplies required to operate the
Rigs, delays in transferring personnel to and from the Rigs, and delays in
receiving funds from customers or in making payments to suppliers. There can be
no assurances that such systems will not have a material adverse impact on the
Company's business and operations. Since the Laffit Pincay and the Bill
Shoemaker were warm-stacked at December 31, 1999, management did not deem it
necessary to develop a contingency plan for worst case year 2000 business
interruptions. To date, the Company has not experienced any adverse impact to
its business or operations as a result of year 2000 issues.
UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION
This quarterly report contains certain forward looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. Such statements are
typically punctuated by words or phrases such as "anticipate," "estimate,"
"project," "should," "may," "management believes," and words or phrases of
similar import. Although management believes that such statements and
expressions are reasonable and made in good faith, it can give no assurance that
such expectations will prove to have been correct. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Among the key factors that may have a direct bearing on the
Company's results of operations and financial condition are: (i) competitive
practices in the industry in which
20
<PAGE> 21
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 and (v) 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.
ITEM 3. 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. Under the RIGCO Credit Facility, the remaining
principal was due on April 30, 1999 along with the final interest payment. On
December 31, 1999, the Credit Facility had principal balance of $58,148,000 and
an interest rate based on the prime rate plus 3% (11.5% at December 31, 1999)
and a default interest rate based on the prime rate plus 5% (13.5% at December
31, 1999). 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 June 30, 1999, RIGCO entered into a committed draw facility with Tatham
Investment Corp., which is 100% owned by Mr. Thomas P. Tatham. Tatham Investment
Corp. agreed to loan up to $750,000 to RIGCO for working capital purposes. Any
loans bear interest at the prime rate plus 3% (on December 31, 1999, the
interest rate was 11.5%) and were due on September 30, 1999.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
RIGCO North America, L.L.C. v. Schlumberger Technology Corporation, et
al., Cause No. 99-38082. On July 26, 1999, RIGCO sued Schlumberger
Technology Corporation ("STC") and Schlumberger, Canada Ltd. ("SCL")
seeking over $51 million in damages in connection with the defendants'
charters of the FPS Laffit Pincay and the FPS Bill Shoemaker. RIGCO's
suit alleges causes of action for gross negligence, breach of contract,
negligence, fraud, and negligent misrepresentation arising from
Defendants' management, operation and marketing of both rigs as well as
STC's agreement to renovate the Bill Shoemaker. Both defendants have
answered in the case, but no trial date is set at this time. The suit
is proceeding in state district court in Harris County, Texas.
In re RIGCO North America, L.L.C., et al.; In the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi
Division; Case Nos. 99-22401-C-11 through 99-22404-C-11 (Jointly
Administered Under Case No. 99-22401-C-11). On August 9, 1999, RIGCO
North America, L.L.C., FPS VI, L.L.C., FPS III, Inc., and FPS V, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief
under Chapter 11, Title 11 of the United States Code. The Debtors are
operating their businesses and managing their property as
debtors-in-possession. As a result of an agreement between the Debtors
and the secured creditors, the debtors will have interim use of cash
collateral until March 31, 2000.
RIGCO North America, L.L.C. v. Schlumberger Technology Corporation and
Schlumberger Canada Ltd.; In the United States Bankruptcy Court for the
Southern District of Texas, Corpus Christi Division; Adversary No.
99-2154-C. On September 3, 1999, RIGCO North America, L.L.C. filed a
complaint against Schlumberger Technology Corporation and Schlumberger
Canada Ltd. to avoid a preferential transfer or transfers pursuant to
11 U.S.C. Section 547 and to recover the property transferred or its
value pursuant to 11 U.S.C. Section 550. The Defendants have answered
the complaint. On September 21, 1999, the Court entered a Comprehensive
Discovery, Mediation and Scheduling Order requiring, among other
things, non-binding mediation. The Court-ordered mediation was
unsuccessful, and the parties are in the process of conducting
discovery.
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
RIGCO and FPS VI, significant subsidiaries of the Company, are party to
a Credit Agreement dated as of September 30, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Credit
Facility") with BHF-Bank Aktiengesellschaft, as administrative agent
("BHF"), Lehman Commercial Paper Inc., Hibernia National Bank, and
certain other banks and financial institutions (collectively, the
"Lenders").
Pursuant to the terms of the Credit Agreement, RIGCO and FPS VI were
required to pay $60.3 million, all amounts owing under the Credit
Agreement, on April 30, 1999. RIGCO and FPS VI did not make payment of
such amounts; as a result, an Event of Default has occurred and is
continuing under the Credit Agreement.
By letter dated May 3, 1999, BHF, on behalf of the Lenders, advised
RIGCO and FPS VI that the Lenders would not exercise their rights,
remedies, powers and privileges under the Credit Agreement and the
other related loan documents at that time, but that they reserve the
right to do so at any time they deem appropriate.
On August 9, 1999, RIGCO and FPS VI filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code.
22
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule
99.1 Stipulation and Order Authorizing Continued Use of Cash
Collateral and Adequate Protection
23
<PAGE> 24
27.2 SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TATHAM OFFSHORE, INC.
Date: February 14, 2000 By: /s/ DENNIS A. KUNETKA
-----------------------------------
Dennis A. Kunetka
Chief Financial Officer and Secretary
(Signing on behalf of the Registrant and as
Principal Accounting Officer)
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
99.1 Stipulation and Order Authorizing Continued Use of Cash
Collateral and Adequate Protection
</TABLE>
<PAGE> 1
EXHIBIT 99.1
UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
IN RE: )
)
RIGCO NORTH AMERICA, L.L.C., ) CASE NOS. 99-22401-C-11
FPS III, INC., FPS VI, L.L.C., and ) THROUGH 99-22404-C-11
FPS V, INC., )
) Jointly Administered Under
) CASE NO. 99-22401-C-11
Debtors. )
STIPULATION AND ORDER AUTHORIZING CONTINUED USE OF CASH
COLLATERAL AND ADEQUATE PROTECTION
-----------------------------
RIGCO North America, L.L.C. ("RIGCO"), FPS III, INC., FPS IV, L.L.C. and
FPS V, Inc., as the debtors in possession in the above-captioned proceedings
(collectively, the "Debtors"), and BHF (USA) Capital Corporation, as
Administrative Agent for the Lender Group referred to below (the "Agent"),
enter into this Stipulation and Order authorizing the continued use of cash
collateral under the terms and provisions set forth herein (the "Stipulation").
RECITALS
--------
Each of the following recitals are hereby acknowledged and agreed:
A. On August 9, 1999 (the "Petition Date"), each of the Debtors filed a
voluntary petition for relief under chapter 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Court") and such proceedings were assigned the following case
numbers:
<TABLE>
<S> <C>
DEBTOR CASE NO.
------------------------------------------------
RIGCO North America, L.L.C. 99-220401-C-11
FPS III, INC. 99-220402-C-11
FPS VI, L.L.C. 99-220403-C-11
FPS V, INC. 99-220404-C-11
</TABLE>
<PAGE> 2
(collectively, the "Bankruptcy Proceedings"). The Bankruptcy Proceedings are
being jointly administered under Case No. 99-220401-C-11.
B. On or about September 30, 1996, RIGCO, BHF-BANK
Aktienzesellscheft, as predecessor in interest of the Agent, and various
lenders (together with their assigns, the "Lender Group") entered into a Credit
Agreement (as amended, the "Credit Agreement"). A list of all members of the
Lender Group, as of December 6, 1999, is attached hereto as Annex I. As of the
date hereof, none of the members of the Lender Group identified in Annex I have
assigned any portion of their claims or any interest therein.
C. Pursuant to the terms of the Credit Agreement, the Lender
Group advanced loans to, and extended credit on behalf of, one or more of the
Debtors (the "Obligations"). Pursuant to the Credit Agreement, the Agent was
appointed agent to the Lender Group.
D. The Lender Group holds claims against the Debtors in the
amount of the Obligations and related interest and fees as provided under the
terms of the Credit Agreement and through certain guarantees (the "Claims").
E. The Lender Group holds valid, properly perfected security
interest in certain property of the Debtors, including, without limitation,
those certain semi-submersible offshore drilling rigs known as the FPS Laffit
Pincay (including all equipment related thereto, whether offshore or onshore,
the "Pincay") and the FPS Bill Shoemaker (including all equipment related
thereto, whether offshore or onshore, the "Shoemaker") (collectively, the
"Rigs").
2
<PAGE> 3
F. The Debtors are currently using cash collateral of the Lender
Group pursuant to an order of the Court. Unless extended by further order of
the Court, the Debtors' authorization to use the Lender Group's cash collateral
will expire on January 31, 2000.
G. The Lender Group has filed motions asking the Court (i) to
convert the Chapter 11 Cases to cases under chapter 7, and (ii) to lift the
automatic stay in order to allow the Lender Group to foreclose on its
collateral, including the Rigs (collectively, the "Motions").
H. Counsel for the Debtors has filed their first application for
interim compensation and reimbursement of expenses (the "Application"). The
Lender Group filed an objection to the Application (the "Objection").
I. Hearings on the continued use of cash collateral, the
Motions, the Application and the Objection are scheduled for February 1, 2000.
J. The Debtors and the Lender Group have advised the Court that
they have agreed to the terms of this stipulated order and the hearings have
been continued and rescheduled for February 17, 2000.
K. The Debtors and the Lender Group wish to extend the Debtors'
authorization to use cash collateral and continue the hearings on the Motions
and the Application, subject to the terms and conditions set forth herein,
which the parties agree constitute adequate protection to the Lender Group.
AGREEMENT
---------
NOW, THEREFORE, it is stipulated and agreed:
1. Pursuant to prior notice to interested parties, on or about
January 31, 2000, the Debtors will accept an offer pursuant to a purchase
agreement, letter of intent, term sheet or similar document, which either
accepts the terms proposed in the term sheet submitted by the
3
<PAGE> 4
Debtors on January 27, 2000, or is the best commercial offer to purchase the
Pincay at a price equal to or greater than $27.5 million (the "Purchase Price").
2. Within:
(i) five (5) business days of the acceptance of the offer
referenced in the foregoing paragraph, Debtors shall file with the Bankruptcy
Court a motion seeking approval of reasonable and customary proposed bankruptcy
sale procedures, including the establishment of an overbid period and approval
of topping fees and overbid procedures and the retention of Normarine as a
broker to market the Pincay until the date of the hearing scheduled for the
sale of the Pincay; provided that Normarine shall be entitled to a fee of one
percent (1%) of the sale price if it produces a prospective purchaser whose bid
is accepted by the Debtors and approved by the Court, and who timely closes on
the sale of the Pincay at the approved bid price; and further provided that
Normarine shall not be entitled to any fee if the Pincay is sold to Atwood
Oceanics, ATCO Frontec Offshore, Inc., Rigco Canada, Ltd. or any of their
affiliates; and
(ii) twenty-one (21) days after the acceptance of the offer
referenced in paragraph 1, the Debtors shall enter into a binding purchase
agreement acceptable in form and substance to the Lender Group (the "Purchase
Agreement") committing the Debtors to sell the Pincay for the Purchase Price,
subject to the approval of the Bankruptcy Court, and shall file a motion
seeking approval of the proposed sale of the Pincay pursuant to the terms of
the Purchase Agreement.
3. At the time of the filing of the motions set forth in
paragraph 2 above the Debtors shall use their best efforts to obtain (i) a
hearing on the proposed sale procedures on
4
<PAGE> 5
February 17, 2000 (ii) a hearing on the proposed sale on March 20, 2000, and
(iii) the closing of the sale of the Pincay on or before March 31, 2000,
whether pursuant to the Purchase Agreement or any other agreement approved by
the Bankruptcy Court.
4. The terms of the Purchase Agreement, or any subsequent
purchase agreement approved by the Bankruptcy Court, shall provide that the
sale of the Pincay will close on or before March 31, 2000, assuming all
conditions precedent to the closing as set forth in the Purchase Agreement have
been satisfied.
5. Upon the sale of the Pincay, the Debtors shall promptly pay
to the Lender Group, the entire amount of sale proceeds realized from such sale
after deduction for customary and reasonable expenses, costs and fees
associated with the sale.
6. On or before March 31, 2000, the Debtors will accept a
proposal pursuant to a purchase agreement, letter of intent, term sheet or
similar document, acceptable in form and substance, to the Lender Group,
including a customary deposit, with a creditworthy purchaser acceptable to the
Lender Group (the "Purchaser") committing the Debtors to sell, and the
Purchaser to purchase, the Shoemaker for a net purchase price exceeding the sum
of (i) the remaining outstanding portion of the Lender Group's secured claim at
that time, and (ii) the outstanding portion of the post-petition loan described
in the next paragraph. The purchase agreement, letter of intent, term sheet or
similar document must provide that the sale of the Shoemaker will close by no
later than June 30. In order to consummate such a sale the Debtors will file
similar pleadings as those specified in paragraph 2 above, including a
provision for continued use of cash collateral to the extent available and the
provision of the DIP Loan as specified in paragraph 7 below.
5
<PAGE> 6
7. If the Debtors fulfill the conditions of the foregoing
paragraph 6 within the time period set forth therein, on or before April 30,
2000 some or all of the Lender Group will make a post-petition loan of up to
$1.6 million (the "DIP Loan") to the Debtors to fund the operating budget set
forth on Exhibit "A" hereto (the "Budget"). The DIP Loan shall mature and
become fully due and payable on July 15, 2000. The DIP Loan shall have
customary terms and conditions and bear a rate of interest of Prime Rate plus
two percent (2%), payable monthly; provided, however, that the default rate of
interest under the DIP Loan shall equal the default rate of interest under the
Credit Agreement. All reasonable fees and expenses of the Lender Group relating
to the DIP Loan, including without limitation the preparation, collection or
enforcement thereof, shall be paid by the Debtors. The Debtors' obligations
under the DIP Loan shall be secured by a lien on all of the Debtors' assets,
which lien shall be senior to any other liens on or security interests in any
of the assets of the Debtors. Moreover, the Debtors obligations to the Lender
Group under the DIP Loan shall constitute a "super-priority" administrative
expense of the Debtors having priority over all other administrative expenses
of the Debtors pursuant to section 364(c)(1) of the Bankruptcy Code, subject to
a carve out for administrative expenses not to exceed $250,000; provided,
however, that no fees or expenses incurred by the Debtors or its professional
in connection with challenging any claims or liens of the Lender Group or
drafting, promoting or pursuing a plan of reorganization inconsistent with the
terms of this stipulation and order shall be included in such carve out. The
Debtors may use the proceeds of the DIP Loan only to pay such expenses set
forth in the Budget.
8. If the Debtors do not fulfill the conditions of paragraph 6
above within the time period set forth therein, the Lender Group shall be under
no obligation to make the DIP Loan.
6
<PAGE> 7
9. Proceeds from the sale of the Shoemaker shall be used first
to pay off the Debtors' obligations under the DIP Loan, and second to pay off
all secured obligations owed to the Lender Group under the Credit Agreement.
10. To the extent the Lender Group holds allowed unsecured
claims against the Debtors, such allowed unsecured claims shall be paid pro rata
with other allowed unsecured claims against the Debtors, pursuant to a plan of
reorganization or as otherwise authorized by the Bankruptcy Court.
11. Immediately upon approval of this Stipulation by the
Bankruptcy Court, (a) the Debtors shall pay to the Lender Group the amount of $2
million, which payment shall reduce the amount of the Lender Group's secured
Claim, and (b) the Debtors and the Lender Group shall submit an agreed order to
the Bankruptcy Court authorizing the Debtors' continued use cash collateral
through March 31, 2000 in accordance with the Budget; provided, however, that
the authorization to use cash collateral shall immediately terminate if the
Debtors have not performed such actions as contemplated in paragraph 2 above
within the time period required.
12. All payments to be made to the Lender Group under this
Stipulation shall be applied by the Lender Group first to outstanding fees and
expenses, second to outstanding interest, and third to outstanding principal
obligations arising under the Credit Agreement or DIP Loan, as applicable.
13. As of February 1, 2000, the outstanding balance owed by the
Debtors to the Lender Group in under the Credit Agreement was $63,827,138.26,
plus accrued and unpaid fees and expenses (which the Lender Group estimates not
to exceed $110,000 as of February 1, 2000).
7
<PAGE> 8
14. Absent new debt or equity financing supplied or obtained by
the Debtors, the sale of the Rigs pursuant to the terms set forth herein are
necessary and integral to any plan of reorganization to be confirmed in these
Bankruptcy Proceedings; accordingly, pursuant to sections 1146(c) and 105(a) of
the Bankruptcy Code, the sale and transfer of the either or both of Rigs, and
the making, execution, delivery, recordation or modification of any instrument
of transfer or assignment in connection with either or both such transactions
shall not be subject to taxation under any federal, state or local stamp,
transfer or similar tax.
WHEREFORE, the parties hereby respectfully request that the
Bankruptcy Court enter this Stipulation and Order.
Dated: Houston, Texas
February 8, 2000
/s/ HARRY A. PERRIN
-------------------
Harry A. Perrin
J. Hayden Kepner, Jr.
WEIL, GOTSHAL & MANGES LLP
700 Louisiana, Suite 1600
Houston, Texas 77002-2784
Telephone: (713) 546-5000
Telecopy: (713) 224-9511
ATTORNEYS FOR LEHMAN COMMERCIAL PAPER
INC.; SYNDICATED LOAN FUNDING TRUST;
BHF (USA) CAPITAL CORPORATION;
HIBERNIA NATIONAL BANK; MERRILL LYNCH
PRIME RATE PORTFOLIO BY MERRILL LYNCH
ASSET MANAGEMENT L.P.; MERRILL LYNCH
SENIOR FLOATING RATE FUND, INC.;
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO BY MERRILL LYNCH ASSET
MANAGEMENT L.P.; SENIOR HIGH INCOME
PORTFOLIO, INC.; AND VAN KAMPEN
AMERICAN CAPITAL PRIME RATE INCOME
TRUST
Dated: Houston, Texas
February 8, 2000
8
<PAGE> 9
/s/ JAN M. ABELL w/Permission by Hayden Kepner
----------------------------------------------
H. Rey Stroube III
Jan M. Abell
AKIN, GUMP, STRAUSS, HAUER &
FELD, L.L.P.
Pennzoil Place -- South Tower
711 Louisiana, Suite 1900
Houston, TX 77002
Telephone: (713) 220-5800
Telecopy: (713) 236-0822
ATTORNEYS FOR DEBTORS
SO ORDERED this ______ day
of _______________ , 2000.
_______________________________
United States Bankruptcy Judge
9
<PAGE> 10
ANNEX I
LIST OF LENDER GROUP AS OF JANUARY 31, 2000
-------------------------------------------
Name of Lender
- --------------
Lehman Commercial Paper Inc.
Syndicated Loan Funding Trust
BHF (USA) Capital Corporation
Hibernia National Bank
Merrill Lynch Prime Rate Portfolio
Merrill Lynch Senior Floating Rate Fund, Inc.
Merrill Lynch Debt Strategies Portfolio
Senior High Income Portfolio, Inc.
Van Kampen American Capital Prime Rate Income Trust
<PAGE> 11
RIGCO North America, L.L.C.
FPS VI, L.L.C.
Includes Interest on Secured Debt @ Default Interest Rate Effective
February 1, 2000
Sale of Laffit Pincay and Paydown of Principal for $28.0 Million Effective
April 15, 2000
<TABLE>
<CAPTION>
August September October November December
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue from Sedco charter-Husky Contract 2,212,609 2,960,729
Revenue from Sedco charter-Husky N-30 well 1,480,426 977,372 629,828
Revenue from November 1998 Shell contract 1,968,182
Net de-MOB from Husky contract-
Canada stack 1,119,706
--------- --------- --------- ---------- ----------
Total Revenue 2,212,609 4,928,911 1,480,426 977,372 1,749,534
--------- --------- --------- ---------- ----------
Direct Management Costs
Salary (36,250) (36,250) (36,250) (36,250) (36,250)
Benefits
Stacking Costs-Laffit Pincay
Salary-Rig Crew (72,980) (72,980) (72,980) (72,980) (72,980)
Benefits (24,112) (14,340) (27,980) (30,962) (13,767)
Employee travel costs (403) (12,115) (2,444) (3,528) (3,873)
Catering (25,339) (15,738) (11,975) (12,719) (14,165)
Maintenance (20,170) (64,597) (23,828) (62,474) (68,975)
Shipyard-docking fee (13,250) (35,856) 0 (12,960) (13,441)
Shipyard-Shore Power 0 (38,707) 0 0 (14,053)
Shipyard-Telephone (163) 0 0 0 0
Shipyard-Potable Water 0 (131) 0 0 0
Shipyard-Sewage Disposal 0 0 0 0 0
Stacking Costs-Bill Shoemaker
One-time initial stack costs (boats,
cranes, mooring costs) (45,976)
Salary-Rig Crew (12,266) (49,674)
Benefits (920) (674)
Employee travel costs (32,411) (21,973) (9,649)
Catering 0 (19,393)
Maintenance (200) (61,582)
Shipyard-docking fee 0 0
Shipyard-Shore Power 0 0
Shipyard-Telephone 0 0
Shipyard-Potable Water 0 0
Shipyard-Sewage Disposal 0 0
Additional miscellaneous expense (17,000) (17,000) (17,000) (17,000)
Insurance (60,664) (24,845) (165,300) (42,061)
--------- --------- --------- ---------- ----------
Total Stacking Costs and Insurance (217,081) (271,464) (213,463) (413,282) (447,263)
--------- --------- --------- ---------- ----------
Other Cash requirements
G&A per Management Agreement (72,852) (42,000) (125,000) (125,000) (125,000)
U.S. Trustee fees (4,500) (1,250)
Canadian flag study
Engineering studies for FPS conversions (121,000)
Professional fees
Sale of Laffit Pincay
Sales Commission on Pincay Sale
Payment to Secured Lenders
ABS requirements-Laffit Pincay
Interest income 6,078 25,942 27,348 3,908
Interest on Secured Debt (500,000) (500,000) (500,000) (500,000)
--------- --------- --------- ---------- ----------
Total Costs (289,933) (807,386) (817,021) (1,133,184) (1,068,355)
--------- --------- --------- ---------- ----------
Net Proceeds 1,922,676 4,121,525 663,405 (155,812) 681,179
========= ========= ========= ========== ==========
Beginning of Month Cash 24,568 1,947,244 6,068,769 6,732,174 6,576,362
Increase (Decrease) 1,922,676 4,121,525 663,405 (155,812) 681,179
--------- --------- --------- ---------- ----------
End of Month Cash 1,947,244 6,068,769 6,732,174 6,576,362 7,257,541
========= ========= ========= ========== ==========
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
January February March April May June
---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue from Sedco charter-Husky Contract
Revenue from Sedco charter-Husky N-30 well
Revenue from November 1998 Shell contract
Net de-MOB from Husky contract-
Canada stack
---------- ---------- ---------- ---------- --------- ---------
Total Revenue 0 0 0 0 0 0
---------- ---------- ---------- ---------- --------- ---------
Direct Management Costs
Salary (36,250) (36,250) (36,250) (36,250) (36,250) (36,250)
Benefits (13,574) (13,574) (13,574) (13,574) (13,574) (13,574)
Stacking Costs-Laffit Pincay
Salary-Rig Crew (72,980) (72,980) (72,980) (36,490)
Benefits (40,832) (28,332) (28,332) (14,166)
Employee travel costs (4,000) (4,000) (4,000) (2,000)
Catering (16,800) (16,800) (16,800) (8,400)
Maintenance (60,000) (60,000) (60,000) (30,000)
Shipyard-docking fee (13,250) (13,250) (13,250) (6,625)
Shipyard-Shore Power (13,500) (13,500) (13,500) (6,750)
Shipyard-Telephone (1,500) (1,500) (1,500) (750)
Shipyard-Potable Water (500) (500) (500) (250)
Shipyard-Sewage Disposal (500) (500) (500) (250)
Stacking Costs-Bill Shoemaker
One-time initial stack costs (boats,
cranes, mooring costs) (30,000)
Salary-Rig Crew (66,900) (66,900) (66,900) (66,900) (66,900) (66,900)
Benefits (15,000) (15,000) (15,000) (15,000) (15,000) (15,000)
Employee travel costs (5,000) (5,000) (5,000) (5,000) (5,000) (5,000)
Catering (20,000) (20,000) (20,000) (20,000) (20,000) (20,000)
Maintenance (60,000) (60,000) (60,000) (60,000) (60,000) (60,000)
Shipyard-docking fee (13,250) (13,250) (13,250) (13,250) (13,250) (13,250)
Shipyard-Shore Power (10,000) (10,000) (10,000) (10,000) (10,000) (10,000)
Shipyard-Telephone (1,500) (1,500) (1,500) (1,500) (1,500) (1,500)
Shipyard-Potable Water (500) (500) (500) (500) (500) (500)
Shipyard-Sewage Disposal (500) (500) (500) (500) (500) (500)
Additional miscellaneous expense (17,000) (17,000) (17,000) (17,000) (17,000) (17,000)
Insurance (42,062) (42,062) (42,062) (42,062) (42,062) (41,667)
---------- ---------- ---------- ---------- --------- ----------
Total Stacking Costs and Insurance (475,574) (493,074) (463,074) (357,393) (251,712) (251,317)
---------- ---------- ---------- ---------- --------- ----------
Other Cash requirements
G&A per Management Agreement (125,000) (125,000) (125,000) (125,000) (125,000) (125,000)
U.S. Trustee fees (8,250) (8,250)
Canadian flag study (24,500)
Engineering studies for FPS conversions (79,000)
Professional fees (150,000) (150,000)
Sale of Laffit Pincay 28,000,000
Sales Commission on Pincay Sale (280,000)
Payment to Secured Lenders (2,000,000) (27,720,000)
ABS requirements-Laffit Pincay (175,000) (175,000)
Interest income 35,940 24,325 10,116 3,795 0 0
Interest on Secured Debt (500,000) (633,511) (677,202) (519,880) (397,218) (384,404)
---------- ---------- ---------- ---------- --------- ----------
Total Costs (1,176,384) (3,552,261) (1,580,160) (1,006,728) (773,930) (760,721)
---------- ---------- ---------- ---------- --------- ----------
Net Proceeds (1,176,384) 3,552,261 (1,580,160) (1,006,728) (773,930) (760,721)
========== ========== ========== ========== ========= ==========
Beginning of Month Cash 7,257,541 6,081,157 2,528,896 948,736 (57,992) (831,922)
Increase (Decrease) (1,176,384) (3,552,261) (1,580,160) (1,006,728) (773,930) (760,721)
---------- ---------- ---------- ---------- --------- ----------
End of Month Cash 6,081,157 2,528,896 948,736 (57,992) (831,922) (1,592,643)
========== ========== ========== ========== ========= ==========
</TABLE>
<PAGE> 13
CERTIFICATE OF SERVICE
----------------------
I hereby certify that a true copy of the foregoing Stipulation and Order
was served on the following persons, by facsimile, on the 8th day of February,
2000.
/s/ ELISE FRIEDMAN
------------------
Diane Livingstone
Office of the United States Trustee
515 Rusk Avenue, Suite 3516
Houston, Texas 77002
Telephone: (713) 718-4662
Facsimile: (713) 718-4670
Wendy K. Laubach
Solar & Fernandes
2800 Post Oak Blvd., Suite 6400
Houston, Texas 77056
Telephone: (713) 729-7421
Facsimile: (650) 373-2649
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TATHAM
OFFSHORE INC. AND SUBSIDIARIES UNAUDITED FINANCIAL STATEMENTS AT DECEMBER 31,
1999 INCLUDED IN ITS FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,715
<SECURITIES> 0
<RECEIVABLES> 10
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,753
<PP&E> 2,402
<DEPRECIATION> 92
<TOTAL-ASSETS> 93,541
<CURRENT-LIABILITIES> 39,742
<BONDS> 0
0
176
<COMMON> 261
<OTHER-SE> 53,362
<TOTAL-LIABILITY-AND-EQUITY> 93,541
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,358
<INCOME-PRETAX> (5,417)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,417)
<DISCONTINUED> 336
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,857)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
