<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1996
REGISTRATION NO. 333-13665
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
3-D GEOPHYSICAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1382 13-3841601
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
<TABLE>
<S> <C>
JOEL FRIEDMAN, CHAIRMAN
7076 SOUTH ALTON WAY 3-D GEOPHYSICAL, INC.
BUILDING H 599 LEXINGTON AVENUE
ENGLEWOOD, COLORADO 80112 NEW YORK, NEW YORK 10022
(303) 290-0214 (212) 317-1234
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of Registrant's telephone
principal executive offices) number, including area code, of agent for
service)
</TABLE>
---------------------
Copies to:
<TABLE>
<S> <C>
PETER S. KOLEVZON, ESQ. CHARLES L. STRAUSS, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL FULBRIGHT & JAWORSKI L.L.P.
919 THIRD AVENUE 1301 MCKINNEY STREET, SUITE 5100
NEW YORK, NEW YORK 10022 HOUSTON, TEXAS 77010
(212) 715-9100 (713) 651-5151
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
3-D GEOPHYSICAL, INC.
CROSS REFERENCE SHEET
(SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1)
<TABLE>
<S> <C> <C>
I. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page of
Prospectus
II. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover
Pages of Prospectus
III. Summary Information; Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Risk Factors
IV. Use of Proceeds................................... Use of Proceeds
V. Determination of Offering Price................... Outside Front Cover Page of
Prospectus; Underwriting
VI. Dilution.......................................... *
VII. Selling Security Holders.......................... *
VIII. Plan of Distribution.............................. Outside Front Cover Page of
Prospectus; Underwriting
IX. Description of Capital Stock to be Registered..... Outside Front Cover Page of
Prospectus; Description of
Capital Stock; Underwriting
X. Interests of Named Experts and Counsel............ Legal Matters
XI. Information with Respect to the Registrant........ Prospectus Summary; Risk Factors;
The Company; Dividend Policy;
Price Range of Common Stock;
Capitalization; Selected
Historical and Pro Forma
Financial and Operating Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Security
Ownership of Management and
Principal Stockholders; Certain
Transactions; Shares Eligible for
Future Sale; Financial Statements
XII. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... *
</TABLE>
- ---------------
* Not Applicable
<PAGE> 3
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED DECEMBER 12, 1996
PROSPECTUS
4,300,000 SHARES
3-D GEOPHYSICAL, INC.
[3-D GEOPHYSICAL LOGO] COMMON STOCK
------------------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by 3-D Geophysical, Inc. (the "Company").
The Common Stock is traded on the Nasdaq National Market under the symbol
"TDGO". The last reported sale price for the Common Stock on the Nasdaq National
Market on December 11, 1996 was $8 5/8 per share.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF
THE COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------------
Total(3) $ $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting".
(2) Before deducting expenses payable by the Company estimated at $1,100,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
645,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting".
------------------
The shares of Common Stock are being offered hereby by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
December , 1996 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
SIMMONS & COMPANY
INTERNATIONAL
, 1996
<PAGE> 4
3-D GEOPHYSICAL, INC. provides state-of- the-art seismic data acquisition
services to the oil and gas industry in the Western Hemisphere. The Company is
an industry leader in 3-D land surveys and in heliportable, conventional, and
shallow water operations, with over 12,000 channels of 24-bit recording system
capability.
[Photograph of helicopter transporting the central electronics unit to a remote
site.]
[Photograph of boats off the coast of Alaska performing shallow water seismic
data acquisition.]
[Photograph of crew in heavy forest in Mexico.]
The Company has considerable experience in areas ranging from the Arctic icepack
to jungle environments. This includes a high level of heliportable expertise
that allows the Company to conduct operations in rough terrain, heavy forests,
and environmentally sensitive areas. The Company also provides shallow water
services in some areas.
For more information on 3-D Geophysical, Inc., see the inside back cover.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
OF THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
Unless the context indicates otherwise, all references herein to the
"Company" or to "3-D Geophysical" mean 3-D Geophysical, Inc. and its
subsidiaries, the principal ones of which operate two seismic data acquisition
businesses (the "Operating Subsidiaries") -- Geovaluaciones, S.A. de C.V.
("Geovaluaciones") and Northern Geophysical of America, Inc. ("Northern"). In
addition, the Company processes seismic data through another subsidiary,
Procesos Interactivos Avanzados, S.A. de C.V. ("PIASA"). Concurrently with the
consummation of the Company's initial public offering (the "Initial Public
Offering") in February 1996, 3-D Geophysical acquired Geoevaluaciones, Northern,
Paragon Geophysical, Inc. ("Paragon") and Kemp Geophysical Corporation ("Kemp").
In December 1996, Paragon and Kemp were merged with and into Northern. Unless
the context indicates otherwise, certain technical and other terms used in this
Prospectus have the meanings assigned to them in the Glossary appearing
elsewhere herein.
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
included in this Prospectus assumes that the Underwriters' over-allotment option
will not be exercised. In this Prospectus, unless otherwise indicated,
references to "dollars" and "$" are to United States dollars, references to
"pesos" are to Mexican pesos and references to "Canadian dollars" and "C$" are
to Canadian dollars, and the terms "United States" and "U.S." mean the United
States of America, its states, territories and possessions and all areas subject
to its jurisdiction.
THE COMPANY
GENERAL
3-D Geophysical, Inc. is one of the leading providers of land-based and
shallow water three-dimensional ("3-D") and two-dimensional ("2-D") seismic data
acquisition services to the oil and gas industry in the Western Hemisphere. As
of October 31, 1996, the Company's nine crews operated land-based and shallow
water seismic data acquisition systems, primarily utilizing state-of-the-art,
24-bit equipment, with a total of approximately 12,000 channels, in Alaska, the
Rocky Mountain, West Coast and Appalachian regions and in Mexico.
The seismic data acquisition services industry is currently experiencing
several significant changes, including a continuing consolidation of service
providers. The Company believes that this consolidation is due in part to the
trend by oil and gas exploration and production companies to rely on third-party
seismic contractors to provide increasingly more sophisticated and extensive 3-D
seismic surveys. These surveys require a greater number of recording channels
and therefore substantial capital expenditures. This trend is rationalizing the
seismic services industry and creating a competitive advantage for companies
with extensive 3-D channel capacity and greater financial resources.
The Company believes that (i) its state-of-the-art systems, (ii) its
ability to relocate equipment and crews among the regions in which it operates,
(iii) the regional experience of its management and crews in performing 3-D and
2-D surveys, and (iv) the quality of its services and relationships with
customers will enable the Company to take advantage of this industry trend.
Since the Initial Public Offering, the Company has:
- Increased its channel capacity from approximately 7,500 to approximately
12,000 channels;
- Expanded its operations in Alaska with seismic data acquisition contracts
with Arco Alaska Inc., a subsidiary of Atlantic Richfield Company
("ARCO"), BP Exploration (Alaska) Inc. ("BP Alaska") and Marathon Oil
Company ("Marathon");
- Obtained two of the first group of 3-D seismic data acquisition contracts
awarded to date by Petroleos Mexicanos ("PEMEX"), Mexico's national oil
company;
- Established a presence in Peru by opening a branch office and a seismic
data processing center and bidding on several contracts to provide
seismic data acquisition services in Peru; and
- Entered into a stock purchase agreement to acquire J.R.S. Exploration
Company Limited ("J.R.S. Exploration"), a seismic data acquisition
business that has been operating in Western Canada since
3
<PAGE> 6
1978 using up to four crews utilizing 24-bit seismic data acquisition
systems with a total of approximately 2,000 channels.
INDUSTRY OVERVIEW
Seismic data is the principal source of information used by geoscientists
to map potential or existing oil and gas bearing formations and the geologic
structures that surround them. Seismic data is acquired over a specified area by
deploying a network of electronic cables over the area to which electronic
receivers, or geophones, are attached. Once this network is deployed, an energy
source, such as truck mounted vibrators ("vibroseis") or dynamite, is used to
generate seismic waves over a pre-determined set of frequencies that move
through the rock formation under the area and reverberate back to the surface in
milliseconds. The geophones capture the changing velocity and character of these
seismic waves as they travel down and back through the earth's surface and
transmit this information a short distance along an electrical path (a
"channel") to a remote signal conditioner. The remote signal conditioner
digitizes the analog data and transmits it to a central electronics unit that
stores the acquired data. The data is then sent to a processing center where
mathematical algorithms are applied to separate signals from interference and to
correct distortion. Migration techniques are also applied to produce a spatial
representation of the subsurface formations that were surveyed. After
processing, the data is transferred to a computer workstation that allows the
data to be viewed and reconfigured by a geoscientist who interprets the data
with computer-aided exploration techniques in order to plot features and map the
structures of the subsurface area.
In the past, a 2-D survey was the standard technique utilized to acquire
seismic data. 2-D seismic data can be visualized as a single vertical plane of
subsurface information. 3-D seismic surveys produce data that is best visualized
as a cube of information that can be sliced into numerous planes. Thus, 3-D
surveys provide different views of a subsurface geologic structure and much
higher resolution of the structure than is available from a 2-D survey and have
proven to be more reliable indicators of the oil and gas potential in the area
surveyed. As a result, drilling based on 3-D seismic surveys has improved the
economics of finding oil and gas. Consequently, demand for 3-D seismic surveys,
and for surveys that cover wide areas and utilize a greater number of channels,
has increased in the past several years. Furthermore, due to the enhanced
information provided, 3-D surveys have proven to be a cost effective and
efficient tool for oil and gas exploration and, increasingly, the development of
existing reserves.
BUSINESS STRATEGY
The Company's objective is to capitalize on the consolidation taking place
in its industry to enhance its position as one of the leading providers of
land-based and shallow water seismic data acquisition services and to become a
significant provider of related services to the oil and gas industry in the
Western Hemisphere. The Company intends to achieve this objective by:
- Optimizing the utilization of its state-of-the-art seismic data
acquisition systems by relocating equipment and crews among the regions
in which the Company operates;
- Expanding its operations in Mexico and elsewhere in Latin America by
seeking further contract opportunities with PEMEX and other oil companies
operating in Latin America;
- Pursuing opportunities in the United States, including Alaska, by
attempting to strengthen existing business relationships with
multinational companies and their affiliates, such as ARCO, BP Alaska,
Marathon and others;
- Pursuing strategic acquisitions by seeking to acquire providers of
seismic data acquisition and related services, such as J.R.S.
Exploration, that complement the Company's geographic market coverage
and growth strategy; and
- Expanding the Company's data processing and interpretation and reservoir
characterization services already being provided to PEMEX in Mexico into
other markets.
4
<PAGE> 7
THE OFFERING
Common Stock offered....... 4,300,000 shares
Common Stock to be
outstanding after the
Offering(1).............. 11,900,000 shares
Use of proceeds............ Of the net proceeds of this Offering, the Company
intends to use (i) approximately $17.2 million to
purchase additional systems, additional channel
capacity for the six 24-bit seismic data
acquisition systems it presently owns and related
vehicles and equipment to enhance the Company's 3-D
seismic data acquisition capacity; (ii)
approximately $2.7 million to pay the cash portion
of the purchase price for J.R.S. Exploration (and
certain related equipment) and approximately $1.3
million to repay debt of J.R.S. Exploration to a
commercial bank; (iii) approximately $6.0 million
to repay indebtedness incurred in connection with
the Company's purchase in May 1996 of two 24-bit
seismic data acquisition systems; and (iv) the
balance, if any, for working capital and other
general corporate purposes. See "Use of Proceeds,"
"Business -- Capital Expenditures" and
"Business -- Proposed Acquisition of J.R.S.
Exploration."
Nasdaq National Market
symbol................... "TDGO"
- ---------------
(1) Excludes (a) 720,000 shares reserved for issuance upon the exercise of
options granted and to be granted under the 3-D Geophysical 1995 Long-Term
Incentive Compensation Plan, as amended, of which options for 624,350 shares
have been granted as of October 31, 1996, and (b) 265,002 shares reserved
for issuance upon the exercise of options granted other than pursuant to
such plan to certain directors and key employees of the Company (see
"Management -- Director Compensation" and "Management -- Long-Term Incentive
Compensation Plan").
5
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
On February 9, 1996, simultaneously with the consummation of the Initial
Public Offering, 3-D Geophysical acquired in separate transactions, in exchange
for cash, notes and shares of Common Stock, Geoevaluaciones, PIASA, Northern's
land-based seismic data operations, Paragon and Kemp. See "Certain
Transactions." For accounting purposes, the acquisitions of Geoevaluaciones and
PIASA were treated as a recapitalization of Geoevaluaciones and PIASA with
Geoevaluaciones (combined with PIASA) deemed to be the acquiror and predecessor
of 3-D Geophysical. Accordingly, the combined net assets of Geoevaluaciones and
PIASA were valued at historical cost and the consideration given to the former
stockholders of Geoevaluaciones and PIASA was treated for accounting purposes as
a dividend. The acquisitions of Northern's land-based seismic data operations,
Paragon and Kemp (the "Purchased Companies") were treated as business
combinations accounted for by the purchase method of accounting as prescribed by
Accounting Principles Board Opinion No. 16 and Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 48 (as applied prior to the
issuance of SAB 97) and are included within 3-D Geophysical's historical
consolidated statement of operations commencing February 9, 1996. The
acquisition of Paragon's common stock in exchange for shares of Common Stock was
accounted for at Paragon's historical cost. Northern's land-based seismic data
operations and Kemp were valued at the fair market value of consideration given.
In connection with the acquisitions of Northern's land-based seismic data
operations and Kemp, the excess of consideration given over the fair market
value of net assets is being amortized on a straight-line basis over 15 years.
For purposes of identification and description, the Company is referred to as
the "Predecessor" for the period prior to the Initial Public Offering and the
acquisition of the Purchased Companies as described below, the "Successor" for
the period subsequent to the Initial Public Offering and the acquisition of the
Purchased Companies and the "Company" for both periods.
Summary historical financial data is provided for Geoevaluaciones and PIASA
on a combined basis because, as described in the preceding paragraph,
Geoevaluaciones and PIASA are considered the acquirors of the Purchased
Companies for accounting purposes and therefore are deemed to be the predecessor
of 3-D Geophysical. The historical financial information for each of the three
years ended December 31, 1995 and for the nine months ended September 30, 1995
was derived from financial statements appearing elsewhere in this Prospectus.
The historical financial information for the years ended December 31, 1991 and
1992 was derived from Geoevaluaciones' financial statements (1991 is unaudited)
which do not appear elsewhere in this Prospectus. The historical financial
information for the nine months ended September 30, 1996 represents combined
operations for the entire nine months for Geoevaluaciones and also includes
operations for the Purchased Companies for the period from February 9, 1996 to
September 30, 1996. As a result, the Successor's statement of operations for the
nine months ended September 30, 1996 is not comparable to the Predecessor's
statement of operations for the nine months ended September 30, 1995. The pro
forma consolidated statements of operations for the year ended December 31, 1995
and the nine months ended September 30, 1995 and 1996 assume that the Company
had completed the recapitalization, the acquisition of the Purchased Companies
and the Initial Public Offering on January 1, 1995. The following summary pro
forma statement of operations information was derived from the pro forma
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. The pro forma consolidated statement of operations
data may not be indicative of actual results that would have been achieved if
the transactions had occurred on the dates indicated or the results which may be
realized in the future.
The pro forma consolidated statement of operations information does not
include the effects of the proposed acquisition of J.R.S. Exploration and
certain related equipment (see "Business -- Proposed Acquisition of J.R.S.
Exploration"). For a presentation of the pro forma effects of this proposed
acquisition, see the adjusted pro forma consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
The following summary financial data is qualified in its entirety by the
more detailed information appearing in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
6
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY
-----------------------------------------------
PREDECESSOR(1) PRO FORMA(2)
--------------------------------------------------------- ----------------------------------
NINE MONTHS NINE MONTHS YEAR NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED -------------------------
------------------------------------------- SEPT. 30, SEPT. 30, DEC. 31, SEPT. 30, SEPT. 30,
1991 1992 1993 1994 1995 1995 1996 1995 1995 1996
------ ------- ------- ------- ------ ----------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net revenues......... $4,241 $10,342 $17,638 $17,660 $9,825 $ 7,157 $ 36,151 $37,835 $25,669 $39,974
Expenses:
Cost of data
acquisition........ 2,574 7,577 13,146 11,004 5,968 3,759 26,563 28,931 19,063 30,082
Depreciation and
amortization...... 651 941 990 1,468 662 531 2,788 3,431 2,530 3,068
General and
administrative
expenses........... 538 908 1,280 1,814 1,038 833 3,907 4,298 3,093 4,272
------ ------- ------- ------- ------ ------ -------- ------- ------- -------
Operating income..... 478 916 2,222 3,374 2,157 2,034 2,893 1,175 983 2,552
Other income
(expense):
Interest expense.... (283) (669) (1,032) (466) (803) (562) (668) (1,124) (752) (710)
Foreign currency
transaction gains
(losses)........... 45 -- 33 (92) (120) (83) 8 (120) (83) 8
Miscellaneous....... (3) 63 270 87 503 38 437 415 (68) 437
------ ------- ------- ------- ------ ------ -------- ------- ------- -------
Income (loss) before
provision for
income taxes and
extraordinary item.. 237 310 1,493 2,903 1,737 1,427 2,670 346 80 2,287
Provision (benefit)
for income taxes.... 66 95 418 1,000 130 81 645 (357) (390) 511
------ ------- ------- ------- ------ ------ -------- ------- ------- -------
Income (loss) before
extraordinary item.. 171 215 1,075 1,903 1,607 1,346 2,025 $ 703 $ 470 $ 1,776
======= ======= =======
Extraordinary
item, net........... -- -- -- -- -- -- 57
------ ------- ------- ------- ------ ------ --------
Net income........... $ 171 $ 215 $ 1,075 $ 1,903 $1,607 $ 1,346 $ 2,082
====== ======= ======= ======= ====== ====== ========
Weighted average
shares
outstanding......... 6,927 6,232 6,232 6,232
PER SHARE
INFORMATION:
Income before
extraordinary
item............... $ .29 $ .11 $ .08 $ .28
========= ======= ======= =======
Extraordinary
item, net........... $ .01
=========
Net earnings......... $ .30
=========
STATEMENT OF CASH
FLOWS DATA:
Operating
activities......... $ 997 $ 1,724 $ 2,199 $ 4,399 $1,672 $ 1,585 $ (2,089)
Investing
activities......... (1,362) (671) (747) (3,262) 204 (123) (22,484)
Financing
activities......... (11) (655) (63) (2,058) (1,423) (663) 25,162
OTHER FINANCIAL
DATA:
EBITDA(3)........... $1,171 $ 1,920 $ 3,515 $ 4,837 $3,202 $ 2,520 $ 6,126 $ 4,901 $ 3,362 $ 6,065
OPERATING DATA:
Number of crews at
end of period:
I/O SYSTEM
TWO(R) crews...... 2 2 2 2 2 6 7 5 6(4)
DFS-VTM crews...... -- -- -- -- -- 1 1 4 2(4)
Number of recording
channels at end of
period............. 672 672 960 960 960 12,000 7,500 5,220 12,000
</TABLE>
<TABLE>
<CAPTION>
COMPANY COMPANY AS OF
AS OF SEPTEMBER 30, 1996 AS
SEPTEMBER 30, 1996 ADJUSTED(5)
------------------ ---------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 2,850 $
Total assets......................................................... 54,396
Long-term debt and capital leases.................................... 8,682
Total stockholders' equity........................................... 26,987
</TABLE>
- ---------------
(1) Amounts represent the combination of Geoevaluaciones and PIASA, the
Predecessor.
(2) Reflects pro forma adjustments for the acquisitions of the Purchased
Companies and the consummation of the Initial Public Offering; does not
reflect adjustments related to the proposed acquisition of J.R.S.
Exploration and certain related equipment as described in
"Business -- Proposed Acquisition of J.R.S. Exploration." See the pro forma
consolidated financial statements, including the notes thereto, appearing
7
<PAGE> 10
elsewhere in this Prospectus for a discussion of the assumptions made and
adjustments applied in the preparation of the summary historical and pro
forma financial and operating data, as well as the pro forma effect of the
proposed acquisition of J.R.S. Exploration and certain related equipment.
(3) EBITDA represents earnings before interest expense, taxes, depreciation and
amortization. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flow as a better measure of liquidity.
(4) Does not include one crew providing drilling and survey services for a
seismic data acquisition crew operated by PEMEX.
(5) Reflects the sale of shares of Common Stock offered hereby and the
application of a portion of the estimated net proceeds as described in "Use
of Proceeds;" does not reflect the application of any net proceeds to, or
the issuance of any shares of Common Stock in connection with, the proposed
acquisition of J.R.S. Exploration and certain related equipment. See
"Business -- Proposed Acquisition of J.R.S. Exploration."
8
<PAGE> 11
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Risk Factors," among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this Prospectus,
including, without limitation, in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," filings by the
Company with the SEC and the Company's press releases. When used in this
Prospectus, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe" and similar expressions are intended to identify forward-looking
statements.
RISK FACTORS
LIMITED COMBINED OPERATING HISTORY
3-D Geophysical was incorporated in March 1995 and concurrently with the
Initial Public Offering in February 1996 acquired the Operating Subsidiaries and
PIASA. Prior to the Initial Public Offering, the Operating Subsidiaries operated
independently and neither the historical results of their separate operations
nor their pro forma financial information are necessarily indicative of the
results that would have been achieved had the Operating Subsidiaries been
operated on an integrated basis or the results that may be realized in the
future. Although members of management of the Company have extensive experience
in providing land-based and shallow water seismic data acquisition services and
in managing businesses that provide such services, there can be no assurance
that management will be able to implement the Company's operating and growth
strategies successfully. See "Management."
DEPENDENCE UPON ENERGY INDUSTRY SPENDING
Demand for the Company's services depends upon the level of capital
expenditures by oil and gas companies for exploration, production, development
and field management activities. These activities depend in part on oil and gas
prices, expectations about future prices, the cost of exploring for, producing
and delivering oil and gas, the sale and expiration dates of leases in the
United States and abroad, the discovery rate of new oil and gas reserves in land
and shallow water areas, local and international political, regulatory and
economic conditions and the ability of oil and gas companies to obtain capital.
In addition, a decrease in oil and gas expenditures could result from such
factors as unfavorable tax and other legislation or uncertainty concerning
national energy policies. Beginning in 1982, a sharp decline in oil and gas
prices led to a worldwide reduction in oil and gas activities. This decline
resulted in a significant reduction in the overall demand for seismic services.
No assurance can be given that current levels of oil and gas activities will be
maintained or that demand for the Company's services will reflect the level of
such activities. Decreases in oil and gas activities could have a significant
adverse effect upon the demand for the Company's services and the Company's
results of operations.
CAPITAL INTENSIVE BUSINESS; RAPID OBSOLESCENCE OF TECHNOLOGY
The Company competes in a capital intensive industry. As the number of
channels per 3-D crew has increased significantly over the past few years, the
capital costs of fully equipping each crew have also increased. The development
of seismic data acquisition equipment has been characterized by rapid
technological advancements in recent years and the Company expects this trend to
continue. There can be no assurance that manufacturers of seismic equipment will
not develop new systems that have competitive advantages over systems now in use
that either render the Company's current equipment obsolete or require the
Company to make significant incremental capital expenditures to maintain its
competitive position. The Company's strategy is to upgrade its data acquisition
systems as often as necessary to maintain its competitive position. Furthermore,
any significant increase in the level of the Company's operations may require it
to acquire additional data acquisition systems. To do so will likely require
large expenditures of capital in addition to the
9
<PAGE> 12
Company's planned capital expenditures. There can be no assurance that the
Company will have the capital necessary to upgrade its equipment to maintain its
competitive position or to acquire any additional required equipment, or that
any required financing therefor will be available on favorable terms. If the
Company is unable to raise the capital necessary to update or increase the
capacity of its data acquisition systems to the extent necessary, it will be
unable to update such systems or increase its level of operations and may be
materially and adversely affected as a result. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Capital
Expenditures" and "Business -- Competition."
SUBSTANTIAL COMPETITION
The Company has extensive competition in each of the regions in which it
operates. Competitive factors include price, crew experience, equipment
availability, technological expertise and reputation for dependability and
safety. Certain of the Company's major competitors have more crews and operate
data acquisition systems having significantly more channels than the Company,
provide integrated data acquisition, processing and interpretation services and
have far greater financial and other resources than the Company and more
extensive relationships with major integrated and multinational oil and gas
companies. Such resources enable these competitors to maintain state-of-the-art
technology and certain other advantages relating to costs that may provide them
with an advantage over the Company in bidding for contracts. In addition,
certain competitors of the Company take an economic interest in oil and gas
exploration and development projects for which they perform services for their
customers. There can be no assurance that the Company will be able to compete
successfully against its competitors for contracts to conduct seismic surveys.
See "Business -- Competition."
SUBSTANTIAL RISKS OF DOING BUSINESS IN LATIN AMERICA
For the year ended December 31, 1995 and for the nine months ended
September 30, 1996, 26.0% and 22.7%, respectively, of the pro forma net revenues
of the Company resulted from the operations of Geoevaluaciones and PIASA in
Mexico (the "Mexican Operations"). The level of land-based seismic data
acquisition services in Mexico has in the past been vulnerable to economic
downturns and changes in government policies and public spending. Since December
1994, Mexico has experienced an economic crisis characterized by a significant
devaluation of the peso, exchange rate instability, increased inflation, high
domestic interest rates, negative economic growth, reduced consumer purchasing
power and high unemployment. Despite certain austerity measures, volatility in
the peso to dollar foreign exchange rate and financial markets persisted through
1995. The peso to dollar exchange rate (as published by Banco Mexicano de
Comercio Exterior) at the close of the last business day of 1993, 1994, 1995 and
on September 30, 1996 was 3.13, 5.00, 7.68 and 7.55, respectively. On October
31, 1996, such exchange rate was 8.05. Inflation in Mexico for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 was
approximately 52.0% and 20.3%, respectively, based on the consumer price index.
The December 1994 devaluation of the peso had a number of effects on the
Mexican economy that have adversely affected the financial condition of
businesses in Mexico, including the Mexican Operations. The devaluation caused
the peso value of dollar denominated indebtedness associated with the Mexican
Operations, which consists primarily of equipment financing, to increase
significantly, and also greatly increased the rate of inflation, resulting in a
sharp rise in nominal interest rates on peso denominated financing.
The prices the Company pays for certain equipment, energy and other
materials for the Mexican Operations are set, in part, by reference to
international prices denominated in currencies other than pesos, and the results
of operations of the Mexican Operations, denominated in pesos, are translated
into dollars for inclusion in the Company's financial statements. However, the
operations and revenues of the Mexican Operations are primarily peso-denominated
and the Company has not hedged against currency risks in Mexico, except that
certain of the costs incurred by the Mexican Operations may be adjusted,
pursuant to the Company's contracts with PEMEX, to take into account economic
events such as inflation and devaluation of the peso (see "Business -- Marketing
and Customers -- Contracts"). The Company is subject to foreign exchange risks
primarily in connection with the conversion into dollars of the results of
operations of the
10
<PAGE> 13
Mexican Operations. Increases in the peso to dollar exchange rate will result in
a reduction of the dollar value of peso-based revenues of the Company as well as
the dollar value of peso-based expenses of the Company. Likewise, decreases in
such rate will result in increases in the dollar value of such revenues and
expenses. As a result, such fluctuations could have a material adverse effect on
the financial condition and results of operations of the Company. The Company
does not currently employ any hedging method to reduce such foreign exchange
risks. While the Company may from time to time evaluate methods to reduce such
foreign exchange risks, the adoption of any particular method will depend on
existing market conditions. The Company cannot reasonably predict what method,
if any, it will adopt to reduce foreign exchange risks, and there can be no
assurance that it will adopt any such method or that, if adopted, any such
method will reduce such risks.
There can be no assurance that future developments in the Mexican
political, economic, social or diplomatic condition, over which the Company has
no control, will not have a material adverse effect on the Company's financial
condition or results of operations or the market price of its securities.
In June 1996, the Company established a branch and opened a seismic data
processing center in Peru. In September 1996, the Company entered into a
contract to provide land-based seismic data acquisition services there; however,
this contract is subject to the resolution of certain uncertainties relating to
obtaining required local permits. The Company intends to continue to seek
expansion opportunities in Peru and other countries in Latin America. In
general, so long as the Company derives a significant portion of its revenues
outside the United States, in addition to currency risks, the Company will be
subject to risks associated with international operations, including war, civil
disturbance and government activity, which may limit or disrupt the Company's
operations.
DEPENDENCE ON SIGNIFICANT CUSTOMER
26.0% and 22.7% of the pro forma net revenues of the Company for the year
ended December 31, 1995 and nine months ended September 30, 1996, respectively,
and in excess of 95% of the net revenues of the Mexican Operations in those
periods, were derived from land-based seismic data acquisition services provided
to PEMEX. The loss of PEMEX as a customer would have a material adverse effect
on the Company's financial condition and results of operations. See
"Business -- Marketing and Customers -- Customers."
RELIANCE ON KEY SUPPLIER
The Company is dependent on Input/Output, Inc. ("Input/Output") for
additions to and replacements for its I/O SYSTEM TWO(R) seismic data acquisition
systems. Although Input/Output is not the only supplier of seismic data
acquisition systems, it is the Company's primary supplier and the Company
considers Input/Output's systems to be among the state-of-the-art seismic data
acquisition systems for performing 3-D seismic surveys on land and in shallow
water. Therefore, should a system be substantially damaged, or should a
significant systems failure occur, and should Input/Output be unwilling or
unable to furnish replacement parts or otherwise repair such systems, the
Company may be unable to obtain such replacements from other sources and would
have to acquire other equipment that may be less advanced technologically.
Although the Company believes it will be able to obtain systems from
Input/Output or another source of state-of-the-art seismic data acquisition
systems in the future, should it be unable to do so, the Company's anticipated
revenues could be reduced significantly and the amount of cash needed for
capital expenditures could be increased significantly. See "Business -- Capital
Expenditures."
OPERATING RISKS; WEATHER
The Company's crews often conduct operations in extreme weather, in
difficult terrain that is not easily accessible and under other hazardous
conditions. Accordingly, its operations are subject to risks of injury to
personnel and loss of equipment. Fixed costs, including costs associated with
operating leases, labor costs and depreciation, account for more than half of
the Company's costs and expenses. As a result, low productivity resulting from
weather interruptions, equipment failures or other causes such as fires and
accidental explosions resulting from the handling of equipment and supplies can
result in significant operating losses. In addition,
11
<PAGE> 14
while the Company has insurance policies that protect it against liabilities
that may be incurred in the ordinary course of its business, the Company is
unable to insure fully against all possible loss or liability. For example, no
insurance is available at a cost deemed reasonable by the Company for war,
nationalization, appropriation or other extreme events. See
"Business -- Operating Conditions" and "Business -- Marketing and
Customers -- Contracts."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the efforts of Messrs. Richard
Davis, Luis Ferran, Joel Friedman, Ronald Koons, Charles Merchant and Wayne
Widynowski. If any of these key persons becomes unable to continue in his
present role, or if the Company is unable to attract and retain other skilled
employees, the Company's business could be adversely affected. See "Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon completion of this Offering, the Company will have outstanding
11,900,000 shares of Common Stock. The Company and its officers and directors
have agreed that for a period of 120 days from the date of this Prospectus they
will not without the prior written consent of Smith Barney Inc. (i) sell, offer
to sell, solicit an offer to buy, contract to sell or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, shares of
Common Stock, or (ii) grant any options or warrants to purchase shares of Common
Stock (other than the grant of options under the 3-D Geophysical 1995 Long-Term
Incentive Compensation Plan, as amended (the "Plan"), and Common Stock issuable
upon the exercise of options granted under the Plan or otherwise to officers,
directors and other key employees of the Company). The 1,400,681 shares of
Common Stock issued in connection with the founding of 3-D Geophysical will be
eligible for resale in the public market commencing in March 1997 and the
1,599,319 shares of Common Stock issued to the former stockholders of the
Operating Subsidiaries and PIASA simultaneously with the consummation of the
Initial Public Offering will be eligible for resale in the public market
commencing in February 1998, subject in each case to certain volume and other
restrictions provided for in Rule 144 ("Rule 144") promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
granted pursuant to the Plan options to purchase an aggregate of 624,350 shares
of Common Stock and has granted options to purchase an additional aggregate of
265,002 shares of Common Stock other than pursuant to the Plan to certain
directors and key employees of the Company (see "Management -- Director
Compensation" and "Management -- Long-Term Incentive Compensation Plan"). The
Company intends to register under the Securities Act the shares issuable upon
exercise of such options and, upon such registration, such shares will be
eligible for resale in the public market, except that any such shares issued to
affiliates are subject to certain restrictions under Rule 144.
Sales of substantial amounts of the Common Stock in the public market could
adversely affect prevailing market prices and the ability of the Company to
raise equity capital in the future. See "Shares Eligible for Future Sale" and
"Underwriting."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE GENERAL CORPORATION LAW
Certain provisions of the Certificate of Incorporation and By-laws may tend
to deter potential unsolicited offers or other efforts to obtain control of the
Company that are not approved by the Board of Directors. Such provisions may
therefore deprive the stockholders of opportunities to sell shares of Common
Stock at prices higher than prevailing market prices. See "Description of
Capital Stock -- Certain Anti-Takeover Effects of Certain Provisions of the
Certificate of Incorporation, By-laws and Delaware General Corporation Law."
12
<PAGE> 15
THE COMPANY
3-D Geophysical, Inc. is one of the leading providers of land-based and
shallow water 3-D and 2-D seismic data acquisition services to the oil and gas
industry in the Western Hemisphere. As of October 31, 1996, the Company's nine
crews operated land-based and shallow water seismic data acquisition systems,
primarily utilizing state-of-the-art, 24-bit equipment, with a total of
approximately 12,000 channels, in Alaska, the Rocky Mountain, West Coast and
Appalachian regions and in Mexico.
3-D Geophysical, Inc., a Delaware corporation, was incorporated in March
1995. The Company's principal offices are located at 7076 South Alton Way,
Building H, Englewood, Colorado 80112, and its telephone number is (303)
290-0214.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,300,000 shares of
Common Stock offered hereby, after deducting the underwriting discount and
estimated expenses of this Offering to be paid by the Company, are estimated to
be approximately $ million ($ million if the Underwriters'
over-allotment option is exercised in full). The Company anticipates that it
will use the net proceeds for the following purposes: (i) approximately $17.2
million to purchase additional systems, additional channel capacity for the six
24-bit seismic data acquisition systems it presently owns and related vehicles
and equipment to enhance the Company's 3-D seismic data acquisition capacity;
(ii) approximately $2.7 million to pay the cash portion of the purchase price
for J.R.S. Exploration (and certain related equipment) and approximately $1.3
million to repay debt of J.R.S. Exploration to a commercial bank (see
"Business -- Proposed Acquisition of J.R.S. Exploration"); (iii) approximately
$6.0 million to repay indebtedness incurred in connection with the Company's
purchase in May 1996 of two 24-bit seismic data acquisition systems; and (iv)
the balance, if any, for working capital and other general corporate purposes.
The additional systems and equipment referred to in clause (i) above
include a 1,000 channel seismic data acquisition system and certain equipment
that are is presently leased from The Andrews Group International, Inc. under
leases that contain a purchase option. See "Use of Proceeds,"
"Business -- Capital Expenditures" and "Certain Transactions." The indebtedness
referred to in clause (iii) above consists of a portion of the $12 million
borrowed under a term loan from First Interstate Bank of Texas, N.A. that
matures on July 31, 1999 and bears interest at an annual rate equal to the prime
rate plus 1%. See "Capitalization" and "Business -- Capital Expenditures."
The Company may revise its plans in response to future changes in the oil
and gas industry in general and the demand for its services in particular, its
results of operations, its other capital requirements and other relevant
factors. Until the proceeds are utilized as set forth above, the Company intends
to invest the net proceeds of this Offering in money market obligations,
certificates of deposit or other short-term, interest bearing securities.
DIVIDEND POLICY
The Company intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Any payment of future dividends will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level and terms of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that the Board of Directors may deem relevant. The Company is a party to
a loan agreement that restricts the payment of dividends and certain other
matters. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Capital Expenditures."
13
<PAGE> 16
PRICE RANGE OF COMMON STOCK
Since the Initial Public Offering in February 1996 of Common Stock at $7.50
per share, the Common Stock has been traded on the Nasdaq National Market under
the symbol "TDGO." The following table sets forth, for the periods indicated,
the high and low sale prices per share for the Common Stock as reported by the
Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter (February 6 through March 31)........................... 10 3/8 7 7/16
Second Quarter........................................................ 12 1/2 8 1/2
Third Quarter......................................................... 11 3/4 6 3/4
Fourth Quarter (through December 11).................................. 9 3/4 7 5/8
</TABLE>
On December 11, 1996, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $8 5/8.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the sale of shares of Common
Stock offered hereby and the application of a portion of the estimated net
proceeds therefrom as described in Note 1 below. This table should be read in
conjunction with the consolidated financial statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
AS
ACTUAL ADJUSTED(1)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital leases................... $ 6,517 $
====== ======
Long-term debt and capital leases, excluding current portion(2)........ $ 8,682 $
------ ------
Stockholders' equity:
Preferred Stock, $.01 par value per share; 1,000,000 shares
authorized; none issued and outstanding........................... -- --
Common Stock, $.01 par value per share; 25,000,000 shares authorized;
7,600,000 shares issued and outstanding and 11,900,000 shares
issued and outstanding, as adjusted............................... $ 76 $
Additional paid-in capital........................................... 28,173
Retained earnings.................................................... 1,934
Cumulative foreign currency translation adjustments.................. (3,196)
------ ------
Total stockholders' equity................................... 26,987
------ ------
Total capitalization......................................... $35,669 $
====== ======
</TABLE>
- ---------------
(1) Reflects the sale of shares of Common Stock offered hereby and the
application of a portion of the estimated net proceeds as described in "Use
of Proceeds;" does not reflect the application of any net proceeds to, or
the issuance of any shares of Common Stock in connection with, the proposed
acquisition of J.R.S. Exploration and certain related equipment. See
"Business -- Proposed Acquisition of J.R.S. Exploration."
(2) On May 31, 1996, the Company acquired seismic data acquisition equipment
(the "Equipment") from the manufacturer thereof, Input/Output, for an
aggregate of approximately $8.5 million in cash and refinanced certain
conditional sales agreements with Input/Output for an additional $4.5
million of equipment. A portion of the purchase price for the Equipment and
the funds for the refinancing were paid from the proceeds of a $12 million
borrowing under a $15 million term loan (the "Term Loan") from First
Interstate Bank of Texas, N.A. (the "Bank") pursuant to a Loan Agreement
between the Company and the Bank, dated as of May 29, 1996 (the "Loan
Agreement"). For a summary of the Loan Agreement, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
<PAGE> 17
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
On February 9, 1996, simultaneously with the consummation of the Initial
Public Offering, 3-D Geophysical acquired in separate transactions, in exchange
for cash, notes and shares of Common Stock, Geoevaluaciones, PIASA, Northern's
land-based seismic data operations, Paragon and Kemp. See "Certain
Transactions." For accounting purposes, the acquisitions of Geoevaluaciones and
PIASA were treated as a recapitalization of Geoevaluaciones and PIASA with
Geoevaluaciones (combined with PIASA) deemed to be the acquiror and predecessor
of 3-D Geophysical. Accordingly, the combined net assets of Geoevaluaciones and
PIASA were valued at historical cost and the consideration given to the former
stockholders of Geoevaluaciones and PIASA was treated for accounting purposes as
a dividend. The acquisitions of Northern's land-based seismic data operations,
Paragon and Kemp (the "Purchased Companies") were treated as business
combinations accounted for by the purchase method of accounting as prescribed by
Accounting Principles Board Opinion No. 16 and SEC Staff Accounting Bulletin No.
48 (as applied prior to the issuance of SAB 97) and are included within 3-D
Geophysical's historical consolidated statement of operations commencing
February 9, 1996. The acquisition of Paragon's common stock in exchange for
shares of Common Stock was accounted for at Paragon's historical cost.
Northern's land-based seismic data operations and Kemp were valued at the fair
market value of consideration given. In connection with the acquisitions of
Northern's land-based seismic data operations and Kemp, the excess of
consideration given over the fair market value of net assets is being amortized
on a straight-line basis over 15 years. For purposes of identification and
description, the Company is referred to as the "Predecessor" for the period
prior to the Initial Public Offering and the acquisition of the Purchased
Companies as described below, the "Successor" for the period subsequent to the
Initial Public Offering and the acquisition of the Purchased Companies and the
"Company" for both periods.
Selected historical financial data is provided for Geoevaluaciones and
PIASA on a combined basis because, as described in the preceding paragraph,
Geoevaluaciones and PIASA are considered the acquirors of the Purchased
Companies for accounting purposes and therefore are deemed to be the predecessor
of 3-D Geophysical. The historical financial information for each of the three
years ended December 31, 1995 and for the nine months ended September 30, 1995
was derived from financial statements appearing elsewhere in this Prospectus.
The historical financial information for the years ended December 31, 1991 and
1992 was derived from Geoevaluaciones' financial statements (1991 is unaudited)
which do not appear elsewhere in this Prospectus. The historical financial
information for the nine months ended September 30, 1996 represents combined
operations for the entire nine months for Geoevaluaciones and also includes
operations for the Purchased Companies for the period from February 9, 1996 to
September 30, 1996. As a result, the Successor's statement of operations for the
nine months ended September 30, 1996 is not comparable to the Predecessor's
statement of operations for the nine months ended September 30, 1995. The pro
forma consolidated statements of operations for the year ended December 31, 1995
and the nine months ended September 30, 1995 and 1996 assume that the Company
had completed the recapitalization, the acquisition of the Purchased Companies
and the Initial Public Offering on January 1, 1995. The following selected pro
forma statement of operations information was derived from the pro forma
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. The pro forma consolidated statement of operations
data may not be indicative of actual results that would have been achieved if
the transactions had occurred on the dates indicated or the results which may be
realized in the future.
The pro forma consolidated statement of operations information does not
include the effects of the proposed acquisition of J.R.S. Exploration and
certain related equipment (see "Business -- Proposed Acquisition of J.R.S.
Exploration"). For a presentation of the pro forma effects of this proposed
acquisition, see the adjusted pro forma consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
The following selected financial data is qualified in its entirety by the
more detailed information appearing in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
15
<PAGE> 18
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR(1) COMPANY
---------------------------------------------------------------- -------------
NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
--------------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................... $4,241 $10,342 $17,638 $17,660 $9,825 $ 7,157 $ 36,151
Expenses:
Cost of data acquisition.......... 2,574 7,577 13,146 11,004 5,968 3,759 26,563
Depreciation and
amortization.................... 651 941 990 1,468 662 531 2,788
General and administrative
expenses........................ 538 908 1,280 1,814 1,038 833 3,907
------- ------- ------- ------- ------- ------- ---------
Operating income................... 478 916 2,222 3,374 2,157 2,034 2,893
Other income (expense):
Interest expense.................. (283) (669) (1,032) (466) (803) (562) (668)
Foreign currency transaction gains
(losses)........................ 45 -- 33 (92) (120) (83) 8
Miscellaneous..................... (3) 63 270 87 503 38 437
------- ------- ------- ------- ------- ------- ---------
Income (loss) before provision for
income taxes and extraordinary
item.............................. 237 310 1,493 2,903 1,737 1,427 2,670
Provision (benefit) for income
taxes............................. 66 95 418 1,000 130 81 645
------- ------- ------- ------- ------- ------- ---------
Income (loss) before extraordinary
item.............................. 171 215 1,075 1,903 1,607 1,346 2,025
Extraordinary item, net............ -- -- -- -- -- -- 57
------- ------- ------- ------- ------- ------- ---------
Net income......................... $ 171 $ 215 $ 1,075 $ 1,903 $1,607 $ 1,346 $ 2,082
======= ======= ======= ======= ======= ======= =========
Weighted average shares
outstanding....................... 6,927
PER SHARE INFORMATION:
Income before extraordinary item... $ .29
=========
Extraordinary item, net............ $ .01
=========
Net earnings....................... $ .30
=========
<CAPTION>
COMPANY
-------------------------------------------
PRO FORMA(2)
-------------------------------------------
YEAR NINE MONTHS ENDED
ENDED ------------------------------
DEC. 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
--------- ------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................... $37,835 $25,669 $39,974
Expenses:
Cost of data acquisition.......... 28,931 19,063 30,082
Depreciation and
amortization.................... 3,431 2,530 3,068
General and administrative
expenses........................ 4,298 3,093 4,272
------- ------- -------
Operating income................... 1,175 983 2,552
Other income (expense):
Interest expense.................. (1,124) (752) (710)
Foreign currency transaction gains
(losses)........................ (120) (83) 8
Miscellaneous..................... 415 (68) 437
------- ------- -------
Income (loss) before provision for
income taxes and extraordinary
item.............................. 346 80 2,287
Provision (benefit) for income
taxes............................. (357) (390) 511
------- ------- -------
Income (loss) before extraordinary
item.............................. $ 703 $ 470 $ 1,776
======= ======= =======
Extraordinary item, net............
Net income.........................
Weighted average shares
outstanding....................... 6,232 6,232 6,232
PER SHARE INFORMATION:
Income before extraordinary item... $ .11 $ .08 $ .28
======= ======= =======
Extraordinary item, net............
Net earnings.......................
STATEMENT OF CASH FLOWS DATA:
Operating activities.............. $ 997 $ 1,724 $ 2,199 $ 4,399 $1,672 $ 1,585 $ (2,089)
Investing activities.............. (1,362) (671) (747) (3,262) 204 (123) (22,484)
Financing activities.............. (11) (655) (63) (2,058) (1,423) (663) 25,162
OTHER FINANCIAL DATA:
EBITDA(3).......................... $1,171 $ 1,920 $ 3,515 $ 4,837 $3,202 $ 2,520 $ 6,126
OPERATING DATA:
Number of crews at end of period:
I/O SYSTEM TWO(R) crews........... 2 2 2 2 2 6
DFS-V(TM) crews................... -- -- -- -- -- 1
Number of recording channels at
end of period................... 672 672 960 960 960 12,000
<CAPTION>
STATEMENT OF CASH FLOWS DATA:
<S> <C> <C> <C>
Operating activities..............
Investing activities..............
Financing activities..............
OTHER FINANCIAL DATA:
EBITDA(3).......................... $ 4,901 $ 3,362 $ 6,065
OPERATING DATA:
Number of crews at end of period:
I/O SYSTEM TWO(R) crews........... 7 5 6(4)
DFS-V(TM) crews................... 1 4 2(4)
Number of recording channels at
end of period................... 7,500 5,220 12,000
</TABLE>
<TABLE>
<CAPTION>
COMPANY COMPANY AS OF
AS OF SEPTEMBER 30, 1996
SEPTEMBER 30, 1996 AS ADJUSTED(5)
------------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................... $ 2,850 $
Total assets....................................................................... 54,396
Long-term debt and capital leases.................................................. 8,682
Total stockholders' equity......................................................... 26,987
</TABLE>
16
<PAGE> 19
- ---------------
(1) Amounts represent the combination of Geoevaluaciones and PIASA, the
Predecessor.
(2) Reflects pro forma adjustments for the acquisitions of the Purchased
Companies and the consummation of the Initial Public Offering; does not
reflect adjustments related to the proposed acquisition of J.R.S.
Exploration and certain related equipment as described in
"Business -- Proposed Acquisition of J.R.S. Exploration." See the pro forma
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus for a discussion of the assumptions made and
adjustments applied in the preparation of the selected historical pro forma
financial and operating data of the Company, as well as the pro forma
effect of the proposed acquisition of J.R.S. Exploration and certain
related equipment.
(3) EBITDA represents earnings before interest expense, taxes, depreciation and
amortization. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flow as a better measure of liquidity.
(4) Does not include one crew providing drilling and survey services for a
seismic data acquisition crew operated by PEMEX.
(5) Reflects the sale of shares of Common Stock offered hereby and the
application of a portion of the estimated net proceeds as described in "Use
of Proceeds;" does not reflect the application of any net proceeds to, or
the issuance of any shares of Common Stock in connection with, the proposed
acquisition of J.R.S. Exploration and certain related equipment. See
"Business -- Proposed Acquisition of J.R.S. Exploration."
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion has been divided into several sections: the first
section contains the pro forma results of operations for the four Operating
Subsidiaries and PIASA for the periods indicated based on the pro forma
consolidated financial statements of the Operating Subsidiaries, PIASA and 3-D
Geophysical assuming the Initial Public Offering was consummated and the
Operating Subsidiaries and PIASA were acquired on January 1, 1994. The second
section contains a discussion of the combined financial statements of the
Company for the periods indicated. For accounting purposes, the Mexican
Operations are considered the predecessor company, and the combined financial
statements include the operating results of the Mexican Operations for all the
periods and the operating results of the Purchased Companies only for the period
beginning February 9, 1996. As a result, the Company's statement of operations
for the nine months ended September 30, 1996 is not comparable to the statement
of operations for the nine months ended September 30, 1995. Finally, there is a
discussion of the liquidity and capital resources of the Company, the impact of
the Mexican economy and certain other matters. The following discussion of the
results of operations and the financial position of 3-D Geophysical and of the
Operating Subsidiaries and PIASA should be read in connection with "Selected
Historical and Pro Forma Financial and Operating Data," and the financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
PRO FORMA RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
NET REVENUES. Pro forma net revenues for the Company increased 55.7% to
$40.0 million in the nine months ended September 30, 1996 from $25.7 million in
the nine months ended September 30, 1995. The increase is primarily the result
of an increase in seismic survey activities in the United States. Pro forma net
revenues in the United States increased 66.9% to $30.9 million in the nine
months ended September 30, 1996 from $18.5 million in the nine months ended
September 30, 1995. The increase is primarily the result of increased seismic
survey activities in Alaska and the Rocky Mountain region. Pro forma net
revenues for the Mexican Operations increased 27.0% to $9.1 million in the nine
months ended September 30, 1996 from $7.2 million in the nine months ended
September 30, 1995 due primarily to inflation. The $7.2 million of net revenues
in the nine months ended September 30, 1995 for the Mexican Operations include
$2.6 million of contractual price adjustments related to increased costs due to
the devaluation of the peso which occurred in December 1994. Net revenues in the
nine months ended September 30, 1996 include similar contractual adjustments of
$1.1 million.
COST OF DATA ACQUISITION. Pro forma cost of data acquisition for the
Company increased 57.8% to $30.1 million in the nine months ended September 30,
1996 from $19.1 million in the nine months ended September 30, 1995. The
increase is primarily the result of increased seismic survey activities in the
United States. Pro forma cost of data acquisition in the United States increased
50.8% to $23.1 million in the nine months ended September 30, 1996 from $15.3
million in the nine months ended September 30, 1995 due to greater activity in
Alaska and the Rocky Mountain region. Pro forma cost of data acquisition for the
Mexican Operations increased 86.4% to $7.0 million in the nine months ended
September 30, 1996 from $3.8 million in the nine months ended September 30,
1995. The decrease in gross margin for the Mexican Operations is primarily
attributable to larger price adjustments realized in the nine months ended
September 30, 1995 and the impact in the nine months ended September 30, 1996 of
a drilling and field services crew operating in Southern Mexico which did not
commence work in 1995 until November.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization for
the Company increased 21.3% to $3.1 million in the nine months ended September
30, 1996 from $2.5 million in the nine months ended September 30, 1995. This
increase is primarily the result of the acquisition of new equipment.
Depreciation and amortization for the Mexican Operations increased 27.1% to
$675,000 in the nine months ended September 30, 1996 from $531,000 in the nine
months ended September 30, 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma general and administrative
expenses for the Company increased 38.1% to $4.3 million in the nine months
ended September 30, 1996 from $3.1 million in the nine months ended September
30, 1995. The increase is primarily the result of the establishment of a 3-D
18
<PAGE> 21
Geophysical headquarters, added costs associated with being a publicly traded
company and increased marketing costs. Pro forma general and administrative
expenses in the United States increased 50.7% to $3.4 million in the nine months
ended September 30, 1996 from $2.3 million in the nine months ended September
30, 1995. Pro forma general and administrative expenses for the Mexican
Operations increased 4.0% to $866,000 in the nine months ended September 30,
1996 from $833,000 in the nine months ended September 30, 1995. The increase in
general and administrative expenses in the Mexican Operations is attributable
primarily to the costs of evaluating business opportunities in Latin America.
OPERATING INCOME. Pro forma operating income for the Company increased
159.6% to $2.6 million in the nine months ended September 30, 1996 from $983,000
in the nine months ended September 30, 1995. The increase is primarily related
to improvements in the operations in the United States which recognized an
operating profit of $2.0 million in the nine months ended September 30, 1996
compared to a loss of $1.1 million in the nine months ended September 30, 1995.
Pro forma operating income for the Mexican Operations decreased 73.5% to
$540,000 in the nine months ended September 30, 1996 from $2.0 million in the
nine months ended September 30, 1995. The decrease is primarily attributable to
a $2.6 million price adjustment realized in the nine months ended September 30,
1995 as a result of contractual adjustments relating to the devaluation of the
peso in December 1994. Similar contractual adjustments of $1.1 million were
realized in the nine months ended September 30, 1996.
INTEREST EXPENSE. The Company's pro forma interest expense decreased 5.6%
to $710,000 in the nine months ended September 30, 1996 from $752,000 in the
nine months ended September 30, 1995. The decline in interest expense is
attributable to lower borrowing costs for the Mexican Operations compared with
the nine months ended September 30, 1995.
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES). The Company recognized pro
forma foreign currency gains of $8,000 in the nine months ended September 30,
1996 compared to foreign currency losses of $83,000 in the nine months ended
September 30, 1995. The gains are attributable to the reduction of dollar
liabilities of the Mexican Operations and the fluctuation of the peso to dollar
exchange rate.
MISCELLANEOUS INCOME (EXPENSE). The Company recognized pro forma
miscellaneous income of $437,000 in the nine months ended September 30, 1996
compared to miscellaneous expense of $68,000 in the nine months ended September
30, 1995. The increase is primarily the result of interest income in Mexico due
to the high investment interest rates available in Mexico, interest income from
the investment of the proceeds of the Initial Public Offering and interest
income from the conversion of a trade receivable to an interest-bearing note
receivable, which was paid in July 1996.
INCOME TAX EXPENSE (BENEFIT). The Company recognized pro forma income tax
expense of $511,000 in the nine months ended September 30, 1996 compared to pro
forma income tax benefit of $390,000 in the nine months ended September 30,
1995. The increase is attributable to earnings increases in the operations in
the United States and a higher effective tax rate in the Mexican Operations due
to lower inflation adjustments.
The Company believes that it is probable that the inflation rate in Mexico,
as measured by the consumer price index, will exceed 100% for the three-year
period ending December 31, 1996. Accordingly, the Company will likely adopt the
U.S. dollar as the functional currency for the Mexican Operations beginning on
January 1, 1997 in accordance with Statement of Financial Accounting Standards
No. 52. Using the U.S. Dollar as the functional currency will result in an
adjustment to the consolidated statement of operations for translation gains and
losses.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET REVENUES. Pro forma net revenues for the Company decreased 9.1% to
$37.8 million for the year ended December 31, 1995 from $41.6 million for the
year ended December 31, 1994. The decline is primarily the result of decreased
seismic survey activities in the Mexican Operations partially offset by an
increase in survey activities in the United States. Pro forma net revenues in
the United States increased 17.0% to $28.0 million for the year ended December
31, 1995 from $23.9 million for the year ended December 31, 1994. The increase
is primarily attributable to operations in the Rocky Mountain region where
revenues
19
<PAGE> 22
increased 29.0% to $19.9 million. Pro forma net revenues for the Mexican
Operations decreased 44.4% to $9.8 million for the year ended December 31, 1995
from $17.6 million for the year ended December 31, 1994. The decline in net
revenues in the Mexican Operations is attributable primarily to the devaluation
of the peso as well as the decline in demand for seismic surveys by PEMEX in
1995 due to the economic turmoil in Mexico in 1995 and PEMEX's internal
transition from 2-D to 3-D as its primary seismic survey technique.
COST OF DATA ACQUISITION. Pro forma cost of data acquisition for the
Company increased 1.3% to $28.9 million for the year ended December 31, 1995
from $28.6 million for the year ended December 31, 1994. The increase is
primarily the result of increased seismic survey activities in the United
States. The increase in the cost of data acquisition in the United States was
partially offset by a decline in survey activities in the Mexican Operations.
Pro forma cost of data acquisition in the United States increased 30.8% to $23.0
million for the year ended December 31, 1995 from $17.6 million for the year
ended December 31, 1994. The increase is primarily attributable to significant
equipment rental expenses in the Rocky Mountain region. Pro forma cost of data
acquisition for the Mexican Operations decreased 45.8% to $6.0 million for the
year ended December 31, 1995 from $11.0 million for the year ended December 31,
1994. The decline in cost of data acquisition in the Mexican Operations is
attributable primarily to the devaluation of the peso and to a lesser extent is
attributable to decreases in personnel due the decline in demand for seismic
surveys by PEMEX in 1995.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization for
the Company decreased 19.5% to $3.4 million for the year ended December 31, 1995
from $4.3 million for the year ended December 31, 1994. The decrease is
primarily the result of the devaluation of the peso which was partially offset
by capital expenditures in the operations in the United States. Pro forma
depreciation and amortization in the United States remained relatively unchanged
at $2.8 million for the year ended December 31, 1995 from the year ended
December 31, 1994. Pro forma depreciation and amortization for the Mexican
Operations decreased 54.9% to $662,000 for the year ended December 31, 1995 from
$1.5 million for the year ended December 31, 1994, primarily due to the
devaluation of the peso and to a lesser extent decreases in capital
expenditures.
GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma general and administrative
expenses for the Company decreased 6.7% to $4.3 million for the year ended
December 31, 1995 from $4.6 million for the year ended December 31, 1994. The
decrease is primarily the result of decreased general and administrative
expenses for the Mexican Operations due the devaluation of the peso, partially
offset by increased overhead in the operations in the United States. Pro forma
general and administrative expenses in the United States increased 16.8% to $3.3
million for the year ended December 31, 1995 from $2.8 million for the year
ended December 31, 1994. Pro forma general and administrative expenses for the
Mexican Operations decreased 42.8% to $1.0 million for the year ended December
31, 1995 from $1.8 million for the year ended December 31, 1994. The decline in
general and administrative expenses for the Mexican Operations is attributable
primarily to the devaluation of the peso and to a lesser extent decreases in
personnel due to the decline in demand for seismic surveys by PEMEX in 1995.
OPERATING INCOME. Pro forma operating income for the Company decreased
71.9% to $1.2 million for the year ended December 31, 1995 from $4.2 million for
the year ended December 31, 1994. Pro forma operating income in the United
States decreased to a loss of $982,000 for the year ended December 31, 1995 from
operating income of $801,000 for the year ended December 31, 1994. The losses in
the United States were primarily attributable to a decline in seismic activities
in the Rocky Mountain region in the first half of 1995. Pro forma operating
income for the Mexican Operations decreased 36.1% to $2.2 million for the year
ended December 31, 1995 from $3.4 million for the year ended December 31, 1994.
The decline in operating income in the Mexican Operations is attributable
primarily to the devaluation of the peso as well as the decline in demand for
seismic surveys by PEMEX in 1995 due to the economic turmoil in Mexico in 1995
as well as PEMEX's internal transition from 2-D to 3-D as its primary seismic
survey technique.
INTEREST EXPENSE. The Company recognized pro forma interest expense of $1.1
million for the year ended December 31, 1995 compared to $625,000 for the year
ended December 31, 1994. The increase is primarily due to increased debt levels
at Paragon.
20
<PAGE> 23
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES). The Company recognized pro
forma foreign currency losses of $120,000 for the year ended December 31, 1995
compared to foreign currency losses of $92,000 for the year ended December 31,
1994.
MISCELLANEOUS INCOME (EXPENSE). The Company recognized pro forma
miscellaneous income of $415,000 for the year ended December 31, 1995 compared
to pro forma miscellaneous income of $77,000 for the year ended December 31,
1994. The increase is primarily the result of interest income in Mexico due to
high interest rates and a gain on sale of equipment in Mexico.
INCOME TAX EXPENSE (BENEFIT). The Company recognized a pro forma income tax
benefit of $357,000 for the year ended December 31, 1995 compared to a pro forma
income tax expense of $1.2 million for the year ended December 31, 1994. The tax
benefit is attributable to losses incurred in the United States at an effective
tax rate of 37% partially offset by earnings from the Mexican Operations taxed
at an adjusted effective tax rate of 7.5%. The effective tax rate in Mexico for
the year ended December 31, 1995 was lower than the 34% statutory rate due to
favorable inflation adjustments.
COMBINED RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 compared to Nine Months Ended September
30, 1995
NET REVENUES. Net revenues for the Company increased 405.1% to $36.2
million in the nine months ended September 30, 1996 from $7.2 million in the
nine months ended September 30, 1995. The increase is primarily attributable to
the inclusion of $27.0 million of net revenues of the Company's operations in
the United States and a 27.0% increase to $9.1 million in the nine months ended
September 30, 1996, from $7.2 million in the nine months ended September 30,
1995, for the Mexican Operations. Net revenues for the Mexican Operations in the
nine months ended September 30, 1995 include $2.6 million of contractual
adjustments related to increased costs due to the devaluation of the peso which
occurred in December 1994. Net revenues for the Mexican Operations in the nine
months ended September 30, 1996 include similar contractual adjustments of $1.1
million.
COST OF DATA ACQUISITION. Cost of data acquisition for the Company
increased 606.7% to $26.6 million in the nine months ended September 30, 1996
from $3.8 million in the nine months ended September 30, 1995. The increase is
primarily attributable to the inclusion of $19.6 million of cost of data
acquisition of the Company's operations in the United States and a 86.4%
increase to $7.0 million in the nine months ended September 30, 1996, from $3.8
million in the nine months ended September 30, 1995, for the Mexican Operations.
The decrease in gross margin for the Mexican Operations is primarily
attributable to larger price adjustments realized in the nine months ended
September 30, 1995 and the impact in the nine months ended September 30, 1996 of
a drilling and field services crew operating in Southern Mexico which did not
commence work in 1995 until November.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Company increased 425.0% to $2.8 million in the nine months ended September 30,
1996 from $531,000 in the nine months ended September 30, 1995. The increase is
primarily attributable to the inclusion of $2.0 million of depreciation and
amortization of the Company's operations in the United States, including
$260,000 of goodwill amortization attributable to the acquisitions of Northern
and Kemp. This is in addition to a 27.1% increase to $675,000 in the nine months
ended September 30, 1996, from $531,000 in the nine months ended September 30,
1995, for the Mexican Operations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the Company increased 369.0% to $3.9 million in the nine months ended
September 30, 1996 from $833,000 in the nine months ended September 30, 1995.
The increase is primarily attributable to the inclusion of $2.9 million of
general and administrative expenses from the Company's operations in the United
States, and a 4.0% increase to $866,000 in the nine months ended September 30,
1996, from $833,000 in the nine months ended September 30, 1995, for the Mexican
Operations. General and administrative expenses for the Company have also
increased due to the establishment of a 3-D Geophysical headquarters, added
costs associated with being a publicly traded company and increased marketing
costs.
21
<PAGE> 24
OPERATING INCOME. Operating income for the Company increased 42.2% to $2.9
million in the nine months ended September 30, 1996 from $2.0 million in the
nine months ended September 30, 1995. The operating income of the Mexican
Operations decreased 73.4% to $540,000 in the nine months ended September 30,
1996 from $2.0 million in the nine months ended September 30, 1995. The decrease
in the operating income of the Mexican Operations in the nine months ended
September 30, 1996 is due to contractual revenue adjustments of $2.6 million,
which were realized in the nine months ended September 30, 1995, attributable to
increased costs resulting from the devaluation of the peso during December 1994.
This is contrasted with contractual adjustments of $1.1 million in the nine
months ended September 30, 1996. The decrease in the operating income of the
Mexican Operations was partially offset by the inclusion of $2.3 million of
operating income for the Company's operations in the United States in the nine
months ended September 30, 1996.
INTEREST EXPENSE. The Company's interest expense increased 18.9% to
$668,000 in the nine months ended September 30, 1996 from $562,000 in the nine
months ended September 30, 1995. The increase is due to interest charges on
borrowings of approximately $12 million in May 1996 under a credit facility with
the Company's principal lender compared to interest charges on borrowings of
approximately $300,000 and financing charges in connection with the factoring of
receivables arising out of the Mexican Operations in the nine months ended
September 30, 1995.
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES). The Company recognized a
foreign currency gain of $8,000 in the nine months ended September 30, 1996
compared to a foreign currency loss of $83,000 in the nine months ended
September 30, 1995. These gains and losses are primarily attributable to the
reduction of dollar liabilities of the Mexican Operations and the fluctuation of
the peso to dollar exchange rate.
MISCELLANEOUS INCOME (EXPENSE). The Company recognized miscellaneous income
of $437,000 in the nine months ended September 30, 1996 compared to
miscellaneous income of $38,000 in the nine months ended September 30, 1995. The
increase is primarily the result of interest income in Mexico due to the high
investment interest rates available in Mexico, interest income from the
investment of the proceeds of the Initial Public Offering and interest income
from the conversion of a trade receivable to an interest-bearing note receivable
which was paid in July 1996.
INCOME TAX EXPENSE (BENEFIT). The Company recognized income tax expense of
$645,000 in the nine months ended September 30, 1996 compared to income tax
expense of $81,000 in the nine months ended September 30, 1995. The increase is
primarily attributable to earnings of the Company's operations in the United
States taxed at a 26% effective tax rate, partially offset by an 18% effective
tax rate for earnings from the Mexican Operations. The lower tax rate in Mexico
is due to inflation adjustments. The effective tax rate for the Company's
operations in the United States is lower than the statutory tax rate due to the
anticipated change in the valuation allowance previously established with
respect to certain net operating loss carryforwards.
EXTRAORDINARY ITEM NET OF INCOME TAX EXPENSE. The Company recognized a
$57,000 extraordinary item in the nine months ended September 30, 1996, net of
tax expense of $36,000. The extraordinary item is due to a gain recognized on
the early extinguishment of debt. No extraordinary items were recognized in the
nine months ended September 30, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
NET REVENUES. Net revenues decreased 44.4% to $9.8 million in the year
ended December 31, 1995 from $17.7 million in the year ended December 31, 1994.
The decline in net revenues was attributable primarily to the devaluation of the
peso as well as the decline in demand for seismic surveys by PEMEX in 1995 due
to the economic turmoil in Mexico in 1995 as well as PEMEX's internal transition
from 2-D to 3-D as its primary seismic survey technique.
COST OF DATA ACQUISITION. Cost of data acquisition decreased 45.8% to $6.0
million in the year ended December 31, 1995 from $11.0 million in the year ended
December 31, 1994. The decline in cost of data
22
<PAGE> 25
acquisition in the Mexican Operations is attributable primarily to the
devaluation of the peso and to a lesser extent decreases in personnel due the
decline in demand for seismic surveys by PEMEX in 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
54.9% to $662,000 in the year ended December 31, 1995 from $1.5 million in the
year ended December 31, 1994. The decline in depreciation and amortization in
the Mexican Operations is attributable primarily to the devaluation of the peso
and to a lesser extent decreases in capital expenditures.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 42.8% to $1.0 million in the year ended December 31, 1995 from $1.8
million in the year ended December 31, 1994. The decline in general and
administrative expenses in the Mexican Operations is attributable primarily to
the devaluation of the peso and to a lesser extent decreases in personnel due to
the decline in demand for seismic surveys by PEMEX in 1995.
OPERATING INCOME. Operating income decreased 36.1% to $2.2 million in the
year ended December 31, 1995 from $3.4 million in the year ended December 31,
1994. The decline in operating income in the Mexican Operations is attributable
primarily to the devaluation of the peso as well as the decline in demand for
seismic surveys by PEMEX in 1995 due to the economic turmoil in Mexico in 1995
as well as PEMEX's internal transition from 2-D to 3-D as its primary seismic
survey technique.
INTEREST EXPENSE. Interest expense increased 72.3% to $803,000 in the year
ended December 31, 1995 from $466,000 in the year ended December 31, 1994. The
increase in interest expense is attributable to higher borrowing costs in 1995
due to the economic impact of the devaluation of the peso and financing charges
in connection with the factoring of receivables arising out of the Mexican
Operations in the nine months ended September 30, 1995.
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES). Foreign currency losses of
$120,000 were recognized in the year ended December 31, 1995 compared to foreign
currency losses of $92,000 in the year ended December 31, 1994.
MISCELLANEOUS INCOME (EXPENSE). Miscellaneous income of $503,000 was
recognized in the year ended December 31, 1995 compared to miscellaneous income
of $87,000 in the year ended December 31, 1994. The increase is primarily the
result of interest income in Mexico due to high interest rates and a gain on the
sale of equipment.
INCOME TAX EXPENSE (BENEFIT). Income tax expense was $130,000 in the year
ended December 31, 1995 compared to income tax expense of $1.0 million in the
year ended December 31, 1994. The decline is attributable to lower earnings and
inflation adjustments to the 35% tax rate in Mexico which reduced the effective
tax rate to 7.5%.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
NET REVENUES. Net revenues of $17.7 million in 1994 remained relatively
unchanged from 1993 due to greater utilization of Geoevaluaciones' heliportable
crew operating in Central Mexico and Geoevaluaciones' vibroseis crew operating
in Northern Mexico, offset by the 12% increase in the average peso to dollar
exchange rate for 1994 compared to 1993.
COST OF DATA ACQUISITION. Cost of data acquisition decreased 16.3% to $11.0
million in 1994 from $13.1 million in 1993 as a result of improved efficiencies
in operations of the heliportable crew which resulted in lower rental costs and
Geoevaluaciones' decision in 1994 to end subcontracting of processing services
and to perform such services itself through its arrangement with PIASA which
reduced technical assistance costs. These costs also decreased as a result of
the increase in the average peso to dollar exchange rate for 1994 compared to
1993.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 48.3% to $1.5 million in 1994 from $1.0 million in 1993 as a result of
the acquisition of additional seismic equipment offset by the 12% increase in
the average peso to dollar exchange rate in 1994 compared to 1993.
23
<PAGE> 26
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 41.7% to $1.8 million in 1994 from $1.3 million in 1993 as a result of
higher personnel costs and Geoevaluaciones' decision in 1994 to end
subcontracting of processing services and to perform such services itself
through its arrangement with PIASA, partially offset by decreases as a result of
the increase in the average peso to dollar exchange rate for 1994 compared to
1993.
OPERATING INCOME. Operating income increased 51.8% to $3.4 million in 1994
from $2.2 million in 1993 as a result of improved efficiencies in the operations
of the heliportable crew and Geoevaluaciones' decision in 1994 to end
subcontracting of processing services and to perform such services itself
through its arrangement with PIASA.
INTEREST EXPENSE. Interest expense decreased 54.8% to $466,000 in 1994 from
$1.0 million in 1993. The decrease in the interest expense resulted from lower
borrowing costs and a decrease in capital leases.
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES). Foreign currency transaction
losses were $92,000 in 1994 compared to gains of $33,000 in 1993 due to the
increase in the average peso to dollar exchange rate in 1994 compared to 1993.
MISCELLANEOUS INCOME (EXPENSE). Miscellaneous income, which consists of the
interest income and miscellaneous non-operating expense line items, decreased
67.8% to $87,000 in 1994 from $270,000 in 1993. The decrease is primarily a
result of taxes (other than income taxes) related to prior years that were
refunded during 1993.
INCOME TAX EXPENSE (BENEFIT). Income tax expense increased 139.2% to $1.0
million in 1994 from $418,000 in 1993 as a result of increased earnings in 1994.
LIQUIDITY AND CAPITAL RESOURCES
From December 31, 1995 to September 30, 1996, total assets of the Company
increased from $4.5 million to $54.4 million, total liabilities increased from
$2.7 million to $27.4 million and total stockholders' equity increased from $1.8
million to $27.0 million. These increases resulted from the Initial Public
Offering, the acquisition of the Operating Subsidiaries and new capital
expenditures partially financed by the Term Loan.
On February 9, 1996, the Company completed the Initial Public Offering of
4,000,000 shares of Common Stock at a price to the public of $7.50 per share.
Subsequently, on February 21, 1996, the underwriters exercised their
over-allotment option to purchase an additional 600,000 shares at a price to the
public of $7.50 per share. The net proceeds to the Company (after deducting
underwriting discounts and commissions and offering expenses) were approximately
$28.7 million. Of this amount, approximately $3.5 million was treated, for
accounting purposes, as a dividend to the former stockholders of Geoevaluaciones
and PIASA, approximately $10.3 million was used to purchase the land seismic
assets of Northern and all of the capital stock of Kemp, approximately $4.6
million was used to repay indebtedness of the Operating Subsidiaries, $152,000
was used to retire capital leases and approximately $1.1 million was paid
subsequent to the acquisitions as a purchase price adjustment for the land-based
seismic data operations of Northern. The remaining proceeds were used primarily
for working capital and capital expenditures. See "Certain Transactions."
At September 30, 1996, the Company had $1.2 million of cash. The Company's
operating activities utilized $2.1 million net cash in the nine months ended
September 30, 1996 compared with providing $1.6 million of cash in the same
period of the prior year. The reduction in net cash provided by operating
activities was primarily attributable to a net increase in working capital.
Net cash used in investing activities increased to $22.5 million in the
nine months ended September 30, 1996 from $123,000 in the same period in the
prior year. This increase was due to the cash utilized to purchase Northern and
Kemp of $10.3 million and for capital expenditures of $12.3 million, offset by
cash proceeds of approximately $100,000 from the sale of equipment.
24
<PAGE> 27
Net cash provided by financing activities increased to $25.2 million in the
nine months ended September 30, 1996 from net cash utilized of $663,000 in the
comparable period in the prior year due to the completion of the Initial Public
Offering and the closing of the Loan Agreement.
The Company used $12.3 million for capital expenditures in the nine months
ended September 30, 1996 compared to $123,000 in the same period of the prior
year. Simultaneously with the acquisition of the Operating Subsidiaries,
Northern and Paragon exercised options to purchase equipment which had been
rented. These capital expenditures reduced the Company's reliance on leased
equipment and improved the Company's ability to meet the demand for 3-D data
acquisition services. On May 31, 1996, the Company purchased approximately $8.5
million of equipment from Input/Output. This purchase increased the Company's
recording channel capacity from approximately 7,500 to approximately 12,000
channels.
Simultaneously with the purchase of the equipment, the Company entered into
an $18 million credit facility with First Interstate Bank of Texas, N.A. The
Loan Agreement is for three years and includes $7.5 million of financing for the
above equipment and $4.5 million of refinancing of conditional sales agreements
acquired by the Operating Subsidiaries prior to the Initial Public Offering. The
new equipment has been utilized to meet the requirements of a contract with BP
Alaska, to increase the channel capacity of one of the Company's Mexican crews
for a 3-D contract with PEMEX and to increase the channel capacity of the
Company's two crews in the Rocky Mountain region.
The Loan Agreement provides for the Term Loan of $15.0 million, of which
$3.0 million is available for future capital expenditures, and a revolving
credit working capital facility (the "Revolving Credit Loan") of up to $3.0
million, of which $2.0 million was available as of September 30, 1996. The Term
Loan is payable in substantially equal monthly installments through July 31,
1999, bears interest at an annual rate equal to the prime rate plus 1% (9.25% at
September 30, 1996) and is secured by a lien on the Company's accounts, accounts
receivable, equipment, machinery, fixtures, inventory, goods, chattel paper,
documents, instruments, investment property, general intangibles, and other
personal property, whether then owned or thereafter acquired, and all products
and proceeds thereof, and by guarantees by certain of the Company's
subsidiaries. The Revolving Credit Loan may be drawn down from time to time
through May 29, 1997 in an amount of up to 70% of the Company's "Eligible
Accounts" (as defined in the Loan Agreement). The rate of interest and the
security for the Revolving Credit Loan are the same as those described above for
the Term Loan. In addition to certain customary affirmative covenants, the Loan
Agreement contains restrictions on the Company with respect to (i) incurring
Debt (as defined), incurring or permitting to exist Liens (as defined) on its
property, assets or revenues, (iii) declaring or paying any dividends or other
distributions on its capital stock (or acquiring any of its capital stock), (iv)
issuing capital stock, (v) entering into transactions with affiliates, (vi)
disposing of assets, and (vii) certain other matters. The Loan Agreement also
contains financial covenants with respect to minimum tangible net worth, the
ratio of tangible net worth to net liabilities and the ratio of earnings to debt
service.
On October 1, 1996, the Company entered into a termination agreement with
the Company's former Chief Financial Officer pursuant to which the Company
agreed to pay him $200,000 plus $5,000 per month through December 31, 1998, to
provide him with office space in the Company's New York City facility through
December 31, 1997 and to provide him with certain insurance benefits through
December 31, 1998. See "Certain Transactions."
Since September 30, 1996, the Company has entered into short-term leases
for seismic data acquisition equipment with aggregate lease payments of
approximately $3.8 million. See note 14 of notes to the consolidated financial
statements of the Company.
At November 11, 1996, the Company's estimated backlog of commitments for
services totaled approximately $42.2 million, of which approximately $2.8
million relates to a contract in Peru that is subject to the resolution of
certain uncertainties relating to obtaining required local permits. The Company
expects to complete substantially all of these commitments during 1996 and 1997;
however, commitments are subject to cancellation at the option of the Company's
customers on short notice and without penalty. Consequently, the Company's
backlog as of any particular date may not be indicative of the Company's actual
operating results for any succeeding fiscal period. Subject to the foregoing,
the Company anticipates that approximately 29% of
25
<PAGE> 28
the orders and commitments included in backlog at November 11, 1996 will be
completed prior to the end of 1996 and it is expected that the balance will be
completed in 1997. See "Business -- Marketing and Customers -- Backlog."
The Company currently plans to continue to upgrade and expand its existing
data acquisition capabilities through the purchase of additional systems,
additional channel capacity for the six 24-bit seismic data acquisition systems
it presently owns and related vehicles and equipment. In addition, the Company
plans to repay $6.0 million of the indebtedness incurred in May 1996 under the
Loan Agreement to purchase two 24-bit seismic data acquisition systems and other
capital equipment and to acquire up to three additional I/O SYSTEM TWO(R)
seismic data acquisition systems. The Company believes that its planned capital
expenditures and operating requirements for the next 12 months will be funded
from a portion of the net proceeds of this Offering, cash from operations and,
to the extent available, borrowings under the Loan Agreement. The Company may
revise its plans in response to future changes in the oil and gas industry in
general and the demand for its services in particular, its results of
operations, its other capital requirements and other relevant factors. 3-D
Geophysical periodically evaluates opportunities to acquire businesses and
assets; however, the Company does not have any current understanding,
arrangement or agreement to acquire any such businesses or assets other than the
proposed acquisition of J.R.S. Exploration (and certain related equipment) for
cash and shares of Common Stock (see "Business -- Proposed Acquisition of J.R.S.
Exploration"). The Company believes that, in addition to cash from operations
and borrowings under the Loan Agreement, it may fund any such acquisitions
through the issuance of additional debt or equity securities. The issuance of
additional equity securities, including shares of Common Stock, in connection
with any such acquisitions would result in additional dilution to purchasers of
Common Stock in this Offering. See "Risk Factors -- Capital Intensive Business;
Rapid Obsolescence of Technology," "Use of Proceeds" and "Business -- Capital
Expenditures."
IMPACT OF MEXICAN ECONOMY
For the year ended December 31, 1995 and for the nine months ended
September 30, 1996, pro forma net revenues from the Mexican Operations were
26.0% and 22.7%, respectively, of pro forma net revenues of the Company. The
Company's financial performance is, and will continue to be, affected by
economic conditions in Mexico.
The level of land-based seismic data acquisition services in Mexico has in
the past been vulnerable to economic downturns and changes in government
policies and public spending. Since December 1994, Mexico has experienced an
economic crisis characterized by a significant devaluation of the peso, exchange
rate instability, increased inflation, high domestic interest rates, negative
economic growth, reduced consumer purchasing power and high unemployment.
Inflation in Mexico for the year ended December 31, 1995 and for the nine months
ended September 30, 1996 was approximately 52.0% and 20.3%, respectively, based
on the consumer price index.
The December 1994 devaluation of the peso has had a number of effects on
the Mexican economy that have adversely affected the financial condition of
Mexican companies, including Geoevaluaciones. The devaluation caused the peso
value of Geoevaluaciones' dollar denominated indebtedness, which consists
primarily of equipment financing, to increase significantly, and also greatly
increased the rate of inflation, resulting in a sharp rise in nominal interest
rates on peso denominated financing.
The prices Geoevaluaciones pays for certain equipment, energy and other
materials are set, in part, by reference to international prices denominated in
currencies other than pesos. Pursuant to Geoevaluaciones' contracts with PEMEX,
certain of the costs incurred by Geoevaluaciones may be adjusted to take into
account economic events such as inflation and devaluation of the peso (see
"Business -- Marketing and Customers -- Contracts"). Geoevaluaciones' results of
operations, denominated in pesos, are translated into dollars for inclusion in
the Company's financial statements. However, increases in the peso to dollar
exchange rate will result in a reduction of the dollar value of peso-based
revenues of the Company as well as the dollar value of peso-based expenses of
the Company. Likewise, decreases in such rate will result in increases in the
dollar value of such revenues and expenses. As a result, such fluctuations could
have a material adverse effect on the financial condition and results of
operations of the Company. The table below sets forth the peso to
26
<PAGE> 29
dollar exchange rate during the periods indicated (based on the average of the
closing rates published by Banco Mexicano de Comercio Exterior for each business
day during such period) and the closing rate for the last day of each such
period.
<TABLE>
<CAPTION>
PESO TO DOLLAR EXCHANGE RATES
----------------------------------------
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average......................................... 3.11 3.48 6.42 6.10 7.54
Period end...................................... 3.13 5.00 7.68 6.40 7.55
</TABLE>
While the Company may from time to time evaluate methods to reduce foreign
exchange risks, the adoption of any particular method will depend on existing
market conditions. The Company cannot reasonably predict what method, if any, it
will adopt to reduce foreign exchange risks, and there can be no assurance that
it will adopt any such method or that, if adopted, any such method will reduce
such risks.
The financial statements of Geoevaluaciones for the three years ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996 have
been prepared using the peso as the functional currency as prescribed by
Statement of Financial Accounting Standards No. 52 ("Statement 52"). Statement
52 requires that an entity's reporting currency, which for Geoevaluaciones is
the dollar, should be used as the functional currency if inflation in the
primary economic environment exceeds 100% over a three-year period. If the
financial statements of Geoevaluaciones had been prepared using the dollar as
the functional currency for the year ended December 31, 1995 and the nine months
ended September 30, 1996, net income would have been lower.
The Company believes that it is probable that the inflation rate in Mexico,
as measured by the consumer price index, will exceed 100% for the three-year
period ending December 31, 1996. Accordingly, the Company will likely adopt the
U.S. dollar as the functional currency for the Mexican Operations beginning on
January 1, 1997 in accordance with Statement of Financial Accounting Standards
No. 52. Using the U.S. dollar as the functional currency will result in an
adjustment to the consolidated statement of operations for translation gains and
losses.
FEDERAL INCOME TAXES
Provisions for income taxes are based on pretax income reported for
financial statement purposes. Such provisions differ from amounts currently
payable because certain items of income and expenses are recognized for income
tax purposes in periods different from the periods for financial statement
purposes. The tax effects of these timing differences, primarily with respect to
depreciation and amortization, are reflected as deferred income taxes. The
Company's income from the Mexican Operations will be subject to the statutory
tax rate of 34% in Mexico net of applicable inflation adjustments. Any Mexican
income tax paid will be available as a credit against the Company's United
States federal income taxes upon the repatriation of any Mexican earnings to the
United States pursuant to tax treaties between Mexico and the United States.
IMPACT OF PRICING, INFLATION AND SEASONALITY
The general availability of seismic data, equipment and crews, and the
level of exploration activity in the oil and gas industry, directly affect the
cost of acquiring seismic data. The pricing of the Company's seismic data
acquisition services is primarily a function of these factors. The Company
believes that inflationary trends had no material impact on the results of its
operations in the United States during the year ended December 31, 1995 or the
nine months ended September 30, 1996. The Mexican Operations in these periods
were affected by the inflationary pressure on the Mexican economy insofar as the
peso was devalued, the cost of peso-denominated financing rose sharply and the
Mexican government sought to curb public spending. Inflation in Mexico for the
year ended December 31, 1995 and for the nine months ended September 30, 1996
was approximately 52.0% and 20.3%, respectively, based on the consumer price
index. As a result, net
27
<PAGE> 30
revenues decreased once revenues from Mexican Operations were translated from
pesos to dollars. See "Risk Factors -- Substantial Risks of Doing Business in
Latin America."
The Company's seismic data acquisition operations historically have been
subject to seasonal fluctuation, with the greatest volume of data acquisition
occurring during the summer and fall. The consolidation of the Operating
Subsidiaries, the expansion into Alaska and Latin America and the proposed
expansion into Canada, if completed successfully, may enable the Company to
deploy its crews and utilize its equipment in disparate regions. The Company
will attempt to conduct operations year round with fewer days of down-time
caused by inclement weather by working during the favorable operating seasons of
different regions. The Company believes that the geographical diversification of
its operations may reduce the impact of seasonal fluctuations.
28
<PAGE> 31
BUSINESS
GENERAL
3-D Geophysical, Inc. is one of the leading providers of land-based and
shallow water 3-D and 2-D seismic data acquisition services to the oil and gas
industry in the Western Hemisphere. As of October 31, 1996, the Company's nine
crews operated land-based and shallow water seismic data acquisition systems,
primarily utilizing state-of-the-art, 24-bit equipment, with a total of
approximately 12,000 channels, in Alaska, the Rocky Mountain, West Coast and
Appalachian regions and in Mexico.
The seismic data acquisition services industry is currently experiencing
several significant changes, including a continuing consolidation of service
providers. The Company believes that this consolidation is due in part to the
trend by oil and gas exploration and production companies to rely on third-party
seismic contractors to provide increasingly more sophisticated and extensive 3-D
seismic surveys. These surveys require a greater number of recording channels
and therefore substantial capital expenditures. This trend is rationalizing the
seismic services industry and creating a competitive advantage for companies
with extensive 3-D channel capacity and greater financial resources.
The Company believes that (i) its state-of-the-art systems, (ii) its
ability to relocate equipment and crews among the regions in which it operates,
(iii) the regional experience of its management and crews in performing 3-D and
2-D surveys, and (iv) the quality of its services and relationships with
customers will enable the Company to take advantage of this industry trend.
Since the Initial Public Offering, the Company has:
- Increased its channel capacity from approximately 7,500 to approximately
12,000 channels;
- Expanded its operations in Alaska with seismic data acquisition contracts
with Arco Alaska Inc., a subsidiary of ARCO, BP Alaska and Marathon;
- Obtained two of the first group of 3-D seismic data acquisition contracts
awarded to date by PEMEX;
- Established a presence in Peru by opening a branch office and a seismic
data processing center and bidding on several contracts to provide
seismic data acquisition services in Peru; and
- Entered into a stock purchase agreement to acquire J.R.S. Exploration, a
seismic data acquisition business that has been operating in Western
Canada since 1978 using up to four crews and utilizing 24-bit seismic
data acquisition systems with a total of approximately 2,000 channels.
BUSINESS STRATEGY
The Company's objective is to capitalize on the consolidation taking place
in its industry to enhance its position as one of the leading providers of
land-based and shallow water seismic data acquisition services and to become a
significant provider of related services to the oil and gas industry in the
Western Hemisphere. The Company intends to achieve this objective by:
- Optimizing the utilization of its state-of-the-art seismic data
acquisition systems by relocating equipment and crews among the regions
in which the Company operates;
- Expanding its operations in Mexico and elsewhere in Latin America by
seeking further contract opportunities with PEMEX and other oil companies
operating in Latin America;
- Pursuing opportunities in the United States, including Alaska, by
attempting to strengthen existing business relationships with
multinational companies and their affiliates, such as ARCO, BP Alaska,
Marathon and others;
- Pursuing strategic acquisitions by seeking to acquire providers of
seismic data acquisition and related services, such as J.R.S.
Exploration, that complement the Company's geographic market coverage
and growth strategy; and
- Expanding the Company's data processing and interpretation and reservoir
characterization services already being provided to PEMEX in Mexico into
other markets.
29
<PAGE> 32
INDUSTRY OVERVIEW
Seismic data is the principal source of information used by geoscientists
to map potential or existing oil and gas bearing formations and the geologic
structures that surround them. Seismic data is acquired over a specified area by
deploying a network of electronic cables over the area to which electronic
receivers, or geophones, are attached. Once this network is deployed, an energy
source, such as vibroseis or dynamite, is used to generate seismic waves through
a pre-determined set of frequencies that move through the rock formation under
the area and reverberate back to the surface in milliseconds. The geophones
capture the changing velocity and character of these seismic waves as they
travel down and back through the earth's surface and transmit this information a
short distance along a channel to a remote signal conditioner. The remote signal
conditioner digitizes the analog data and transmits it to a central electronics
unit that stores the acquired data. The data is then sent to a processing center
where mathematical algorithms are applied to separate signals from interference
and to correct distortion. Migration techniques are also applied to produce a
spatial representation of the subsurface formations that were surveyed. After
processing, the data is transferred to a computer workstation that allows the
data to be viewed and reconfigured by a geoscientist who interprets the data
with computer-aided exploration techniques in order to plot features and map the
structures of the subsurface area.
In the past, a 2-D survey was the standard technique utilized to acquire
seismic data. 2-D seismic data can be visualized as a single vertical plane of
subsurface information. 3-D seismic surveys produce data that is best visualized
as a cube of information that can be sliced into numerous planes. Thus, 3-D
surveys provide different views of a subsurface geologic structure and much
higher resolution of the structure than is available from a 2-D survey and have
proven to be more reliable indicators of the oil and gas potential in the area
surveyed. As a result, drilling based on 3-D seismic surveys has improved the
economics of finding oil and gas. Consequently, demand for 3-D seismic surveys,
and for surveys that cover wide areas and utilize a greater number of channels,
has increased in the past several years. Furthermore, due to the enhanced
information provided, 3-D surveys have proven to be a cost effective and
efficient tool for oil and gas exploration and, increasingly, the development of
existing reserves.
The oil and gas industry relies upon seismic data for the exploration of
new oil and gas reserves and for delineating the size and structure of
previously identified oil and gas fields to improve the development of those
fields. Seismic data, once acquired and processed, results in computer-generated
representations of the earth's subsurface. 2-D seismic data is collected in a
linear fashion along the surface of the earth (typically using 120 recording
channels). The acquisition of 3-D seismic data involves the use of at least 480
recording channels, allows a greater volume of seismic data to be gathered and
yields dense, 3-D grids, with a higher degree of resolution of the earth's
subsurface than a 2-D seismic survey can produce.
The amount of data that can be acquired and the ability to record, process
and represent seismic data are dependent upon the type of equipment used during
the seismic data acquisition process. Seismic acquisition systems are either
traditional or distributed systems. In traditional systems, such as a DFS-V(TM)
system, signals received from the energy source are transmitted to a central
electronics unit in analog (nondigital) form with each channel requiring its own
set of wires, consequently increasing the cable weight. Traditional systems are
limited to 480 channels and are used primarily for 2-D seismic surveys. The
traditional system uses a 16-bit converter to translate signals from analog to
digital data. This technology cannot eliminate distortion of the signal that may
be caused by noise in the area or weaknesses in the signal if it is remote from
the central electronics unit.
Alternatively, in a state-of-the-art distributed system, received signals
are amplified, filtered and converted into digital data by means of a 24-bit
analog-to-digital converter at remote signal conditioners before they are
transmitted to the central electronics unit on a single set of wires. Certain
distributed systems can be expanded to approximately 10,000 channels, although
the Company believes that the average distributed system currently used in the
land-based seismic data acquisition industry is significantly less than 10,000
channels. The 24-bit analog-to-digital converter extends the decibel range of
seismic recording and reduces system distortion to provide superior signal
fidelity. This technological innovation provides higher resolution data, which
is especially beneficial for 3-D surveys in geologically complex or noisy areas,
and
30
<PAGE> 33
substantially reduces power consumption. Distributed systems have flexible
configuration capability and improved digital signal quality. In addition, the
lighter weight cables allow a crew to acquire greater volumes of data, as
required in 3-D surveys, over a wider area with fewer people and in less time.
Distributed systems are used primarily for 3-D surveys.
SEISMIC DATA ACQUISITION SERVICES
The Company is engaged in land-based and shallow water seismic data
acquisition on a contract basis for its customers and not for its own account.
Seismic data acquisition projects typically begin at the time a customer
requests the Company to formulate a proposal to acquire seismic data on the
customer's behalf. The Company's geophysicists work with the customer in
designing the specifications of the proposed survey and, once the specifications
are agreed upon, the survey is taken to the field where one or more of the
Company's crews commence the process of acquiring data.
As of October 31, 1996, the Company operated a total of nine working
seismic crews, of which six were utilizing state-of-the-art, 24-bit seismic data
acquisition systems with a total of approximately 12,000 channels. Of the six
crews, one operates in Mexico, one in Alaska and four in the remainder of the
United States. In addition, the Company operated two crews in the United States
utilizing 16-bit seismic data acquisition systems with a total of approximately
480 channels and one crew providing drilling services in Mexico. Each crew is
either land transportable or heliportable, or both. The Company attempts to
shift entire crews and equipment from one geographic location to another in
order to capitalize on the varying seismic operating seasons in the Company's
regions of operation and to maximize the Company's efficient use of human
resources and equipment. Most of the Company's data acquisition systems, which
include remote signal conditioners, cables, geophones and central electronics
units, can be readily interchanged and relocated, depending upon the needs of
the Company's customers.
A seismic crew typically consists of a supervisor, permitting agents who
secure permission to enter a landowner's property, surveyors who mark the
locations for the placement of geophones and other equipment, general laborers
who place and move the geophones and other equipment, a drill crew to drill
holes and shooters to detonate the dynamite, if dynamite is used as the energy
source, or a vibroseis crew to operate the vibroseis trucks, if vibroseis is
used as the energy source, and an observer who operates the central electronics
unit and controls the recording of the seismic data. A fully staffed seismic
crew in the United States typically has from 10 to 25 personnel for 2-D seismic
surveys and from 20 to 60 personnel for 3-D seismic surveys, depending upon the
size and nature of the survey requested by the customer. Vehicles assigned to
each crew consist of a recording truck, two or more cable and geophone trucks, a
dynamite or vibroseis truck, several personnel vehicles with off-road capability
and, where necessary, helicopters.
The Company utilizes helicopters to facilitate seismic data acquisition in
a wide range of terrains, including terrain that is inaccessible by wheeled or
tracked vehicles. The Company's experience is that helicopter use reduces the
overall cost and environmental impact of seismic data acquisition projects
through improved productivity, as crews and equipment can be more rapidly
deployed with less surface disturbance.
SEISMIC DATA PROCESSING AND INTERPRETATION
The processing of seismic data involves the conversion of such data, by
means of sophisticated computer software designed for this purpose, into graphic
representations of cross-sections of the earth's subsurface. PIASA and
Geoevaluaciones currently provide data processing and interpretation services to
PEMEX and the Company has opened a processing center at its branch location in
Peru. The Company intends to expand its processing and interpretation capacity
in the future and to offer such services to its customers in other geographic
regions. However, the Company has not yet developed a formal business plan to
implement this intention, and there can be no assurance that any such attempted
expansion will be successful.
GEOGRAPHIC AREAS OF OPERATION
The Company's seismic data acquisition operations are conducted throughout
the United States (including Alaska) and in Mexico. Geoevaluaciones primarily
conducts its operations in Mexico and provides
31
<PAGE> 34
its primary customer, PEMEX, a full complement of seismic data acquisition,
processing and interpretation services and reservoir characterization. The
Company has established a presence in Peru by opening a branch office and a
seismic data processing center and bidding on several contracts to provide
seismic data acquisition services in Peru. In addition, the Company is seeking
to expand its operations into Canada and has entered into a stock purchase
agreement to acquire J.R.S. Exploration, a Calgary-based provider of land-based
seismic data acquisition services (see "-- Proposed Acquisition of J.R.S.
Exploration").
The following table presents certain pro forma financial information about
the operations of the Company during the year ended December 31, 1995 and the
nine months ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
YEAR ENDED ---------------------------------------
DECEMBER 31, 1995 1995 1996
----------------- ----------------- -----------------
(PRO FORMA)(1) (PRO FORMA)(1)
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Net revenues................. $37,835 100.0% $25,669 100.0% $39,974 100.0%
United States.............. 28,010 74.0 18,512 72.1 30,888 77.3
Mexico..................... 9,825 26.0 7,157 27.9 9,086 22.7
Operating income............. 1,175 * 983 * 2,552 100.0
United States.............. (982) * (1,051) * 2,012 78.8
Mexico..................... 2,157 * 2,034 * 540 21.2
Total assets(2).............. * * * * 54,396 100.0
United States.............. * * * * 39,883 73.3
Mexico..................... * * * * 14,513 26.7
</TABLE>
- ---------------
* Not applicable
(1) For a discussion of the assumptions made and adjustments applied in the
preparation of this information, see the pro forma consolidated balance
sheet of 3-D Geophysical contained in the pro forma consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus.
(2) Balance sheet items are presented as of the last day of the period
indicated.
CAPITAL EXPENDITURES
There are many competitors in the land-based seismic data acquisition
business and substantial financial and other resources are required to maintain
the state-of-the-art technology necessary to permit effective competition in
bidding for contracts. Seismic data acquisition technology has progressed
rapidly over recent years and the Company expects this trend to continue. The
cost of sophisticated seismic data acquisition equipment and related crew
training has increased significantly over the last several years. The cost of
equipping a crew with a state-of-the-art system, such as an I/O SYSTEM TWO(R)
(including training and ancillary equipment), can range from approximately $3.0
to $10.0 million, the largest component of which is attributable to the channel
boxes. The Company's strategy is to update its data acquisition systems as often
as necessary to maintain its competitive position. To do so, however, may
require large expenditures of capital in addition to the Company's planned
capital expenditures. There can be no assurance that the Company will have the
capital necessary to upgrade its equipment to maintain its competitive position
or to acquire any additional required equipment, or that any required financing
therefor will be available on favorable terms. Furthermore, the Company may
require additional capital expenditures in the event that the level of its
operations increases significantly. If the Company is unable to raise the
capital necessary to update or increase the capacity of its data acquisition
systems to the extent necessary, it will be unable to update such systems or
increase its level of operations and may be materially and adversely affected as
a result.
The Company's current plan is to expand significantly its data acquisition
systems after the consummation of this Offering. Specifically, the Company
intends to increase its channel capacity by up to 5,000 channels through the
purchase of additional systems and equipment, including a 1,000 channel seismic
data acquisition system currently being rented from The Andrews Group
International, Inc. (see "Use of Proceeds" and "Certain Transactions") and the
purchase of equipment currently being rented and used in the
32
<PAGE> 35
Rocky Mountain region. The Company anticipates that the funds for such
expenditures will come from a portion of the net proceeds of this Offering (see
"Use of Proceeds") and cash from operations. The Company may revise its plans in
response to future changes in the oil and gas industry in general and the demand
for its services in particular, its results of operations, its other capital
requirements and other relevant factors. See "Risk Factors -- Capital Intensive
Business; Rapid Obsolescence of Technology," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "-- Competition."
OPERATING CONDITIONS
The Company's crews often conduct operations in extreme weather, in
difficult terrain that is not easily accessible and under other hazardous
conditions. Accordingly, the Company's operations are subject to risks of injury
to personnel and loss of equipment. Fixed costs, including costs associated with
operating leases, labor costs and depreciation, account for more than half of
the Company's costs and expenses. As a result, low productivity resulting from
weather interruptions, equipment failures or other causes such as fires and
accidental explosions resulting from the handling of equipment and supplies can
result in significant operating losses. In addition, while the Company has
insurance policies that protect it against liabilities that may be incurred in
the ordinary course of its business, the Company is unable to insure fully
against all possible loss or liability. For example, no insurance is available
at a cost deemed reasonable by the Company for war, nationalization,
appropriation or other extreme events.
The Company's seismic data acquisition operations historically have been
subject to seasonal fluctuations, with the greatest volume of data acquisition
occurring during the summer and fall in the United States. The consolidation of
the Operating Subsidiaries and the expansion into Latin America has enabled the
Company to deploy its crews and utilize its equipment in disparate regions. As a
result, the Company expects to conduct its operations year round with fewer days
of down-time caused by inclement weather by working during the favorable
operating seasons of different regions. The Company believes that by widening
the geographical scope of its operations, the impact of seasonal fluctuations
may be reduced.
MARKETING AND CUSTOMERS
Marketing. Since the Initial Public Offering, the Company has continued
marketing to existing customers on a regional basis in order to preserve these
long-term relationships. The Company has established a corporate marketing
center in Englewood, Colorado, which is responsible for (i) coordinating
marketing and communication activities, (ii) expanding the Company's marketing
to integrated and multinational oil and gas companies, and (iii) standardizing
and coordinating the submission of bids.
Contracts. The Company provides its services to customers pursuant to
contracts which are occasionally varied or modified by mutual consent. In many
instances, such contracts are cancelable by the customer on short notice without
penalty. Contracts are obtained by the Company either through competitive
bidding, in response to invitations for bids, or by direct negotiation with a
prospective customer.
Most of the Company's contracts result from competitive bidding. Most
frequently, customers invite bidders to provide quotations on the cost to gather
seismic data over a specified region within a specified period of time. Some
customers, primarily large oil companies, require at least three bids in order
to award a contract. Contracts are awarded primarily on the basis of price, crew
experience and equipment availability, technological expertise and reputation
for dependability and safety.
Contract terms, whether bid or negotiated, generally provide for payment by
the customer on either a "turnkey" or a "term" basis or on a combination of both
methods. Under a turnkey contract, payments for data acquisition services are
based upon a fixed fee for each unit of data collected, and the Company bears
substantially all of the risk of business interruption due to inclement weather
and other hazards. Term contracts, on the other hand, provide for payment based
on agreed rates per unit of time, which may be expressed in periods ranging from
days to months, and most of the risk of business interruption (except for
interruptions caused by failure of the Company's equipment) is borne by the
customer. When a combination turnkey and term contract is used, the risk of
business interruption is shared in an agreed percentage by the
33
<PAGE> 36
Company and the customer. In each case, progress payments are usually required
unless it is anticipated that the job will be completed in less than 30 days.
Geoevaluaciones' contracts are procured from a bidding process that is
regulated by Mexican law. PEMEX, as a government-owned company, prepares
specifications of projects for which seismic-related services are required. All
potential bidders that meet certain technical, legal and other requirements
submit bids which must include seismic data acquisition, processing and
interpretation services. Geoevaluaciones and PIASA submit a single bid for their
combined services. PEMEX places no restrictions on the participation of
foreign-owned companies in the bidding process. Geoevaluaciones' contracts with
PEMEX contain price terms which are fixed at the time the contracts are signed
and in the past have been denominated in pesos. These contracts contain cost
adjustment provisions which are triggered upon the occurrence of certain
economic events such as a devaluation of the peso, a change in the rate of
inflation or an increase in the statutory minimum wage rate. The adjustments may
be requested by Geoevaluaciones, but only with respect to the direct costs
incurred by Geoevaluaciones under a contract that are affected by the economic
event. While these adjustment features protect Geoevaluaciones against partial
declines in its peso-denominated profit margin, they do not protect
Geoevaluaciones from a decline in the dollar value of its profits or net assets.
See "Risk Factors -- Substantial Risks of Doing Business in Latin America" and
note 2 to the financial statements of Geoevaluaciones.
The Company's contracts specify that the seismic data acquired by the
Company belongs to the Company's customer, and the Company does not acquire any
seismic data for its own account. All of the customer's information is
maintained in confidence.
Customers. The Company's customers include and have included a number of
major oil companies and their affiliates, including PEMEX, ARCO, BP Alaska and
Marathon, as well as many smaller, independent oil and gas companies. In the
year ended December 31, 1995 and the nine months ended September 30, 1996, the
Company's net revenues attributable to PEMEX were approximately $9.8 million and
$9.1 million, or 26.0% and 22.7%, respectively, of the Company's pro forma net
revenues in those periods. In the year ended December 31, 1995, Duncan Oil, Inc.
accounted for $4.3 million, or 11.4%, of the Company's pro forma net revenues.
In the nine months ended September 30, 1996, Seitel, Inc. and BP Alaska
accounted for $5.9 million, or 14.8%, and $6.5 million, or 16.3%, of the
Company's pro forma net revenues, respectively. No other single customer
accounted for more than 10% of the pro forma net revenues in those periods. The
loss of PEMEX as a customer would have a material adverse effect on the
Company's financial condition and results of operations.
A large portion of the Company's net revenues in any period may be
attributable to a limited number of customers, even though the mix of customers
changes over time as contracts are awarded and completed. Each of the Operating
Subsidiaries has a number of customers for which, over the years, services have
been repeatedly provided.
Safety and Environmental Program. Certain of the Company's customers,
including PEMEX and other large oil and gas companies, require, as a condition
of awarding contracts, that a safety program designed to reduce the hazards
associated with the seismic data acquisition business be in place. The Company
employs a full-time safety officer who is in charge of implementing a
Company-wide health, safety and environmental program intended to comply with
the requirements of major oil and gas companies and applicable regulatory
authorities.
Backlog. At November 30, 1996, the Company's backlog of data acquisition
surveys was approximately $42.6 million. Approximately 61% of the backlog was
attributable to the Company's operations in the United States, and approximately
39% of such backlog related to the operations in Mexico and Peru. The majority
of such backlog consisted of written orders or commitments; however, contracts
for services are occasionally varied or modified by mutual consent and, in many
instances, are subject to cancellation by the customer on short notice without
penalty. In addition, a contract in Peru for $2.8 million is subject to the
resolution of certain uncertainties relating to obtaining required local
permits. Consequently, the Company's backlog as of any particular date may not
be indicative of the Company's actual operating results for any succeeding
fiscal period. Subject to the foregoing, the Company anticipates that
approximately 29% of the orders and
34
<PAGE> 37
commitments included in backlog at November 30, 1996 will be completed prior to
the end of 1996 and it is expected that the balance will be completed in 1997.
COMPETITION
The Company has extensive competition in each of the regions in which it
operates. Contracts for seismic data acquisition services generally are awarded
on the basis of price, crew experience, equipment availability, technological
expertise and reputation for dependability and safety. Competition is
particularly intense for providers of more technologically advanced seismic
data. Certain of the Company's major competitors have more crews and operate
data acquisition systems having significantly more channels than the Company,
provide integrated data acquisition, processing and interpretation services and
have far greater financial and other resources than the Company and more
extensive relationships with major integrated and multinational oil and gas
companies. These resources enable these competitors to maintain state-of-the-art
technology and certain other advantages relating to costs that may provide them
with an advantage over the Company in bidding for contracts. In addition,
certain competitors of the Company take an economic interest in oil and gas
exploration and development projects for which they perform services for their
customers. There can be no assurance that the Company will be able to compete
successfully against its competitors for contracts to conduct seismic surveys.
See "Risk Factors -- Dependence Upon Energy Industry Spending," "Risk
Factors -- Capital Intensive Business; Rapid Obsolescence of Technology" and
"Risk Factors -- Substantial Competition."
EMPLOYEES
As of November 15, 1996, the Company employed approximately 1,284 people,
of whom 16 performed management and marketing functions, 52 performed
administrative services or clerical functions, 160 were geophysicists or
rendered engineering or other technical services and approximately 1,056 were
members of the Company's seismic crews or performed other functions. None of the
Company's employees is represented by a labor union or is a direct or indirect
party to a collective bargaining agreement. The Company believes it has good
relations with its employees.
PROPERTIES
The Company occupies 13 leased and two owned facilities. The owned
facilities are both located in Ohio and are utilized by Paragon to house its
administrative and maintenance operations. Of the 13 leased facilities, 4 are
located in Mexico, 2 are located in each of Colorado and Texas and 1 is located
in each of Alaska, New York, Peru, North Dakota and Ohio. These properties are
utilized for administration, maintenance and storage and range in size from
approximately 2,000 to approximately 26,000 square feet. The terms of the leases
range from month-to-month to leases that expire in 2002 and provide for annual
rents ranging from approximately $7,200 to approximately $165,000. The Company's
annual lease expense under these leases totals approximately $470,000.
Approximately 60% of the Company's New York City offices is utilized by persons
unrelated to the Company. Mr. Joel Friedman, the Chairman of the Board of
Directors of the Company, has agreed to reimburse the Company for any amounts
under the New York City lease (which provides for an aggregate annual rental of
$165,000) that are payable with respect to space that is not utilized by the
Company and which have not been paid by sub-lessees (see
"Management -- Employment Agreements; Non-Competition Agreements" and "Certain
Transactions").
The Company believes that its facilities are adequate for its present and
reasonably foreseeable needs.
LEGAL PROCEEDINGS
The Company is a defendant in or party to a number of lawsuits arising in
the ordinary course of its business, which lawsuits the Company believes have
little substantive merit. While the outcome of these lawsuits cannot be
predicted with certainty, the Company does not believe that any of these
lawsuits will have a material adverse effect on its operations or financial
position.
35
<PAGE> 38
Geoevaluaciones has a dispute, and may be threatened with litigation, in
connection with certain agreements it entered into with Capilano International
Inc., a Canadian company ("Capilano"). The dispute concerns a certain Letter of
Intent and a Technical Assistance Agreement, dated June 3, 1991 and June 1,
1992, respectively (the "Capilano Agreements"). Capilano stated in its 1994
Annual Report to Shareholders that it has had difficulty in collecting amounts
owing from a Mexican company (presumably, Geoevaluaciones) to which Capilano
supplied technical assistance and stated in its 1995 Annual Report that it had
written down by approximately C$1.9 million accounts receivable in Mexico.
Geoevaluaciones maintains that it is not obligated to compensate Capilano for
certain services Geoevaluaciones believes were either inadequately provided or
not provided at all by Capilano. Representatives of Capilano and Geoevaluaciones
have had ongoing discussions since May 1996 in an effort to resolve this
dispute. The Company currently is not able to estimate the effect, if any, on
its results of operations and financial position which may result from the
resolution of this matter. Therefore, the financial statements of the Company do
not reflect any adjustments related to this matter. A portion of the amounts
payable to the former stockholders of Geoevaluaciones in connection with the
acquisition by 3-D Geophysical of the stock of Geoevaluaciones owned by such
stockholders is held in escrow and available to pay amounts in settlement or
otherwise in connection with the dispute with Capilano. See "Certain
Transactions."
REGULATION
Seismic data acquisition operations are subject to various laws and
regulations in the United States, Mexico, Peru and Canada, as well as other
countries in which the Company may operate in the future. Such laws and
regulations govern various aspects of operations, including the discharge of
explosive materials into the environment, requiring removal and cleanup of
materials that may harm the environment or otherwise relating to the protection
of the environment, access to private and governmental land to conduct seismic
surveys and use of local employees and suppliers by foreign contractors. The
Company believes that it has conducted its operations in substantial compliance
with applicable environmental laws and regulations governing its activities.
PROPOSED ACQUISITION OF J.R.S. EXPLORATION
On December 10, 1996, the Company entered into a stock purchase agreement
(the "Stock Purchase Agreement") pursuant to which it agreed to purchase J.R.S.
Exploration, a land-based seismic data acquisition business headquartered in
Calgary, Alberta, Canada. J.R.S. Exploration has been operating in Western
Canada since 1978 using up to four seismic crews utilizing 24-bit seismic
recording systems manufactured by Sercel that have a total of approximately
2,000 channels. J.R.S. Exploration's two principal customers accounted in the
aggregate for over 50% of J.R.S. Exploration's revenues in its fiscal year ended
November 30, 1995. J.R.S. Exploration is currently a party to seismic data
acquisition services contracts with these two customers which expire on June 30,
1997 and September 30, 1998. For its fiscal year ended November 30, 1995, J.R.S.
Exploration had revenues of approximately C$11.0 million and earnings before
interest, taxes and depreciation of approximately C$2.3 million. As of December
11, 1996, the exchange rate was approximately $.73 per Canadian dollar.
If the acquisition is consummated, the Company will seek to expand J.R.S.
Exploration's business during winter, the peak Canadian operating season, by
shifting certain of the Company's equipment to Canada during the period from
January through April, and the Company believes that it will be able to utilize
J.R.S. Exploration's equipment in the United States (including Alaska) during
the other months of the year.
Under the terms of the Stock Purchase Agreement, the Company will acquire
all of the issued and outstanding shares of capital stock of the intermediate
holding companies that own all of the issued and outstanding capital stock of
J.R.S. Exploration for C$3.5 million in cash and a number of shares of Common
Stock having a value of approximately C$3.4 million in the aggregate. In
addition the Company will repay approximately C$1.8 million of debt J.R.S.
Exploration owes to a commercial bank. Also under the terms of the Stock
Purchase Agreement, on or before the closing thereunder, Messrs. Donald Janveau
and W. Garnet Mueller, the principal stockholders and executive officers of
J.R.S. Exploration, will enter into three-year employment agreements (the
"Employment Agreements") with J.R.S. Exploration pursuant to which
36
<PAGE> 39
Mr. Janveau will serve as President and Chief Executive Officer of J.R.S.
Exploration and Mr. Mueller will serve as Vice President of Operations of J.R.S.
Exploration. The Employment Agreements each provide for an annual salary of
C$150,000. The Employment Agreements also each contain a five-year covenant not
to compete with the Company or any of its subsidiaries in the provision of
seismic data acquisition or analysis services or any services related thereto.
In connection with the acquisition of J.R.S. Exploration, the Company also
proposes to acquire all of the issued and outstanding capital stock of Siegfried
& Siegfried Resource Consultants, Ltd. ("Siegfried & Siegfried"), an Alberta
corporation that is wholly-owned by an employee of J.R.S. Exploration and owns
certain seismic data acquisition equipment presently being leased to J.R.S.
Exploration. The proposed purchase price for Siegfried & Siegfried is C$150,000
in cash and a number of shares of Common Stock having a value of C$150,000 in
the aggregate.
In connection with the acquisition of Siegfried & Siegfried, J.R.S.
Exploration will enter into a three-year employment agreement with David
Siegfried, pursuant to which Mr. Siegfried will serve as Sales Manager and
Operations Supervisor of J.R.S. Exploration for an annual salary of C$100,000.
Upon the closing of the acquisition of Siegfried & Siegfried, the Company will
grant to Mr. Siegfried a ten-year option to purchase 15,000 shares of Common
Stock at the closing price for such stock on the Nasdaq National Market on that
day. The option, which will be granted under the Plan, will be exercisable in
four equal cumulative installments commencing one year after the date of grant.
The consummation of the acquisitions, which is expected to occur in January
1997, is subject to customary conditions.
There can be no assurance that the Company will consummate the acquisitions
of J.R.S. Exploration and Siegfried & Siegfried. Pursuant to an agreement with
the Company, J.D. White will provide certain advice and assistance to the
Company in connection with the proposed acquisitions. See "Certain
Transactions." The Company also has engaged one of the representatives of the
underwriters of this Offering to act as its exclusive financial advisor in
connection with the proposed acquisition of J.R.S. Exploration. See
"Underwriting."
37
<PAGE> 40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below provides information concerning the executive officers and
directors of the Company, and sets forth their respective ages as of November
30, 1996, and the positions they hold with the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Mr. Joel Friedman(a)(b)............. 57 Chairman of the Board of Directors
Mr. Richard D. Davis(b)............. 62 President, Chief Executive Officer and Director;
President of Kemp
Mr. Wayne P. Widynowski............. 51 Executive Vice President and Chief Operating
Officer; President of Northern
Mr. Luis H. Ferran(b)............... 48 Executive Vice President -- Latin American
Operations and Director; President of
Geoevaluaciones, PIASA and 3-D Geophysical of
Latin America, Inc.
Mr. Ronald L. Koons................. 49 Vice President, Chief Financial Officer,
Secretary and Treasurer
Mr. G.C.L. Kemp..................... 63 Vice President
Mr. Charles O. Merchant............. 46 Vice President; President of Paragon
Mr. Robert P. Andrews(c)............ 41 Director
Mr. Ralph M. Bahna(c)(d)............ 54 Director
Mr. Douglas W. Brandrup(a)(d)....... 56 Director
Mr. Arthur D. Emil(c)............... 71 Director
Mr. P. Dennis O'Brien(a)(c)(d)...... 55 Director
Mr. Emir L. Tavella................. 67 Director
Mr. John D. White, Jr.(b)........... 38 Director
</TABLE>
- ---------------
(a) Member of the Audit Committee
(b) Member of the Executive Committee
(c) Member of the Compensation Committee
(d) Member of the Stock Option Committee
Mr. Joel Friedman has served as Chairman of the Board of 3-D Geophysical
since February 1996 and as Chairman of the Board of Paragon since August 1994.
He was President and Chief Executive Officer of 3-D Geophysical from March 1995
until February 1996. Mr. Friedman has been since August 1994 a director of and
from August 1994 to October 1996 was the chairman of Consolidated Health Care
Associates, Inc., a Nasdaq National Market listed company, and was the chief
executive officer of that company from August 1994 until March 1996. Since 1969,
he has been an officer, director and shareholder of Founders Property
Corporation and its affiliated companies ("Founders"), a private real estate
concern. From 1975 to 1986, Mr. Friedman was president and a director of Kenai
Corporation, a publicly-held company engaged in contract drilling for oil and
natural gas, wellhead equipment manufacturing and remanufacturing and oil and
gas exploration and production.
Mr. Richard D. Davis has served as President and Chief Executive Officer of
3-D Geophysical since February 1996 and as President of Kemp since June 1996.
From March 1994 to June 1996, Mr. Davis was Vice President of Operations of
Kemp. From 1988 to March 1994, as president and sole owner of D-Cube
International Inc., he was an independent consultant to several major oil
companies in the area of seismic acquisition services. From 1983 to 1988, Mr.
Davis was a director of Seismic Enterprises, Inc. (now Seitel, Inc.) and
president and chief operating officer of Triangle Geophysical Co. From 1979 to
1983, he was executive vice president of Geo Seismic Services, Inc., which at
one time operated 38 seismic data acquisition crews.
38
<PAGE> 41
Mr. Wayne P. Widynowski has served as the Executive Vice President and
Chief Operating Officer of 3-D Geophysical and as President of Northern since
February 1996. From 1981 to February 1996, Mr. Widynowski was employed by
Northern's predecessors, most recently as Executive Vice President. Prior to
1981, Mr. Widynowski was employed as an operations manager by United
Geophysical, Inc., a subsidiary of the Bendix Corporation. Mr. Widynowski is the
current chairman of the Rocky Mountain operations of the International
Association of Geophysical Contractors.
Mr. Luis H. Ferran has served as Executive Vice President -- Latin American
Operations and a Director of 3-D Geophysical and as President of Geoevaluaciones
and PIASA since February 1996 and as President of 3-D Geophysical of Latin
America, Inc., a wholly-owned subsidiary of the Company, since its formation by
the Company in May 1996. Mr. Ferran was one of the founding shareholders of
Geoevaluaciones in 1977 and has been General Manager of Geoevaluaciones since
1982. Prior to forming Geoevaluaciones, Mr. Ferran was a supervisor with
Compania Mexicana de Exploraciones, S.A. de C.V., a Mexican company associated
with PEMEX.
Mr. Ronald L. Koons has served as Vice President, Chief Financial Officer,
Secretary and Treasurer of 3-D Geophysical since September 30, 1996. Mr. Koons
was the executive vice president, chief financial officer and treasurer of
Tuboscope Vetco International Corp. ("Tuboscope"), an oilfield service company,
from October 1993 to April 1996 and senior vice president, chief financial
officer and treasurer of Tuboscope from November 1991 to October 1993. From
August 1988 to November 1991, Mr. Koons was the vice president, chief financial
officer and treasurer of Eastman Christensen Company ("Eastman"), an oilfield
service company. He served as controller of Eastman from June 1987 to August
1988 and treasurer of Eastman from September 1986 to June 1987.
Mr. G.C.L. Kemp has served as a Vice President of 3-D Geophysical since
February 1996. Mr. Kemp founded Kemp and was its Chairman and President from
1978 until June 1996. From 1974 to 1978, Mr. Kemp was worldwide geophysical
operations supervisor for Phillips Petroleum. From 1964 to 1974, he was manager
for Petty Geophysical Engineering Company. From 1953 to 1964, he was a surveyor
and manager of a number of international seismic operations for Mobil Corp.,
Shell Oil Co. and British Petroleum Co., PLC.
Mr. Charles O. Merchant has served as a Vice President of 3-D Geophysical
since February 1996. He has been employed as an executive officer of Paragon
since 1989, most recently since August 1994 as President. Prior thereto, he was
employed by various geophysical service-related companies, including Frontier
Exploration, Inc. from 1988 to 1989 and Professional Geophysics, Inc., Precision
Geophysical, Inc. and Rogers Exploration from 1983 to 1986. Mr. Merchant has
held positions in technical, marketing, supervisory and managerial areas in the
geophysical industry.
Mr. Robert P. Andrews has served as the president of The Andrews Group
International Inc., a Texas corporation which supplies goods and services to the
oil and gas industry in Central and South America, in particular Mexico, since
1987 and as the president of A.G.I. Mexicana, S.A. de C.V., a Mexican company
which sells goods and services relating to computer hardware and software for
use in the oil and gas industry in Mexico, since 1991. Until February 1996, Mr.
Andrews was also the President and Chairman of the Board of PIASA. A.G.I.
Mexicana conducts the business of The Andrews Group International, Inc. in
Mexico and acts as the exclusive representative for several companies in Mexico,
including Input/Output and Landmark Graphics Corp. A.G.I. Mexicana also acts as
a non-exclusive distributor for various corporations in Mexico. See "Certain
Transactions."
Mr. Ralph M. Bahna currently serves as president of Masterworks Development
Corporation ("Masterworks"), a company that he founded in 1990 to develop a
series of hotels called Club Quarters. Between 1981 and 1988, Mr. Bahna was
chief executive officer of Cunard Line Limited, which owns, among other cruise
liners and hotels, the Queen Elizabeth 2, and was also a divisional managing
director of Trafalgar House PLC, the parent company of Cunard Line Limited. From
1988 until he became president of Masterworks in 1990, he pursued investment and
non-profit endeavors.
39
<PAGE> 42
Mr. Douglas W. Brandrup is a practicing attorney and senior partner at the
law firm of Griggs, Baldwin & Baldwin in New York City, where he has practiced
since 1974. Mr. Brandrup is chairman of Equity Oil Company, a publicly-held oil
and gas production and exploration company, and has been a director of that
company since 1975.
Mr. Arthur D. Emil is a practicing attorney and currently of counsel to the
law firm of Kramer, Levin, Naftalis & Frankel in New York City. Between 1986 and
1993, he was a senior partner of and, upon retirement, of counsel to the law
firm of Jones, Day, Reavis & Pogue. He served as an executive officer, director
and chairman of the executive committee of North European Oil Company from 1955
to 1979. In addition, he served as general counsel for various companies,
including the New England Patriots and Bartell Media Corp., a communications
company. He is a trustee of various philanthropic institutions. Kramer, Levin,
Naftalis & Frankel provides legal services to 3-D Geophysical and will render
its opinion on the legality of the Common Stock offered hereby. Mr. Emil is a
general partner of South Norwalk Redevelopment Limited Partnership ("SNRLP"), a
Connecticut limited partnership formed in 1981 to rehabilitate a portion of
Norwalk, Connecticut. On July 25, 1994, a creditor of SNRLP, Scirocco Partners
("SP"), sought to foreclose on a SNRLP mortgage it held and SNRLP, seeking to
avoid the foreclosure, filed a voluntary petition for reorganization on August
15, 1994 in the United States Bankruptcy Court, District of Connecticut (Case
No. 94-51676). In a related case, SP has sued Mr. Emil in connection with a
personal guarantee limited to interest and certain expenses he gave in
connection with the mortgage. No determination has been made in either the
bankruptcy proceeding or the private suit.
Mr. P. Dennis O'Brien served as the president and chief operating officer
of Advance Geophysical Corp. ("Advance"), a company that develops software for
the geophysical industry, from 1988 to 1994. In March 1994, Advance merged with
a subsidiary of Landmark Graphics Corporation, a major software developer in the
geophysical industry. From April 1994 to June 1995, Mr. O'Brien served as the
chief operating officer of Advance. Since July 1995, Mr. O'Brien has provided
consulting services to software development companies serving the petroleum
industry.
Mr. Emir L. Tavella is a founder, and since May 1995 a partner and
director, of Sagoil S.A., an Argentinian petroleum supply company associated
with Sagoil Inc., a Canadian company. From February 1987 to April 1995, Mr.
Tavella was the general manager for exploration activities for PLUSPetrol S.A.,
an Argentinian petroleum exploration and production company.
Mr. John D. White, Jr., a co-founder of the Company, has been president of
Megansett Capital, Inc., a private investment firm, and associated with Founders
since August 1993. Mr. White was Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of 3-D Geophysical from March 1995 to October
1, 1996, when he resigned. Mr. White has agreed to render financial and advisory
services to the Company in connection with this Offering and the proposed
acquisition of J.R.S. Exploration. See "Certain Transactions." From January 1995
to February 1996 he was acting Chief Financial Officer of Paragon. From 1991 to
1993, he was a senior vice president of Laidlaw International, Inc., a
subsidiary of the investment bank Laidlaw Holdings, Inc. From 1987 to 1990, he
was a vice president in the mergers and acquisitions group of PaineWebber,
Incorporated and for five years prior thereto he was employed by Digital
Equipment Corporation where he held a variety of finance positions.
Messrs. Friedman and White have served as Directors of the Company since
its inception, Messrs. Bahna, Brandrup, Davis, Emil and Ferran have served as
Directors since October 1995, Messrs. Andrews and O'Brien have served as
Directors since January 1996, and Mr. Tavella has served as a Director since
April 1996.
ELECTION OF DIRECTORS
The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes. The members of the first class of directors will
serve until the 1997 annual meeting of stockholders and that class consists of
Messrs. Andrews, Brandrup and White. The members of the second class of
directors will serve until the 1998 annual meeting of the stockholders and that
class consists of Messrs. Bahna, Davis, Emil and
40
<PAGE> 43
Tavella. The members of the third class of directors will serve until the 1999
annual meeting of stockholders and that class consists of Messrs. Ferran,
Friedman and O'Brien.
BOARD COMMITTEES
The Board has established an Executive Committee consisting of Messrs.
Davis, Ferran, Friedman and White. The Executive Committee has the authority to
exercise all the powers of the Board in the management of the business and
affairs of the Company, subject to certain limitations under the General
Corporation Law of the State of Delaware.
The Board has established an Audit Committee consisting of Messrs.
Brandrup, Friedman and O'Brien. The Audit Committee annually will recommend to
the Board the appointment of the independent public accountants to serve as
auditors for the Company. In addition, the Audit Committee will discuss and
review the scope and fees of the prospective annual audit and review the results
with the auditors, review compliance with existing major accounting and
financial policies of the Company, review the adequacy of the financial
organization of the Company and consider comments by the auditors regarding
controls and accounting procedures and management's response to those comments.
The Board has established a Compensation Committee consisting of Messrs.
Andrews, Bahna, Emil and O'Brien. The Compensation Committee meets periodically
to determine the compensation of certain of the Company's executive officers and
other significant employees and the Company's personnel policies.
The Board has established a Stock Option Committee consisting of Messrs.
Bahna, Brandrup and O'Brien to administer the Plan and to grant options
thereunder.
DIRECTOR COMPENSATION
Each member of the Board who is not an employee of the Company receives:
(i) an annual retainer of $10,000; (ii) $750 per meeting of the Board of
Directors or any committee thereof at which such Director is present in person;
and (iii) reimbursement of all ordinary and necessary expenses incurred in
attending any meeting of the Board of Directors or committee thereof. Directors
who are full-time employees of the Company do not receive any compensation for
serving as directors. Any newly elected or appointed non-employee director
automatically receives a nonqualified option under the Plan to purchase 10,000
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of grant. Such option vests in cumulative
installments of one-third on each of the first, second and third anniversaries
of the date of grant and expire on the tenth anniversary of the date of such
grant.
On February 9, 1996, non-employee directors (Messrs. Andrews, Bahna,
Brandrup, Emil and O'Brien) were awarded nonqualified stock options to purchase
10,000 shares of Common Stock pursuant to the Plan. The exercise price of these
options was equal to the price to the public in the Initial Public Offering of
$7.50 per share. Upon joining the Board in April 1996, Mr. Tavella was granted
an option under the Plan to purchase 10,000 shares of Common Stock at an
exercise price of $12.3125 per share. On September 30, 1996, each non-employee
director (Messrs. Andrews, Bahna, Brandrup, Emil, O'Brien and Tavella) was
granted a nonqualified ten year option to purchase 6,667 shares of Common Stock
at an exercise price of $8.50 per share, subject to the approval of the
Company's stockholders at the next annual stockholders' meeting. These options,
which were not granted pursuant to the Plan, vest in full on February 6, 1997,
subject to the approval of the Company's stockholders at the next annual
stockholders' meeting.
EXECUTIVE COMPENSATION
3-D Geophysical was incorporated in March 1995 and conducted no operations
until February 1996, when it consummated the Initial Public Offering and
acquired the Operating Subsidiaries and PIASA. No salaries were paid during 1995
by 3-D Geophysical. Compensation to be paid to the Company's chief executive
officer and the four other most highly compensated executive officers during
1996 is disclosed below (see "Management -- Employment Agreements;
Non-Competition Agreements" and "Management --
41
<PAGE> 44
Long-Term Incentive Compensation Plan"). The Board has not adopted a bonus plan,
but anticipates that it will adopt and implement a performance-based cash bonus
plan in 1997.
EMPLOYMENT AGREEMENTS; NON-COMPETITION AGREEMENTS
Each of Messrs. Friedman, Davis, Widynowski, Ferran, Koons, Kemp and
Merchant has entered into an employment agreement with the Company that expires
on December 31, 1998, except for the agreement with Mr. Koons, which expires on
September 30, 1999, and for the agreement with Mr. Ferran, which expires on
December 31, 2000. The employment agreements provide for base annual salaries as
follows: Mr. Friedman: $125,000 plus an annual office allowance of $75,000, a
portion of which is being applied to payments under the Company's New York City
lease (see "Business -- Properties"); Mr. Davis: $155,000; Mr. Widynowski:
$140,000; Mr. Ferran: $140,000; Mr. Koons: $125,000; Mr. Kemp: $75,000; and Mr.
Merchant: $82,500. Certain of the Company's executive officers are entitled to
an automobile allowance, and, in addition, each executive officer who has
entered into an employment agreement will be eligible pursuant to his employment
agreement for a bonus to be determined in the discretion of the Board or a
committee thereof.
Each of the employment agreements with Messrs. Friedman, Ferran, Koons and
Kemp contains a covenant not to compete during the employee's employment with
the Company or its subsidiaries and for one year thereafter unless the Company
terminates the employee's employment without cause. Each of the agreements with
Messrs. Davis, Merchant and Widynowski contains a similar covenant not to
compete but provides that upon termination of the agreement, other than by the
Company for cause (as defined in the agreement) or by the employee without good
reason (as defined in the agreement), the employee's covenant not to compete
will lapse unless the Company pays the employee 80% of the employee's base
salary in the year following such termination. These employment agreements and
covenants not to compete were entered into in the ordinary course of business.
Mr. Davis' agreement also provides that upon termination under certain
circumstances he will receive a payment for certain relocation expenses and the
continuation of certain benefits for a one-year period. Mr. Kemp receives a
monthly payment of $4,167 for 36 months, ending in January 1999, in
consideration of the covenant not to compete contained in his employment
agreement. With the exception of Mr. Kemp's agreement, the employment agreements
entered into with the Company's executive officers do not provide for any
separate payment to be made with respect to the covenants not to compete during
the term of the agreements. In addition, in connection with the acquisition by
3-D Geophysical of Geoevaluaciones, Mr. Ferran and the other former stockholders
of Geoevaluaciones entered into the Geoevaluaciones Non-Competition Agreement
(defined below) under which Mr. Ferran and such former stockholders were
entitled to certain additional consideration (see "Certain Transactions").
Until September 30, 1996, Mr. White served as the Company's Executive Vice
President and Chief Financial Officer under an employment agreement that was to
expire on December 31, 1998 and provided for a base salary of $150,000. Upon his
resignation as an officer of the Company, Mr. White and the Company entered into
an agreement terminating this employment agreement (see "Certain Transactions").
LONG-TERM INCENTIVE COMPENSATION PLAN
The purpose of the Plan is to provide directors, officers, and other key
employees and consultants of the Company and its subsidiaries with additional
incentives by providing them with the opportunity to increase their ownership
interests in the Company. The maximum number of shares of Common Stock that may
be subject to awards granted under the Plan is 720,000 shares, which may be
authorized and unissued shares, treasury shares or shares acquired by the
Company for purposes of the Plan. Shares of Common Stock which are attributable
to awards which have expired, terminated or been cancelled or forfeited during
any calendar year, in addition to shares in respect of which a stock
appreciation right ("SAR") is settled for cash or shares tendered in payment
upon the exercise of an option or SAR, are available for issuance or use in
connection with future awards. In the event of a stock split, stock dividend,
recapitalization or the like, the Stock Option Committee will equitably adjust
the number of shares available under the Plan and subject to outstanding awards
and the exercise prices of outstanding awards.
Awards under the Plan are granted by a Committee of the Board of Directors
appointed for that purpose (the "Stock Option Committee") and may include: (i)
options to purchase shares of Common Stock,
42
<PAGE> 45
including incentive stock options ("ISOs"), nonqualified stock options or both;
(ii) SARs, whether in conjunction with the grant of stock options or independent
of such grant; and (iii) restricted stock. To the extent necessary to comply
with Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), awards granted under the Plan are not assignable or
transferable except by the laws of descent and distribution.
The Stock Option Committee consists of two or more directors who qualify as
disinterested persons under Rule 16b-3 under the Exchange Act. Subject to the
terms of the Plan, the Stock Option Committee has the authority, among other
things, to: (i) select the persons entitled to receive awards under the Plan;
(ii) determine the form of awards; (iii) determine the number of shares of
Common Stock covered by an award; and (iv) determine the terms and conditions of
awards, including any restrictions or limitations on transfer, any vesting
schedules or the acceleration thereof and any forfeiture provisions or waivers
thereof. The exercise price of stock options is determined by the Stock Option
Committee subject to the requirement that the exercise price of an ISO cannot be
less than the fair market value of the shares of Common Stock covered by such
grant at the time of grant. The option exercise price is payable in cash, or,
with the consent of the Stock Option Committee, by surrender of shares of Common
Stock held at least six months by the optionee and having a fair market value on
the date of the exercise equal to part or all of the option exercise price, or
by such other payment method as the Stock Option Committee may prescribe. The
exercise price of options granted to non-employee directors under the Plan may
be payable, at the discretion of the non-employee director, in cash or by
surrender of shares of Common Stock held at least six months by such
non-employee director.
All options and SARs not yet exercised shall terminate upon termination of
the grantee's employment for cause. Unless the Stock Option Committee otherwise
specifies: (i) if a grantee's employment terminates for reasons other than
cause, disability or death, the grantee's options or SARs or both generally will
remain exercisable for three months after termination to the extent that they
were exercisable at termination, but will not be exercisable after the scheduled
expiration date of the award; and (ii) if a grantee's employment terminates by
reason of disability, the grantee's options or SARs or both generally will
remain exercisable for one year after termination to the extent that they were
exercisable at termination, but will not be exercisable after the scheduled
expiration date of the award. If a grantee's employment terminates for any
reason, the Company generally will have the right to require forfeiture of
restricted shares in exchange for any amount paid by the grantee for such
shares.
Unless sooner terminated by the Board of Directors, the authority to grant
awards under the Plan will terminate on the tenth anniversary of its adoption.
All awards made under the Plan prior to its termination will remain in effect
until they are satisfied or terminated. The Board of Directors may, without
stockholder approval, suspend, discontinue, revise or amend the Plan at any time
or from time to time; provided, however, that stockholder approval must be
obtained for any amendment for which such approval is required by Rule 16-3
promulgated under the Exchange Act, to the extent that the Board of Directors
believes it is appropriate to qualify under Rule 16b-3. The Stock Option
Committee may make certain amendments to outstanding awards, including any
amendments that change or waive the Plan provisions applicable at employment
termination.
The grant of an option or SAR will create no tax consequences for the
grantee or the Company. A grantee will not have taxable income upon exercising
an ISO (except that the alternative minimum tax may apply) and the Company will
receive no deduction at that time. Upon exercising an option other than an ISO,
the participant must generally recognize ordinary income equal to the difference
between the exercise price and fair market value of the stock acquired on the
date of exercise, and, upon exercising an SAR, the participant must generally
recognize ordinary income equal to the cash (or the fair market value of the
stock) received. In each case, the Company will be entitled to a deduction equal
to the amount recognized as ordinary income by the grantee. An award of
restricted shares of Common Stock will not result in taxable income to the
grantee or in a tax deduction for the Company until such time as the shares are
no longer subject to forfeiture (unless the grantee elects an earlier date). At
that time, the grantee generally will recognize ordinary income equal to the
fair market value of the shares less any amount paid for them, and the Company
generally will be entitled to a
43
<PAGE> 46
tax deduction in the same amount. Dividends paid on forfeitable restricted
shares are treated as compensation for federal income tax purposes.
A grantee's disposition of shares acquired under the Plan generally will
result in short-term or long-term capital gain or loss measured by the
difference between the sale price and the participant's tax basis in such shares
(or the exercise price of the option in the case of shares acquired by exercise
of an ISO and held until a date at least two years after grant and one year
after exercise). Generally, there will be no tax consequences to the Company in
connection with a disposition of shares acquired under an option or other award,
except that the Company will be entitled to a deduction (and the grantee will
recognize ordinary taxable income) if shares acquired upon exercise of an ISO
are disposed of before the applicable ISO holding periods have been satisfied.
Section 162(m) to the Code generally disallows a public company's tax
deduction for compensation to the chief executive officer or any of the four
other most highly compensated executive officers in excess of $1 million in any
tax year. Compensation that qualifies as "performance-based compensation" is
excluded from the $1 million deductibility cap, and therefore remains fully
deductible by the company that pays it. The Company expects that options granted
with an exercise price at least equal to 100% of fair market value of the
underlying stock at the date of grant, and any restricted stock award
conditioned upon achievement of performance goals, will qualify as such
"performance-based compensation," although other awards under the Plan may not
so qualify. However, there can be no assurance that any awards under the Plan
will qualify as "performance-based compensation" that is fully deductible by the
Company under Section 162(m) of the Code.
The Plan also provides for automatic option grants to directors who are not
otherwise employed by the Company or its subsidiaries. See "-- Director
Compensation."
The Stock Option Committee has granted pursuant to the Plan options to
purchase an aggregate of 385,000 shares of Common Stock to executive officers of
the Company in the amounts and on the terms described below:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
NAME OF OFFICER DATE OF GRANT COVERED BY OPTIONS PER SHARE
--------------------------------- -------------------- ------------------ --------------
<S> <C> <C> <C>
Mr. Ferran....................... February 9, 1996 250,000 $ 7.50
Mr. Davis........................ February 9, 1996 50,000 7.50
Mr. Widynowski................... February 9, 1996 45,000 7.50
Mr. Koons........................ September 30, 1996 30,000 8.25
Mr. Merchant..................... February 9, 1996 10,000 7.50
</TABLE>
Each of the options vests in cumulative installments of one-third of the number
of shares subject thereto on each of the first three anniversaries of the grant
date and expires on the tenth anniversary of the date of grant. In addition, the
Stock Option Committee granted pursuant to the Plan options to purchase an
aggregate of 179,350 shares of Common Stock to other key employees of the
Company at prices ranging from $7.375 to $12.3125 per share. Each of these
options vests in cumulative installments of one-fourth of the number of shares
subject thereto on each of the first four anniversaries of the grant date and
expires in 2006.
On April 26, 1996 the Stock Option Committee granted nonqualified options
to each of Messrs. Friedman, Davis and Widynowski to purchase 75,000 shares of
Common Stock. These options, which were not granted under the Plan, have an
exercise price of $12.3125 per share, were granted on the same terms and
conditions as are provided for in the Plan, vest in cumulative installments of
18,750 shares on each of the first four anniversaries of the date of grant and
expire ten years after the date of grant.
44
<PAGE> 47
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of Common Stock as of November 15, 1996, and after giving effect to
this Offering, by: (i) all persons known to the Company to be the beneficial
owner of 5% or more of the outstanding Common Stock; (ii) each director; (iii)
each executive officer; and (iv) all officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED COMMON STOCK
PRIOR TO OFFERING BENEFICIALLY OWNED
--------------------- AFTER OFFERING
NUMBER ------------------
NAME OF SHARES PERCENT PERCENT
--------------------------------------------------- --------- ------- ------------------
<S> <C> <C> <C>
Joel Friedman(1)................................... 438,159 5.8% 3.7%
599 Lexington Avenue
New York, New York 10022
Richard D. Davis(2)................................ 13,588 * *
Wayne P. Widynowski(3)............................. -- -- --
Luis H. Ferran(4).................................. 1,150,916 15.1 9.7
Rio Churubusco 522
El Retono 09440
Mexico, D.F.
Ronald L. Koons(5)................................. -- -- --
G.C.L. Kemp(6)..................................... 45,829 * *
Charles O. Merchant(7)............................. 13,588 * *
Ralph M. Bahna(8).................................. 5,802 * *
Douglas W. Brandrup(8)............................. 10,000 * *
Arthur D. Emil(8).................................. 5,789 * *
P. Dennis O'Brien(8)............................... 5,000 * *
Robert P. Andrews(8)............................... 113,859 1.5 *
Emir L. Tavella(8)................................. -- -- --
John D. White, Jr.................................. 160,342 2.1 1.3
All officers and directors as a group
(14 persons)(1)(2)(3)(4)(5)(6)(7)(8)............. 1,962,872 25.8 16.5
</TABLE>
- ---------------
* Less than 1%.
(1) Includes an aggregate of 109,540 shares of Common Stock, of which (a) 21,908
shares are owned by Friedman Enterprises, (b) 43,816 shares are owned by
Mr. Friedman's wife, in which shares Mr. Friedman disclaims any beneficial
ownership, and (c) 21,908 shares are owned by each of Mr. Friedman's two
adult children, in which shares Mr. Friedman disclaims any beneficial
ownership. Excludes 75,000 shares of Common Stock issuable upon exercise of
a stock option that was not granted under the Plan (see
"Management -- Long-Term Incentive Compensation Plan").
(2) Excludes 50,000 shares of Common Stock issuable upon exercise of a stock
option granted under the Plan and 75,000 shares of Common Stock issuable
upon exercise of a stock option that was not granted under the Plan (see
"Management -- Long-Term Incentive Compensation Plan").
(3) Excludes 45,000 shares of Common Stock issuable upon exercise of a stock
option granted under the Plan and 75,000 shares of Common Stock issuable
upon exercise of a stock option that was not granted under the Plan (see
"Management -- Long-Term Incentive Compensation Plan").
(4) Excludes (a) 15,235 shares of Common Stock owned by Mr. Ferran's wife, all
of which shares are held in trust by a Mexican bank for her benefit, and in
which shares Mr. Ferran disclaims any beneficial
45
<PAGE> 48
ownership; and (b) 250,000 shares of Common Stock issuable upon exercise of
a stock option granted under the Plan (see "Management -- Long-Term
Incentive Compensation Plan"). Includes 57,394 shares of Common Stock, all
of which shares are held in trust by a Mexican bank for Mr. Ferran's
benefit.
(5) Excludes 30,000 shares of Common Stock issuable upon exercise of a stock
option granted under the Plan (see "Management -- Long-Term Incentive
Compensation Plan").
(6) Includes 8,705 shares of Common Stock owned by Mr. Kemp's wife.
(7) Excludes 10,000 shares of Common Stock issuable upon exercise of a stock
option granted under the Plan (see "Management -- Long-Term Incentive
Compensation Plan").
(8) Excludes 10,000 shares of Common Stock issuable upon exercise of a stock
option granted under the Plan and 6,667 shares of Common Stock issuable
upon the exercise of a stock option not granted under the Plan (see
"Management -- Director Compensation").
CERTAIN TRANSACTIONS
Simultaneously with the consummation of the Initial Public Offering, 3-D
Geophysical acquired in separate transactions, in exchange for cash, notes and
shares of Common Stock, the Operating Subsidiaries and PIASA, as described
below. Of the approximately $28.7 million of net proceeds to the Company from
the Initial Public Offering, (i) approximately $13.8 million was used to pay the
cash portion of the purchase price to certain former stockholders of the
Operating Subsidiaries and PIASA; and (ii) approximately $5.9 million was used
to repay indebtedness of the Operating Subsidiaries, including approximately
$1.9 million of indebtedness that was guaranteed by or was owed to certain
former stockholders of the Operating Subsidiaries. In addition, the former
stockholders of the Operating Subsidiaries and PIASA received an aggregate of
1,599,319 shares of Common Stock having a market value, based on the price to
the public in the Initial Public Offering of $7.50 per share, of approximately
$12.0 million in the aggregate.
Under a stock purchase agreement (the "Geoevaluaciones Stock Purchase
Agreement"), 3-D Geophysical purchased from Mr. Ferran, his wife, his
father-in-law and his mother-in-law (collectively, the "Former Geoevaluaciones
Stockholders") all of the issued and outstanding shares of capital stock of
Geoevaluaciones. In connection with this acquisition, 3-D Geophysical entered
into a separate non-competition agreement with each of the Former
Geoevaluaciones Stockholders (collectively, the "Geoevaluaciones Non-Competition
Agreement"). The Geoevaluaciones Stock Purchase Agreement and the
Geoevaluaciones Non-Competition Agreement were entered into on the basis of
arm's-length negotiations among the Former Geoevaluaciones Stockholders and, on
behalf of 3-D Geophysical, Messrs. Friedman and White. Neither 3-D Geophysical
nor the Former Geoevaluaciones Stockholders obtained an appraisal of
Geoevaluaciones or such non-competition covenants in connection with this
transaction; at September 30, 1995, the net book value of Geoevaluaciones was
approximately $2.1 million. Pursuant to the Geoevaluaciones Stock Purchase
Agreement, 3-D Geophysical paid to the Former Geoevaluaciones Stockholders: (i)
$2.45 million in cash at closing; and (ii) $1.0 million by delivery at closing
of four promissory notes, payable in installments at six, 12, 18 and 24 months
after the closing in the following aggregate amounts (which amounts include
interest at 8% per annum): $290,000, $280,000, $270,000 and $260,000,
respectively. Pursuant to the Geoevaluaciones Non-Competition Agreement, 3-D
Geophysical paid to the Former Geoevaluaciones Stockholders: (i) 100,000 shares
of Common Stock that was issued at closing to trusts with Mexican banks for the
benefit of the Former Geoevaluaciones Stockholders, and is to be released
February 9, 1998; and (ii) $1.9 million, reduced by the amount of any
liabilities Geoevaluaciones had not disclosed to the Company and by any amount
paid by Geoevaluaciones to settle or otherwise in connection with
Geoevaluaciones' dispute with a supplier (see "Business -- Legal Proceedings"),
such portion of the consideration consisting of (a) $1.0 million in cash that
was deposited at the closing in a bank account, and which, subject to any such
reduction, may be disbursed only upon the approval of (1) either Mr. Ferran or
another Former Geoevaluaciones Stockholder, and (2) either Mr. Friedman or Mr.
White; and (b) 117,647 shares of Common Stock that were delivered at closing to
trusts with Mexican banks for the benefit of the Former Geoevaluaciones
Stockholders, and which may not be
46
<PAGE> 49
released until June 30, 1997 and then only upon the approval of a designated
representative of the Former Geoevaluaciones Stockholders and Mr. Friedman. Mr.
Ferran entered into an employment agreement with the Company and serves as
Executive Vice President -- Latin American Operations, President of
Geoevaluaciones and a Director of the Company. In addition, Mr. Ferran may
receive, pursuant to the Geoevaluaciones Non-Competition Agreement, as described
above, up to a maximum of 57,394 of the shares of Common Stock payable to the
Former Geoevaluaciones Stockholders. Of the amounts paid by the Company to the
Former Geoevaluaciones Stockholders, Mr. Ferran received, as described above,
$645,167 in cash, a note in the principal amount of $263,333, with interest of
8% per annum thereon payable over two years, and will receive up to $263,334 in
cash that may not be released until June 30, 1997 (see "Management -- Employment
Agreements; Non-Competition Agreements" and "Security Ownership of Management
and Principal Stockholders").
Under a stock purchase agreement, 3-D Geophysical purchased from Robert P.
Andrews, Luis H. Ferran and five other stockholders of PIASA all of the issued
and outstanding shares of capital stock of PIASA for approximately $300,000,
consisting of $60,000 in cash and approximately 28,235 shares of Common Stock.
The stock purchase agreement with the former stockholders of PIASA was entered
into on the basis of arm's-length negotiations among Mr. Andrews, the President
and Chairman of the Board of PIASA, and Mr. Ferran, a director and Secretary of
PIASA, on behalf of the former stockholders of PIASA, and Messrs. Friedman and
White, on behalf of 3-D Geophysical. Neither 3-D Geophysical nor PIASA obtained
an appraisal of PIASA in connection with this transaction; at September 30,
1995, the net book value of PIASA was approximately $288,000. Mr. Ferran
received 9,176 shares of Common Stock and $19,500 in connection with the sale of
PIASA, and Mr. Andrews received 10,588 shares of Common Stock and $22,500 in
connection with the sale of PIASA.
Although the acquisitions of Geoevaluaciones and PIASA were made on an
arm's-length basis, Mr. Ferran was the holder of 77% of the outstanding shares
of Common Stock prior to the acquisitions and for accounting purposes the
acquisitions of Geoevaluaciones and PIASA have been treated as a
recapitalization of Geoevaluaciones and PIASA with Geoevaluaciones (combined
with PIASA) as the acquiror of 3-D Geophysical.
Under an asset purchase agreement between Northern's predecessor ("Old
Northern") and 3-D Geophysical, 3-D Geophysical purchased substantially all of
Old Northern's assets related to its land-based seismic data acquisition
business. Neither 3-D Geophysical nor Old Northern obtained an appraisal of the
assets of Old Northern to be acquired by 3-D Geophysical in connection with this
transaction; at September 30, 1995, the net book value of such assets was
approximately $2.0 million. Such asset purchase agreement was the result of
arm's-length negotiations among representatives of 3-D Geophysical and
representatives of Old Northern. The aggregate consideration paid by the Company
was $10.9 million in cash. Wayne P. Widynowski, the Vice President of Marketing
of Old Northern, entered into an employment agreement with the Company and
serves as Executive Vice President and Chief Operating Officer of the Company
and as President of Northern (see "Management -- Employment Agreements;
Non-Competition Agreements," and "Security Ownership of Management and Principal
Stockholders").
Under a merger agreement among Paragon, 3-D Geophysical and a subsidiary of
3-D Geophysical, Paragon merged with the subsidiary with Paragon being the
surviving entity (the "Paragon Merger"). Mr. Friedman, two other individuals and
members of their respective immediate families (the "Former Paragon
Stockholders") each owned one-third of the issued and outstanding capital stock
of Paragon. In August 1994, Paragon purchased all of the net assets of Paragon
Geophysical, Inc., an Ohio corporation, for $1.1 million in cash and, in
addition, assumed long-term liabilities of $1.9 million. To finance the
purchase, Paragon borrowed $1.1 million from a commercial bank that was
guaranteed by the Former Paragon Stockholders and the Former Paragon
Stockholders contributed approximately $150,000 in cash. The Former Paragon
Stockholders received approximately 1,314,261 shares of Common Stock in
connection with the Paragon Merger. In addition, the Company assumed an
aggregate of $4.8 million of Paragon's debt, of which $1.7 million had been
personally guaranteed by Mr. Friedman and certain other Former Paragon
Stockholders. All of this debt was repaid upon consummation of the Initial
Public Offering with a portion of the net proceeds therefrom. The terms of the
Paragon Merger were not determined through arm's-length negotiations
47
<PAGE> 50
and may have been significantly greater than would have resulted from
arm's-length negotiations. The Company did not obtain an appraisal of Paragon in
connection with the Paragon Merger; at September 30, 1995, the net book value of
Paragon was negative by approximately $496,000. Mr. Friedman, who, prior to the
Paragon Merger, was the President and Chief Executive Officer of 3-D Geophysical
and Chairman of the Board and Chief Executive Officer of Paragon, together with
members of his family, owns a total of 438,159 shares of Common Stock as a
result of the Paragon Merger. Mr. White, who, prior to the Paragon Merger, was
acting Chief Financial Officer of Paragon, served as Executive Vice President,
Chief Financial Officer, Secretary, Treasurer and a Director of 3-D Geophysical
until September 30, 1996 and currently serves as a Director of and financial
advisor to the Company. Mr. Merchant, who serves as Vice President of the
Company and President of Paragon, owns 13,588 shares of Common Stock as a
founder of 3-D Geophysical. In connection with the Paragon Merger, Messrs.
Friedman, White and Merchant entered into employment agreements. Mr. White
entered into a termination agreement with the Company following his resignation
in September 1996 (see "Management -- Employment Agreements; Non-Competition
Agreements," "Security Ownership of Management and Principal Stockholders" and
"Certain Transactions").
Under a stock purchase agreement among G.C.L. Kemp and his wife (the
"Former Kemp Stockholders") and 3-D Geophysical (the "Kemp Stock Purchase
Agreement"), 3-D Geophysical purchased all of the issued and outstanding shares
of capital stock of Kemp. The Kemp Stock Purchase Agreement was entered into on
the basis of arm's-length negotiations among G.C.L. Kemp, on behalf of the
Former Kemp Stockholders, and Messrs. Friedman and White, on behalf of 3-D
Geophysical, and the consideration payable to the Former Kemp Stockholders
thereunder represents the value the Former Kemp Stockholders deemed appropriate
for their business. Neither the Company nor the Former Kemp Stockholders
obtained an appraisal of Kemp in connection with this transaction; at September
30, 1995 the net book value of Kemp was $422,000. The aggregate consideration
paid by the Company to the Former Kemp Stockholders, as modified by amendments
in June 1996, was approximately $919,000, consisting of $625,000 in cash and
$294,000 paid by delivery of 39,176 shares of Common Stock. In addition, the
Company assumed and repaid approximately $152,000 in debt owed by Kemp, of which
$135,000 was guaranteed by Mr. Kemp. In addition, the Company assumed $50,000 of
debt owed by Kemp to Mr. Kemp, of which $25,000 was forgiven by Mr. Kemp in June
1996. Mr. Kemp entered into an employment agreement pursuant to which he serves
as a Vice President of the Company. Mr. Davis entered into an employment
agreement with the Company, pursuant to which he serves as President, Chief
Executive Officer and a Director of the Company. Mr. Davis was appointed as
President of Kemp by the Board of Directors in June 1996.
In connection with its formation in March 1995, 3-D Geophysical issued
1,400,681 shares of Common Stock to the founding stockholders, including
1,084,346 shares to Mr. Ferran, 160,342 shares to Mr. White, 103,271 shares to
Mr. Andrews, 13,588 shares to each of Messrs. Davis and Merchant, 8,153 shares
to Mr. Kemp and 4,620 shares to each of Messrs. Bahna and Brandrup. The amounts
paid by each of these stockholders for the foregoing shares are as follows: Mr.
Ferran -- $399; Mr. White -- $59; Mr. Andrews -- $38; Messrs. Davis and
Merchant -- $5; Mr. Kemp -- $3; Messrs. Bahna and Brandrup -- $1.70. The
founding stockholders (including the individuals named in the preceding
sentence) paid an aggregate of $515 for the foregoing shares. Based on the price
to the public in the Initial Public Offering of $7.50 per share, such number of
shares owned by the founding stockholders had a market value immediately
following the consummation of the Initial Public Offering of $8.1 million in the
case of Mr. Ferran, $1.2 million in the case of Mr. White, $775,000 in the case
of Mr. Andrews, $102,000 in the case of each of Messrs. Davis and Merchant,
$61,000 in the case of Mr. Kemp and $35,000 in the case of each of Messrs. Bahna
and Brandrup.
Mr. Andrews is the sole stockholder of The Andrews Group International,
Inc. ("Andrews Group") which, through its Mexican affiliate, A.G.I. Mexicana,
S.A. de C.V. (collectively, the "Andrews Companies"), acts as the exclusive
representative for several companies in Mexico, including Input/Output and
Landmark Graphics Corporation. Geoevaluaciones and PIASA purchase goods and
services from A.G.I. Mexicana and during the nine months ended September 30,
1996 such purchases totalled approximately $464,000. In addition, as of
September 30, 1996 PIASA owed A.G.I. Mexicana $115,000 for goods and services
purchased prior to the Initial Public Offering. The Company also leases
approximately 1,000 channels of 3-D seismic data acquisition equipment and
geophones from Andrews Group under two separate six-month lease agreements with
automatic monthly renewals thereafter that provide for deposits of approximately
48
<PAGE> 51
$293,000 and $77,000, respectively, and for monthly payments of approximately
$110,000 and $29,000, respectively. The leases provide the Company with options
to purchase the equipment for approximately $2,445,000 and $642,000,
respectively, subject to offsets of 80% of the rental payments during the six
months ending March 1, 1997 and a 10% discount if the options are exercised
during such period. The Company intends to use a portion of the proceeds of this
Offering to purchase the equipment (see "Use of Proceeds" and
"Business -- Customers and Contracts"). The Company anticipates that it will
continue to purchase goods and services from the Andrews Companies. The Company
believes that the past transactions with the Andrews Companies have been, and
that any future transactions with the Andrews Companies will be, on terms no
less favorable to the Company than could be obtained from an unaffiliated third
party.
The Company agreed to pay to a consulting company owned by Mr. White
$250,000 for financial advisory and other consulting services in connection with
the structuring, negotiation and consummation of the acquisitions of the
Operating Subsidiaries and PIASA, of which $125,000 was paid upon the
consummation of the Initial Public Offering and $125,000 is payable on January
3, 1997. In connection with Mr. White's resignation as an executive officer of
the Company and the termination of his employment agreement on October 1, 1996,
the Company agreed to pay Mr. White $200,000 plus $5,000 per month through
December 31, 1998, the expiration date of the employment agreement, to provide
him with office space in the Company's New York City facility through December
31, 1997, provided he does not serve as an officer of a competitor of the
Company during that period, and to provide him with certain insurance benefits
through December 31, 1998. In exchange therefor, Mr. White has agreed to render
financial and advisory services to the Company in connection with this Offering
and the proposed acquisition of J.R.S. Exploration.
The Company leases space in New York City at an annual base rental of
$165,000 to provide offices for Messrs. Friedman and White. Mr. Friedman has
agreed to reimburse the Company for any amounts under the lease that are payable
with respect to space that is not utilized by the Company and which have not
been paid by sub-lessees (see "Business -- Properties").
In the future, transactions with affiliates of the Company are anticipated
to be minimal. Any such transaction will be approved by a majority of the Board
of Directors, including a majority of the disinterested members of the Board of
Directors, and will be made on terms no less favorable to the Company than could
be obtained from an unaffiliated third party.
DESCRIPTION OF CAPITAL STOCK
3-D Geophysical's Certificate of Incorporation provides for authorized
capital stock of 25,000,000 shares of Common Stock, par value $.01 per share, of
which 11,900,000 shares will be issued and outstanding upon completion of this
Offering, and 1,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), of which no shares will be outstanding upon completion of
this Offering.
COMMON STOCK
As of the date hereof, 7,600,000 shares of Common Stock are issued and
outstanding. All of the issued and outstanding shares of Common Stock are, and
the shares of Common Stock offered hereby, when issued in this Offering, will
be, validly issued, fully paid and nonassessable.
The holders of Common Stock are entitled to one vote for each share on all
matters voted on by stockholders, and, except as otherwise required by law or as
provided in any resolution adopted by the Board of Directors with respect to any
series of Preferred Stock (as defined below), the holders of shares of Common
Stock exclusively possess all voting power.
The Certificate of Incorporation and By-laws provide that the Board of
Directors will be divided into three classes of directors, with the classes to
be as nearly equal in number as possible (see "Management -- Directors and
Executive Officers").
Subject to any preferential rights of any outstanding series of Preferred
Stock created by the Board of Directors from time to time, the holders of Common
Stock are entitled to such dividends as may be declared from time to time by the
Board of Directors from funds available therefor, and upon liquidation will be
entitled
49
<PAGE> 52
to receive pro rata all assets of the Company available for distribution to such
holders. The Common Stock is not convertible or redeemable and there are no
sinking fund provisions therefor. Holders of the Common Stock are not entitled
to any preemptive rights.
As of November 15, 1996, there were 73 holders of record of Common Stock.
PREFERRED STOCK
The Board of Directors of the Company, without any action by the
stockholders of the Company, is authorized to issue up to 1,000,000 shares of
Preferred Stock, in one or more series and to determine the voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and in liquidation and the conversion and other rights of each such
series. There are no shares of Preferred Stock outstanding. See "-- Certain
Anti-Takeover Effects of Certain Provisions of the Certificate of Incorporation,
By-laws and Delaware General Corporation Law."
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, BY-LAWS AND DELAWARE GENERAL CORPORATION LAW
The Certificate of Incorporation and By-laws contain a number of provisions
that could make more difficult the acquisition of the Company by means of a
tender or exchange offer, a proxy contest or otherwise. The description of such
provisions set forth below is intended only as a summary and is qualified in its
entirety by reference to the pertinent sections of the Certificate of
Incorporation and the By-laws, forms of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
Classified Board of Directors; Removal of Directors. The classification of
directors will have the effect of making it more difficult for stockholders to
change the composition of the Board of Directors. At least two annual meetings
of stockholders generally will be required to effect a change in a majority of
the Board of Directors. Such a delay may help ensure that the Company's
directors, if confronted by a stockholder attempting to force a proxy contest, a
tender or exchange offer or an extraordinary corporate transaction, would have
sufficient time to review the proposal as well as any available alternatives to
the proposal and to act in what they believe to be the best interest of the
stockholders. The classification provisions will apply to every election of
directors, however, regardless of whether a change in the composition of the
Board of Directors would be beneficial to the Company and its stockholders and
whether a majority of the Company's stockholders believes that such a change
would be desirable.
The Certificate of Incorporation provides that directors of the Company may
only be removed for cause by the affirmative vote of the holders of 80% of the
voting power of all of the then outstanding shares of stock entitled to vote
generally in the election of directors (the "Voting Stock").
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender or exchange offer
or otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. These
provisions could thus increase the likelihood that incumbent directors will
retain their positions. In addition, the classification provisions may
discourage accumulations of large blocks of the Common Stock by purchasers whose
objective is to take control of the Company and remove a majority of the Board
of Directors, and thus could tend to reduce the likelihood of fluctuations in
the market price of the Common Stock that might result from accumulations of
large blocks for such purpose. Accordingly, stockholders could be deprived of
certain opportunities to sell their shares of Common Stock at a higher market
price than might otherwise be the case.
Preferred Stock. The Certificate of Incorporation authorizes the Board of
Directors to establish one or more series of Preferred Stock and to determine,
with respect to any series of Preferred Stock, the terms and rights of such
series, including (i) the designation of the series, (ii) the number of shares
of the series, which number the Board may thereafter (except where otherwise
provided in the certificate of designation) increase or decrease (but not below
the number of shares thereof then outstanding), (iii) whether dividends, if any,
will be cumulative or noncumulative and the dividend rate of the series, (iv)
the dates at which dividends, if any, will be payable, (v) the redemption rights
and price or prices, if any, for shares of the series, (vi) the
50
<PAGE> 53
terms and amounts of any sinking fund provided for the purchase or redemption of
shares of the series, (vii) the amounts payable on shares of the series in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, (viii) whether the shares of the series will be
convertible into shares of any other class or series, or any other security, of
the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion price or prices or
rate or rates, any adjustments thereof, the date or dates as of which such
shares shall be convertible and all other terms and conditions upon which such
conversion may be made, (ix) restrictions, if any, on the issuance of shares of
the same series or of any other class or series, and (x) the voting rights, if
any, of the stockholders of such series, which may include the right of such
stockholders to vote separately as a class on any matter.
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide the Company with flexibility
in structuring possible future financing and acquisitions and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the Company
and its stockholders. The Board of Directors, in so acting, could issue
Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be otherwise able to change the composition of the
Board of Directors, including a tender or exchange offer or other transaction
that some, or a majority, of the Company's stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over the then current market price of such stock.
No Stockholder Action by Written Consent; Special Meetings. The Certificate
of Incorporation provides that, subject to the rights of any holders of
Preferred Stock to elect additional directors under specified circumstances,
stockholder action can be taken only at an annual or special meeting of
stockholders and prohibit stockholder action by written consent in lieu of a
meeting. The Certificate of Incorporation and the By-laws provide that special
meetings of stockholders can be called only upon a written request stating the
purpose of such meeting delivered to the Chairman of the Board, the President or
the Secretary, and signed by a majority of the Board of Directors or by
resolution of the Board or the Executive Committee thereof. Stockholders are not
permitted to call a special meeting or to require that the Board call a special
meeting. Moreover, the business permitted to be conducted at any special meeting
of stockholders is limited to the business brought before the meeting pursuant
to the notice of meeting given by the Company.
The provisions of the Certificate of Incorporation and the By-laws
prohibiting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal, including a stockholder
proposal that a majority of the stockholders believes to be in the best interest
of the Company, until the next annual meeting unless a special meeting is called
at the request of a majority of the Board of Directors or by resolution of the
Board or the Executive Committee thereof. These provisions would also prevent
the holders of a majority of the Voting Stock from unilaterally using the
written consent procedure to take stockholder action. Moreover, a stockholder
could not force stockholder consideration of a proposal over the opposition of
the Board by calling a special meeting of stockholders prior to the time a
majority of the Board believes such consideration to be appropriate.
Amendment of Certain Provisions of the Certificate of Incorporation and
By-laws. Under the Delaware General Corporation Law (the "DGCL"), the
stockholders have the right to adopt, amend or repeal the By-laws and, with the
approval of the Board of Directors, the Certificate of Incorporation. The
Certificate of Incorporation provides that the affirmative vote of the holders
of at least 80% of the voting power of the then outstanding shares of Voting
Stock, voting together as a single class, and in addition to any other vote
required by the Certificate of Incorporation or By-laws, is required to amend
provisions of the Certificate of
51
<PAGE> 54
Incorporation or By-laws relating to: (i) the prohibition of stockholder action
without a meeting; (ii) the prohibition of stockholders calling a special
meeting; (iii) the number, election and term of the Company's directors; or (iv)
the removal of directors. The vote of the holders of a majority of the voting
power of the then outstanding shares of Voting Stock is required to amend all
other provisions of the Certificate of Incorporation. The Certificate of
Incorporation further provides that the By-laws may be amended by the Board of
Directors or by the affirmative vote of the holders of at least a majority of
the voting power of the then outstanding shares of Voting Stock, voting together
as a single class. These super-majority voting requirements will have the effect
of making more difficult any amendment by stockholders of the By-laws or of any
of the provisions of the Certificate of Incorporation described above, even if a
majority of the Company's stockholders believes that such amendment would be in
their best interests.
Anti-Takeover Legislation. Section 203 of the DGCL provides that, subject
to certain exceptions specified therein, a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the date that such stockholder becomes an interested stockholder
unless (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and at an
annual or special meeting of stockholders by the affirmative vote of a least
two-thirds of the outstanding voting stock which is not owned by the interested
stockholder. Section 203 of the DGCL provides that, except as specified, an
interested stockholder is defined to include (x) any person that is the owner of
15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date, and (y) the affiliates and associates of
any such person.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the stockholders may elect to exclude a corporation from the
restrictions imposed thereunder. The Certificate of Incorporation does not
exclude the Company from the restrictions imposed under Section 203 of the DGCL.
The provisions of Section 203 of the DGCL may encourage companies interested in
acquiring the Company to negotiate in advance with the Board of Directors of the
Company, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approve, prior to the time the
stockholder becomes an interested stockholder, either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-laws each contain a provision that
eliminates, to the extent currently allowed under the DGCL, the personal
monetary liability of a director to the Company and its stockholders for breach
of his fiduciary duty of care as a director. If a director were to breach the
duty of care in performing his duties as a director, neither the Company nor its
stockholders could recover monetary damages from the director, and the only
course of action available to the Company's stockholders would be equitable
remedies, such as an action to enjoin or rescind a transaction involving a
breach of the fiduciary duty of care. To the extent certain claims against
directors are limited to equitable remedies, this provision of the Certificate
of Incorporation may reduce the likelihood of derivative litigation and may
discourage stockholders or management from initiating litigation against
directors for breach of their duty of care. Additionally, equitable remedies may
not be effective in many situations. If a stockholder's only remedy is to enjoin
the completion of the Board of Directors' action, this remedy would be
ineffective if the stockholder does not become aware of a transaction or event
until after it has been completed. In such a situation, such stockholder would
have no effective remedy against the directors. Liability for monetary damages
remains for (i) any breach of the duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of an
improper dividend or
52
<PAGE> 55
improper repurchase or redemption of the Company's stock under Section 174 of
the DGCL or (iv) any transaction from which the director derived an improper
personal benefit. The Certificate of Incorporation further provides that in the
event the DGCL is amended to allow the further elimination or limitation of the
liability of directors, then the liability of the Company's directors shall be
limited to the fullest extent permitted by the amended DGCL. The DGCL permits a
corporation to indemnify certain persons, including officers and directors, who
are (or are threatened to be made) parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of their being officers or directors of the corporation. The indemnity
may include expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by an indemnified officer or
director, provided he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, in the case of
criminal proceedings, provided he had no reasonable cause to believe that his
conduct was unlawful. The By-laws provide indemnification to the fullest extent
allowed pursuant to the foregoing provisions of the DGCL.
The DGCL further permits a corporation to indemnify certain persons,
including officers and directors, who are (or are threatened to be made) parties
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of their being officers
or directors of the corporation. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by the indemnified officer or
director, provided he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the corporation's best interests. However, no such
person will be indemnified as to matters for which he is found to be liable for
negligence or misconduct in the performance of his duty to the corporation
unless, and only to the extent that, indemnification is ordered by a court. The
Certificate of Incorporation and By-laws provide indemnification of the
Company's directors and officers to the fullest extent allowed pursuant to the
foregoing provisions of the DGCL.
Delaware corporations also are authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. The Company
intends to obtain a directors' and officers' liability insurance policy prior to
the closing of this Offering.
All of the foregoing indemnification provisions include statements that
such provisions are not to be deemed exclusive of any other right to indemnity
to which a director or officer may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Securities Transfer, Incorporated.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
11,900,000 shares of Common Stock. The 4,300,000 shares to be sold in this
Offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) will be, and the 4,600,000 shares sold in the Initial
Public Offering are, freely tradeable in the public market without restriction
or further registration under the Securities Act, except for any shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144.
The remaining 3,000,000 outstanding shares of Common Stock (the "Restricted
Shares") which were issued in connection with the formation of 3-D Geophysical
and the acquisitions of the Operating Subsidiaries and PIASA are deemed to be
"restricted securities" within the meaning of Rule 144 and may be publicly
resold only if registered under the Securities Act or sold in accordance with an
eligible exemption from registration, such as Rule 144. Of the Restricted
Shares, 1,400,681 shares will be eligible for resale in the public market
commencing in March 1997 and 1,599,319 shares will be eligible in February 1998,
subject in each case to certain volume and other restrictions under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of the
Company, who beneficially owns "restricted securities" acquired
53
<PAGE> 56
from the Company or an affiliate of the Company at least two years prior to the
sale is entitled to sell within any three-month period a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (119,000 shares based on the number of shares outstanding
immediately after completion of this Offering, assuming no exercise of the
Underwriters' over-allotment option), and (ii) the average weekly reported
trading volume of the Common Stock during the four calendar weeks immediately
preceding the date on which notice of such sale is filed with the SEC, provided
certain manner of sale and notice requirements and requirements as to the
availability of current public information concerning the Company are satisfied.
Under Rule 144(k), a person who has not been an affiliate of the Company for a
period of three months preceding a sale of securities by him, and who
beneficially owns such "restricted securities" acquired from the Company or an
affiliate of the Company at least three years prior to such sale, would be
entitled to sell such shares without regard to volume limitations, manner of
sale provisions, notification requirements or requirements as to the
availability of current public information concerning the Company. Shares held
by persons who are deemed to be affiliates of the Company, including any shares
acquired by affiliates in this Offering, are subject to such volume limitations,
manner of sale provisions, notification requirements and requirements as to
availability of current public information concerning the Company, regardless of
how long the shares have been owned or how they were acquired, and, in addition,
the sale of any "restricted securities" beneficially owned by affiliates is
subject to the two-year holding period requirement. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through the use
of one or more intermediaries controls, or is controlled by, or is under common
control with, such issuer.
The Company and its officers and directors have agreed that for a period of
120 days from the date of this Prospectus they will not without the prior
written consent of Smith Barney Inc. (i) sell, offer to sell, solicit an offer
to buy, contract to sell or otherwise transfer or dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for, or any rights to purchase or acquire, shares of Common Stock, or (ii) grant
any options or warrants to purchase shares of Common Stock (other than the grant
of options under the Plan and Common Stock issuable upon the exercise of options
granted under the Plan or otherwise to officers, directors and other key
employees of the Company).
The Company has outstanding options to purchase an aggregate of 889,352
shares of Common Stock (see "Management -- Director Compensation" and
"Management -- Long-Term Incentive Compensation Plan"), of which options to
purchase approximately 215,000 shares become exercisable in February 1997
(approximately 40,000 of which are subject to stockholder approval at the next
annual stockholders' meeting), options to purchase approximately 70,000 shares
become exercisable in April 1997, options to purchase 4,450 shares become
exercisable in August 1997 and options to purchase 10,000 shares become
exercisable in September 1997. The Company intends to register under the
Securities Act the shares issuable upon exercise of options granted under the
Plan and otherwise and, upon such registration, such shares will be eligible for
resale in the public market, except that any such shares issued to affiliates
are subject to the volume limitations and other restrictions of Rule 144.
No prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price of the
Common Stock prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market prices and the ability of the Company to raise equity capital
in the future. See "Underwriting."
54
<PAGE> 57
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase and the Company has agreed to sell to such Underwriter, the
number of shares of Common Stock set forth opposite the name of such
Underwriter:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc..........................................................
Rauscher Pierce Refsnes, Inc. ............................................
Simmons & Company International...........................................
---------
Total........................................................... 4,300,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all of shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Rauscher Pierce Refsnes, Inc.
and Simmons & Company International are acting as representatives (collectively,
the "Representatives"), propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part of the shares of Common Stock to certain dealers at
a price which represents a concession not in excess of $ per share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the initial offering of the shares to the public, the public
offering price and such concessions may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 645,000 additional
shares of Common Stock at the price to public set forth on the cover page of
this Prospectus, less the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.
By letter agreement dated November 14, 1996, the Company engaged Rauscher
Pierce Refsnes, Inc. ("Rauscher Pierce"), one of the Representatives, to act as
its exclusive financial advisor in connection with the Company's proposed
acquisition of J.R.S. Exploration. Pursuant to the letter agreement, the Company
has agreed to pay Rauscher Pierce a $100,000 transaction fee upon the closing of
the acquisition and to reimburse Rauscher Pierce for up to $15,000 for
out-of-pocket expenses incurred in connection with such services.
The Company and its officers and directors have agreed that for a period of
120 days from the date of this Prospectus they will not without the prior
written consent of Smith Barney Inc. (i) sell, offer to sell, solicit an offer
to buy, contract to sell or otherwise transfer or dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for, or any rights to purchase or acquire, shares of Common Stock, or (ii) grant
any options or warrants to purchase shares of Common Stock (other than the grant
of
55
<PAGE> 58
options under the Plan and Common Stock issuable upon the exercise of options
granted under the Plan or otherwise to officers, directors and other key
employees of the Company).
Certain of the Underwriters and selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A under
the Exchange Act. Rule 10b-6A permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from entering a bid or effecting a purchase at a price
that exceeds the highest bid for those securities reported on the Nasdaq
National Market by a market maker that is not participating in the distribution.
Under Rule 10b-6A, each underwriter or selling group member engaged in passive
market making is subject to a daily net purchase limitation equal to 30% of such
entity's average daily trading volume during the two full consecutive calendar
months immediately preceding the date of the filing of the registration
statement under the Securities Act pertaining to the security to be distributed.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for 3-D
Geophysical by Kramer, Levin, Naftalis & Frankel, New York, New York. Arthur D.
Emil, who is of counsel to that firm, is a Director of 3-D Geophysical, has been
granted ten-year options to purchase an aggregate of 16,667 shares of Common
Stock and owns 5,789 shares of Common Stock (see "Management -- Directors and
Executive Officers" and "Management -- Director Compensation"). Certain legal
matters for the Underwriters will be passed upon by Fulbright & Jaworski L.L.P.,
Houston, Texas.
EXPERTS
The consolidated financial statements of 3-D Geophysical as of December 31,
1995 and 1994 and for the three years in the period ended December 31, 1995 and
the financial statements of Northern (Land-Based Seismic Data Operations) and
Paragon as of December 31, 1994 and September 30, 1995 and for the two years in
the period ended December 31, 1994 and the nine-month period ended September 30,
1995, included in this Prospectus, have been included herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The balance sheet of J.R.S. Exploration at November 30, 1995 and the
statements of operations and retained earnings and changes in financial position
for the year then ended, included in this Prospectus, have been included herein
in reliance on the reports of Garrett Power, Chartered Accountants, given on the
authority of that firm as experts in Canadian accounting and auditing.
56
<PAGE> 59
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered by
this Prospectus. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. The
Registration Statement and the exhibits and schedules thereto filed with the SEC
may be inspected, without charge, and copies may be obtained at prescribed
rates, at the public reference facilities maintained by the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549 and at the regional offices or public reference facilities of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. For further information pertaining to the Company and to
the shares of Common Stock offered hereby, reference is made to the Registration
Statement including the exhibits and schedules thereto. The SEC also maintains a
site on the World Wide Web, the address of which is http://www.sec.gov, that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the SEC.
57
<PAGE> 60
GLOSSARY
Certain words and terms commonly used in the seismic business which are
used throughout this Prospectus are defined below.
"2-D SEISMIC" Seismic data representing a vertical plane of subsurface
information.
"3-D SEISMIC" Seismic data representing a cube of subsurface information
that can be sliced into numerous planes offering different views of the target.
"ACOUSTIC WAVE" A sonic wave travelling through the earth's subsurface
induced by a release of energy, normally dynamite or vibroseis.
"ACQUISITION SYSTEM" The electronic field instruments and associated
equipment required for seismic acquisition.
"CHANNEL" The electrical path from a geophone to a remote signal
conditioner over which data captured by the geophone is transmitted to the
remote signal conditioner.
"CHANNEL BOX" A remote data collection unit which receives seismic data
from a multi-conductor cable attached to the geophones.
"DFS-V(TM)" Traditional seismic acquisition systems for land applications
manufactured by Texas Instruments, Inc.
"DISTRIBUTED SYSTEM" A seismic acquisition system in which received signals
are transmitted to remote signal conditioners, where they are amplified,
filtered and digitized before transmission to a central recording unit.
"ENERGY SOURCE" Typically a small charge of dynamite or a mechanically
produced vibration.
"GEOPHONES" Electro-magnetic coils placed on the earth's surface to receive
the acoustic waves reflected by subsurface geological layers.
"I/O SYSTEM TWO(R)" Technologically advanced, distributed seismic
acquisition systems for land applications manufactured by Input/Output, Inc.
"REMOTE SIGNAL CONDITIONER" Electronic device that converts the analog
signals captured by a geophone into a digital signal and transmits the converted
signal to a central electronic processing unit.
"SEISMIC PROCESSING SYSTEM" The computer hardware and software required to
convert seismic records to seismic cross-sections.
"SEISMIC RECORD" Seismic data received from one release of energy.
"SEISMIC CROSS-SECTION" A graphic representation of processed seismic
records representing subsurface structural and stratigraphic features.
"VIBROSEIS" An energy source whereby the acoustic waves are mechanically
produced by machinery that vibrates on the earth's surface.
58
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES:
Pro Forma Consolidated Financial Statements......................................... F-2
Pro Forma Consolidated Balance Sheet................................................ F-4
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1995............................................................................. F-5
Pro Forma Consolidated Statement of Operations for the nine months ended September
30, 1995......................................................................... F-6
Pro Forma Consolidated Statement of Operations for the nine months ended September
30, 1996......................................................................... F-7
Notes to Pro Forma Consolidated Financial Statements................................ F-8
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES:
Report of Independent Accountants................................................... F-11
Consolidated Balance Sheet.......................................................... F-12
Consolidated Statement of Operations................................................ F-13
Consolidated Statement of Stockholders' Equity...................................... F-14
Consolidated Statement of Cash Flows................................................ F-15
Notes to Consolidated Financial Statements.......................................... F-16
NORTHERN GEOPHYSICAL OF AMERICA, INC. (LAND-BASED SEISMIC DATA OPERATIONS):
Report of Independent Accountants................................................... F-26
Balance Sheet....................................................................... F-27
Statement of Operations............................................................. F-28
Statement of Changes in Net Equity.................................................. F-29
Statement of Cash Flows............................................................. F-30
Notes to Financial Statements....................................................... F-31
PARAGON GEOPHYSICAL, INC.:
Report of Independent Accountants................................................... F-37
Balance Sheet....................................................................... F-38
Statement of Operations............................................................. F-39
Statement of Stockholders' Deficit.................................................. F-40
Statement of Cash Flows............................................................. F-41
Notes to Financial Statements....................................................... F-42
J.R.S. EXPLORATION COMPANY LIMITED:
Auditors' Report.................................................................... F-47
Balance Sheet....................................................................... F-48
Statement of Operations and Retained Earnings....................................... F-49
Statement of Changes in Financial Position.......................................... F-50
Notes to Financial Statements....................................................... F-51
</TABLE>
F-1
<PAGE> 62
3-D GEOPHYSICAL, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma consolidated financial statements of 3-D
Geophysical, Inc. (the "Company") include the pro forma consolidated balance
sheet as of September 30, 1996 and the pro forma consolidated statement of
operations for the year ended December 31, 1995 and the nine months ended
September 30, 1995 and 1996.
On February 9, 1996, simultaneously with the consummation of the Company's
Initial Public Offering (the "Initial Public Offering"), the Company acquired in
separate transactions, in exchange for cash, notes and shares of Common Stock,
Geoevaluaciones, PIASA, Northern's land-based seismic data operations, Paragon
and Kemp. See "Certain Transactions." For accounting purposes, the acquisitions
of Geoevaluaciones and PIASA were treated as a recapitalization of
Geoevaluaciones and PIASA with Geoevaluaciones (combined with PIASA) as the
acquiror and predecessor of 3-D Geophysical. Accordingly, the combined net
assets of Geoevaluaciones and PIASA were valued at historical cost and the
consideration given to the former stockholders of Geoevaluaciones and PIASA was
treated for accounting purposes as a dividend. The acquisitions of Northern's
land-based seismic data operations, Paragon and Kemp (the "U.S. Operating
Subsidiaries") were treated as business combinations accounted for by the
purchase method of accounting as prescribed by Accounting Principles Board
Opinion No. 16 and Staff Accounting Bulletin No. 48 (as applied prior to the
issuance of SAB 97) and are included within the Company's historical
consolidated statement of operations commencing February 9, 1996. The
acquisition of Paragon's common stock in exchange for shares of Common Stock was
accounted for at Paragon's historical cost. Northern's land-based seismic data
operations and Kemp were valued at the fair market value of consideration given.
In connection with the acquisitions of Northern's land-based seismic data
operations and Kemp, the excess of consideration given over the fair market
value of net assets is being amortized on a straight-line basis over 15 years.
On December 10, 1996, the Company entered into a stock purchase agreement
pursuant to which it agreed to purchase J.R.S. Exploration Company Limited
("J.R.S. Exploration") (see "Business -- Proposed Acquisition of J.R.S.
Exploration"). The consummation of the acquisition is subject to customary
conditions. The proposed acquisition of J.R.S. Exploration and certain related
equipment is being treated as a probable business combination which will be
accounted for by the purchase method of accounting as prescribed by Accounting
Principles Board Opinion No. 16. The excess of consideration being offered over
the fair market value of the net assets acquired is recorded in the following
pro forma consolidated financial statements as goodwill and is being amortized
on a straight-line basis over 15 years.
The pro forma consolidated balance sheet as of September 30, 1996 gives
effect to the acquisition of J.R.S. Exploration and certain related equipment as
if such transaction had occurred on September 30, 1996. The pro forma
consolidated statements of operations for the year ended December 31, 1995 and
the nine months ended September 30, 1995 and 1996 assume the Company had
completed the recapitalization, the acquisition of the U.S. Operating
Subsidiaries, the Initial Public Offering and the acquisition of J.R.S.
Exploration and certain related equipment on January 1, 1995.
The pro forma consolidated financial statements have been derived from: (i)
the audited statement of operations of Geoevaluaciones (as predecessor of the
Company) for the year ended December 31, 1995 appearing elsewhere in this
Prospectus; (ii) the unaudited interim consolidated financial statements of the
Company as of and for the nine months ended September 30, 1996 and 1995
appearing elsewhere in this Prospectus; (iii) the audited statements of
operations for Northern's land-based seismic data operations and Paragon for the
nine months ended September 30, 1995 are included elsewhere in this Prospectus;
(iv) the unaudited statement of operations of Kemp for the nine months ended
September 30, 1995 and for the year ended December 31, 1995 not included in this
Prospectus; (v) the unaudited statement of operations of Northern's land-based
seismic data operations and Paragon for the year ended December 31, 1995
appearing elsewhere in this Prospectus; (vi) the unaudited interim statements of
operations of Northern's land-based seismic data operations, Paragon and Kemp
for the period from January 1, 1996 through February 8, 1996 not
F-2
<PAGE> 63
included in this Prospectus; and (vii) the U.S. dollar financial statements of
J.R.S. Exploration as of and for the nine months ended August 31, 1996, for the
year ended November 30, 1995 and the nine months ended August 31, 1995 not
included in this Prospectus. The Canadian dollar J.R.S. Exploration financial
statements, appearing elsewhere in this Prospectus, have been translated into
U.S. dollars using the current rate method (i.e., assets and liabilities were
translated at the August 31, 1996 exchange rate and revenues and expenses have
been translated at the appropriate average exchange rate for the period). The
translation is not included in this Prospectus. The J.R.S. Exploration financial
statements include all adjustments necessary to conform to U.S. Generally
Accepted Accounting Principles ("GAAP"). The principal difference between U.S.
and Canadian GAAP is accounting for income taxes. This difference, as it relates
to J.R.S. Exploration, does not produce a material difference and therefore no
adjustment has been made.
The following sets forth the rates (in U.S. dollars) used to translate the
J.R.S. Exploration financial statements.
<TABLE>
<CAPTION>
CLOSING RATE AVERAGE RATE
------------ ------------
<S> <C> <C>
Nine Months Ended August 31, 1995............................ .7446 .7237
Year Ended November 30, 1995................................. .7362 .7279
Nine Months Ended August 31, 1996............................ .7289 .7310
</TABLE>
These pro forma consolidated statements of operations may not be indicative
of actual results that would have been achieved if the transactions had occurred
on the dates indicated or the results which may be realized in the future.
F-3
<PAGE> 64
3-D GEOPHYSICAL, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
J.R.S.
U.S. $
3-D U.S. PRO FORMA
GEOPHYSICAL G.A.A.P. ADJUSTMENTS(A) PRO FORMA
----------- ------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 1,206 $ 409 $ (2,665)(i) $(1,050)
Accounts receivable:
Trade....................................... 17,478 916 -- 18,394
Other....................................... 259 -- -- 259
Notes receivable................................. -- 49 -- 49
Deferred income tax asset........................ 68 -- -- 68
Prepaid expenses and other assets................ 1,912 35 (49)(ii) 1,898
------- ------- ------- -------
Total current assets................... 20,923 1,409 (2,714) 19,618
Property and equipment, net...................... 26,931 3,322 124(iii) 30,377
Goodwill......................................... 5,850 -- 2,641(iv) 8,491
Other assets..................................... 692 24 (24)(ii) 692
------- ------- ------- -------
Total assets........................... $54,396 $4,755 $ 27 $59,178
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital
leases...................................... $ 6,517 $1,422 $ $ 7,939
Accounts payable............................... 9,035 301 -- 9,336
Accrued liabilities............................ 1,536 -- -- 1,536
Deferred revenue............................... 418 -- -- 418
Income taxes payable........................... 568 137 -- 705
------- ------- ------- -------
Total current liabilities.............. 18,074 1,860 19,934
Long-term debt and capital leases................ 8,682 146 8,828
Deferred income tax liability.................... 653 222 -- 875
Stockholder's equity
Preferred stock................................ -- -- -- --
Common stock................................... 76 -- 3(v) 79
Additional paid-in capital..................... 28,173 -- 2,551(vi) 30,724
Retained earnings.............................. 1,934 2,623 (2,623)(vii) 1,934
Cumulative foreign currency translation
adjustments................................. (3,196) (96 ) 96(vii) (3,196)
------- ------- ------- -------
Total stockholders' equity....................... 26,987 2,527 27 29,541
------- ------- ------- -------
Total liabilities and stockholders'
equity............................... $54,396 $4,755 $ 27 $59,178
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-4
<PAGE> 65
3-D GEOPHYSICAL, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RECAPITALIZED
3-D U.S. OPERATING SUBSIDIARIES
GEOPHYSICAL --------------------------- PRO FORMA PRO J.R.S. U.S.$ PRO FORMA ADJUSTED
(AA) NORTHERN PARAGON KEMP ADJUSTMENTS FORMA U.S. G.A.A.P. ADJUSTMENTS PRO FORMA
------------- -------- ------- ------- ----------- ------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...... $ 9,825 $19,903 $4,695 $ 3,605 $ (193)(II) $37,835 $ 8,061 $ -- $45,896
Expenses:
Cost of data
acquisition..... 5,968 16,465 3,897 2,794 (193)(II) 28,931 5,841 (52)(EE) 34,720
Depreciation and
amortization.... 662 1,755 566 238 422 (CC) 3,431 1,435 211 (DD) 5,077
(212)(GG)
General and
administrative
expenses........ 1,038 1,458 464 838 500 (JJ) 4,298 599 -- 4,897
------ ------- ------ ------ ------ ------- ------ ----- -------
Total
operating
expenses...... 7,668 19,678 4,927 3,870 517 36,660 7,875 159 44,694
Operating income
(loss)........... 2,157 225 (232) (265) (710) 1,175 186 (159) 1,202
Other income
(expense):
Interest
expense......... (803) (265) (393) (88) 425 (FF) (1,124) (303) -- (1,427)
Foreign currency
transaction
losses.......... (120) -- -- -- -- (120) -- -- (120)
Miscellaneous.... 503 (67) (30) 9 -- 415 55 -- 470
------ ------- ------ ------ ------ ------- ------ ----- -------
Income (loss)
before provision
for income taxes. 1,737 (107) (655) (344) (285) 346 (62) (159) 125
Provision (benefit)
for income taxes. 130 (40) -- -- (447)(HH) (357) (47) (56)(HH) (460)
------ ------- ------ ------ ------ ------- ------ ----- -------
Net income
(loss)........ $ 1,607 $ (67) $ (655) $ (344) $ 162 $ 703 $ (15) $(103) $ 585
====== ======= ====== ======= ======= ======= ======= ===== =======
Earnings per
share......... $ 0.11 $ 0.09
======= =======
Number of
shares........ 6,232(KK) 6,796(KK)
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
F-5
<PAGE> 66
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RECAPITALIZED
3-D U.S. OPERATING SUBSIDIARIES
GEOPHYSICAL --------------------------- PRO FORMA PRO J.R.S. U.S.$ PRO FORMA ADJUSTED
(AA) NORTHERN PARAGON KEMP ADJUSTMENTS FORMA U.S. G.A.A.P. ADJUSTMENTS PRO FORMA
------------- -------- ------- ------ ----------- ------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues....... $ 7,157 $12,734 $3,910 $1,868 $ -- $25,669 $ 6,800 $ -- $32,469
Expenses:
Cost of data
acquisition...... 3,759 10,715 3,146 1,443 -- 19,063 4,627 (45)(EE) 23,645
Depreciation and
amortization..... 531 1,350 423 104 317 (CC) 2,530 1,070 158(DD) 3,758
(195)(GG)
General and
administrative
expenses......... 833 957 296 632 375 (JJ) 3,093 448 -- 3,541
------ ------ ------ ------ ---- ------ ---- ------- -------
Total operating
expenses....... 5,123 13,022 3,865 2,179 497 24,686 6,145 113 30,944
Operating income
(loss)............ 2,034 (288) 45 (311) (497) 983 655 (113) 1,525
Other income
(expense):
Interest expense.. (562) (204) (294) (11) 319 (FF) (752) (219) -- (971)
Foreign currency
transaction
losses........... (83) -- -- -- -- (83) -- -- (83)
Miscellaneous..... 38 (100) (6) -- -- (68) 42 -- (26)
------ ------ ------ ------ ---- ------ ---- ------- -------
Income (loss) before
provision for
income taxes...... 1,427 (592) (255) (322) (178) 80 478 (113) 445
Provision (benefit)
for income taxes.. 81 (219) -- -- (252)(HH) (390) 176 (40)(HH) (254)
------ ------ ------ ------ ---- ------ ---- ------- -------
Net income
(loss)......... $ 1,346 $ (373) $ (255) $ (322) $ 74 $ 470 $ 302 $ (73) $ 699
======= ======= ====== ====== ===== ======= ======= ===== =======
Earnings per
share.......... $ 0.08 $ 0.10
======= =======
Number of
shares......... 6,232(KK) 6,796(KK)
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
financial statements.
F-6
<PAGE> 67
3-D GEOPHYSICAL, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
U.S. OPERATING
SUBSIDIARIES(BB)
3-D -------------------------- PRO FORMA PRO J.R.S. U.S.$ PRO FORMA ADJUSTED
GEOPHYSICAL NORTHERN PARAGON KEMP ADJUSTMENTS FORMA U.S. G.A.A.P. ADJUSTMENTS PRO FORMA
----------- -------- ------- ----- ----------- ------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues....... $36,151 $2,768 $ 285 $ 770 $-- $39,974 $ 6,515 $ -- $46,489
Expenses:
Cost of data
acquisition...... 26,563 2,442 263 814 -- 30,082 4,356 (60)(EE) 34,378
Depreciation and
amortization..... 2,788 178 49 74 (21)(CC) 3,068 1,107 158 (DD) 4,333
General and
administrative
expenses......... 3,907 154 49 162 -- 4,272 507 -- 4,779
------- ------ ----- ----- --- ------- ------ ---- -------
Total operating
expenses.......... 33,258 2,774 361 1,050 (21) 37,422 5,970 98 43,490
Operating income
(loss)............ 2,893 (6) (76) (280) 21 2,552 545 (98) 2,999
Other income
(expense):
Interest expense.. (668) (15) (38) (34) 45(FF) (710) (144) -- (854)
Foreign currency
transaction
gains............ 8 -- -- -- -- 8 -- -- 8
Miscellaneous..... 437 -- -- -- -- 437 14 -- 451
------- ------ ----- ----- --- ------- ------ ---- -------
Income (loss)
before provision
for income taxes.. 2,670 (21) (114) (314) 66 2,287 415 (98) 2,604
Provision (benefit)
for income taxes.. 645 (7) (40) (110) 23(HH) 511 153 (34)(HH) 630
------- ------ ----- ----- --- ------- ------ ---- -------
Income (loss)
before
extraordinary
item.............. $ 2,025 $ (14) $ (74) $(204) $43 $ 1,776 $ 262 $ (64) $ 1,974
======= ====== ===== ===== === ======= ====== ==== =======
Earnings per
share before
extraordinary
item.........,. $ 0.28 $ 0.29
======= =======
Number of
shares......... 6,232(KK) 6,796(KK)
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
financial statements.
F-7
<PAGE> 68
3-D GEOPHYSICAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The accompanying pro forma consolidated balance sheet as of September 30,
1996 gives effect to the acquisition of J.R.S. Exploration and certain related
equipment of Siegfried & Siegfried Resource Consultants, Ltd. as if such
transaction had occurred on September 30, 1996. See "Business -- Proposed
Acquisition of J.R.S. Exploration."
(A) Adjustments to reflect the acquisition of J.R.S. Exploration for
approximately C$6,850,000, comprised of C$3,500,000 in cash and C$3,350,000 in
Common Stock valued at $9.25 per share (264,378 shares). An exchange rate of
$.73 to C$1.00 is utilized in the translation of these amounts. In addition,
adjustments reflect the acquisition of certain related equipment through the
acquisition of Siegfried & Siegfried Resource Consultants, Ltd. for C$150,000 in
cash and C$150,000 in Common Stock valued at $9.25 per share (11,838 shares).
The accompanying pro forma consolidated balance sheet assumes that the Company
will assume the debt of J.R.S. Exploration. Specific adjustments are as follows:
(i) Cash consideration for the purchase of J.R.S. Exploration and Siegfried
& Siegfried Resource Consultants, Ltd.
(ii) Reflects the elimination of a current receivable and long term
receivable included in other assets in the accompanying pro forma balance
sheet due from Siegfried & Siegfried Resource Consultants, Ltd. totalling
C$100,000 (approximately $73,000) that is eliminated upon the acquisition
of Siegfried & Siegfried Resource Consultants, Ltd.
(iii) Estimated fair market value of recording assets acquired through the
acquisition of Siegfried & Siegfried Resource Consultants, Ltd.
(iv) Associated goodwill generated through the acquisition of J.R.S.
Exploration and Siegfried & Siegfried Resource Consultants, Ltd. calculated
as follows:
<TABLE>
<CAPTION>
$CANADIAN $U.S.
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Total Purchase Price of J.R.S. Exploration.......... $ 6,850 $ 5,000
Total Purchase Price of Siegfried & Siegfried
Ltd............................................... 300 219
Receivable eliminated through acquisition of
Siegfried & Siegfried Ltd......................... 100 73
------ ------
Total Purchase Price.............................. $ 7,250 $ 5,292
Fair market value of underlying net assets and
liabilities of J.R.S. Exploration................. 3,462 2,527
Estimated fair market value of Siegfried & Siegfried
Resource Consultants, Ltd. assets................. 170 124
------ ------
$ 3,632 $ 2,651
Goodwill............................................ $ 3,618 $ 2,641
</TABLE>
(v) Par value of shares issued ($.01 per share).
(vi) Additional paid-in capital.
(vii) Purchase price adjustments eliminating existing retained earnings and
translation adjustments at J.R.S. Exploration.
The consummation of the acquisition is subject to customary conditions,
including the negotiation and execution of mutually satisfactory definitive
documentation and the completion of a satisfactory due diligence review by the
Company.
2. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
The accompanying pro forma consolidated statements of operations assume
that the Company had completed the recapitalization, the acquisition of the U.S.
Operating Subsidiaries, the Initial Public Offering and the acquisition of
J.R.S. Exploration and certain related equipment of Siegfried & Siegfried
Resource Consultants, Ltd. on January 1, 1995.
F-8
<PAGE> 69
(AA) As discussed in "Selected Historical and Pro Forma Financial and
Operating Data," the acquisitions of Geoevaluaciones and PIASA were treated as a
recapitalization of Geoevaluaciones and PIASA with Geoevaluaciones (combined
with PIASA) deemed to be the acquiror and predecessor of 3-D Geophysical.
(BB) To record the results of operations of the U.S. Operating Subsidiaries
for the period from January 1, 1996 through February 8, 1996.
(CC) To record the amortization of goodwill associated with the U.S.
Operating Subsidiaries over 15 years, and the depreciation associated with the
step-up in basis of the U.S. Operating Subsidiaries:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Northern............................ $ 387 $290 $(27)
Kemp................................ 35 27 6
---- ---- ----
$ 422 $317 $(21)
==== ==== ====
</TABLE>
(DD) To record amortization of goodwill associated with J.R.S. Exploration
and Siegfried & Siegfried Resource Consultants Ltd. over 15 years and
incremental depreciation associated with the acquisition of the recording assets
of Siegfried & Siegfried Resource Consultants Ltd.:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Goodwill amortization............... $ 176 $132 $132
Depreciation associated with
recording assets of Siegfried &
Siegfried Resource Consultants
Ltd............................... 35 26 26
---- ---- ----
$ 211 $158 $158
==== ==== ====
</TABLE>
(EE) Elimination of rental expense paid by J.R.S. Exploration to Siegfried
& Siegfried Resource Consultants Ltd.:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Rental expense eliminated........... $ 52 $ 45 $ 60
</TABLE>
(FF) To reflect the elimination of interest expense related to debt that
was extinguished from proceeds of the Initial Public Offering:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Northern............................ $ 319 $239 $ 7
Paragon............................. 106 80 38
---- ---- ---
$ 425 $319 $ 45
==== ==== ===
</TABLE>
(GG) To reduce Northern's depreciation to standardize depreciable life of
3-D data acquisition equipment with other U.S. Operating Subsidiaries.
(HH) To reflect an incremental adjustment in income tax expenses as a
result of items (CC)-(JJ), assuming a statutory tax rate of 35% in the U.S.,
Mexico and Canada and consolidated returns for U.S. federal income tax purposes
and the benefits of the utilization of the pro forma net operating losses of the
U.S. Operating Subsidiaries. Does not include the effects of potential
limitations in the utilization of pro forma U.S. net operating losses.
F-9
<PAGE> 70
(II) To reflect the eliminations of intercompany accounts as of December
31, 1995:
<TABLE>
<S> <C>
Elimination of Accounts Receivable:
Geoevaluaciones-Kemp joint venture rental to Kemp............. $169
Geoevaluaciones services to Kemp.............................. 24
----
$193
====
</TABLE>
(JJ) To reflect additional general and administrative expenses associated
with the establishment of the Company's corporate headquarters, public company
expenses and increased marketing costs.
(KK) The number of shares used in the pro forma earnings per share
calculation is determined as follows:
<TABLE>
<S> <C>
Shares Issued to 3-D Geophysical Stockholders............................. 1,400,681
Shares Issued to Acquire Geoevaluaciones.................................. 217,647
Shares Issued to Acquire PIASA............................................ 28,235
Shares Issued to Acquire Paragon.......................................... 1,314,261
Shares Issued to Acquire Kemp............................................. 39,176
Shares Issued to Fund Dividend to the former Stockholders of
Geoevaluaciones and PIASA as Required by Securities and Exchange
Commission Staff Accounting Bulletin No. 55............................. 601,333
Shares Issued to Fund Northern Acquisition................................ 1,174,667
Shares Issued to Fund Cash Portion of Kemp Acquisition.................... 83,333
Share Issued to Fund Repayment of Purchased Companies' Debt............... 613,200
Shares Issued to Fund Underwriting Discount and Offering Costs............ 759,333
---------
Pro forma shares outstanding.............................................. 6,231,866
Shares issued to acquire J.R.S. Exploration and certain related
equipment of Seigfried & Seigfried Resource Consultants, Ltd. (See
Note A).............................................................. 564,270
---------
Adjusted pro forma shares outstanding..................................... 6,796,136
=========
</TABLE>
F-10
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
3-D Geophysical, Inc. and Subsidiaries:
We have audited the accompanying combined balance sheet of 3-D Geophysical,
Inc. and Subsidiaries, (the "Predecessor Company" as defined in Note 1) as of
December 31, 1995 and 1994, and the related combined statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of 3-D
Geophysical, Inc. and Subsidiaries (as defined in Note 1) as of December 31,
1995 and 1994 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Mexico City, Mexico COOPERS & LYBRAND
May 1, 1996
F-11
<PAGE> 72
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ ---------------
PREDECESSOR PREDECESSOR SUCCESSOR
------------ ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.......................................... $ 241,823 $ 609,480 $1,205,999
Accounts receivable:
Trade, billed, net of the allowance for
doubtful accounts of $0, $0, and $49,000
as of December 31, 1994 and 1995 and
September 30, 1996, respectively......... 2,326,635 1,786,364 13,348,763
Trade, unbilled............................ -- -- 4,129,020
Other...................................... 99,580 157,690 259,241
Deferred income tax assets.................... -- -- 68,254
Prepaid expenses and other assets............. 304,884 238,730 1,912,609
----------- ----------- -----------
Total current assets.................. 2,972,922 2,792,264 20,923,886
Goodwill, net of accumulated amortization of $0,
$0, and $260,000 as of December 31, 1994 and
1995 and September 30, 1996, respectively..... -- -- 5,849,850
Property and equipment, net..................... 3,460,008 1,746,044 26,930,988
Other assets.................................... 14,769 9,610 691,144
----------- ----------- -----------
Total assets.......................... $ 6,447,699 $ 4,547,918 $54,395,868
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital
leases..................................... $ 621,997 $ 181,744 $6,516,704
Accounts payable.............................. 2,137,719 1,003,511 9,035,351
Accrued liabilities........................... 967,329 1,005,673 1,536,223
Deferred revenue.............................. -- -- 418,190
Income taxes payable.......................... 26,283 -- 567,798
----------- ----------- -----------
Total current liabilities............. 3,753,328 2,190,928 18,074,266
Long-term debt and capital leases............... 309,000 -- 8,682,423
Deferred income tax liability................... 752,409 530,250 652,842
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred Stock, $.01 par value per share;
1,000,000 shares authorized; none issued
and outstanding............................ -- -- --
Common Stock, $.01 par value per share;
25,000,000 shares authorized; 7,600,000
shares issued and outstanding.............. -- -- 76,000
Common stock (predecessor company), 1,000
pesos par value, 1,200 shares authorized,
issued and outstanding; .50 pesos par
value, 200 shares authorized, issued and
outstanding................................ 292,133 319,796 --
Additional paid-in capital.................... -- -- 28,172,810
Retained earnings............................. 3,457,670 4,362,577 1,933,981
Cumulative foreign currency translation
adjustments................................ (2,116,841) (2,855,633) (3,196,454)
----------- ----------- -----------
Total stockholders' equity............ 1,632,962 1,826,740 26,986,337
----------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $ 6,447,699 $ 4,547,918 $54,395,868
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 73
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------
PREDECESSOR PREDECESSOR PREDECESSOR PREDECESSOR SUCCESSOR
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $17,638,376 $17,660,155 $9,824,541 $7,157,449 $36,151,454
Expenses:
Cost of data acquisition.......... 13,146,011 11,003,937 5,967,924 3,759,415 26,562,539
Depreciation and amortization..... 989,992 1,468,357 661,657 530,518 2,787,897
General and administrative
expenses....................... 1,280,335 1,814,000 1,037,658 833,443 3,906,740
Operating income.................... 2,222,038 3,373,861 2,157,302 2,034,073 2,894,278
Other income (expense):
Interest income................... 151,504 164,598 264,648 157,061 368,558
Interest expense.................. (1,031,902) (466,463) (803,149) (561,823) (668,211)
Foreign currency transaction gains
or (losses).................... 32,778 (92,118) (119,722) (82,950) 7,267
Miscellaneous..................... 118,510 (76,816) 237,774 (119,225) 68,016
----------- ----------- ---------- ---------- -----------
Income before provision for income
tax............................... 1,492,928 2,903,062 1,736,853 1,427,136 2,669,908
Provision for income tax............ 417,815 1,000,402 130,044 81,255 645,101
----------- ----------- ---------- ---------- -----------
Income before extraordinary item.... 1,075,113 1,902,660 1,606,809 1,345,881 2,024,807
Extraordinary item, net of tax
expense of $36,000 (Note 9)....... -- -- -- -- 57,000
----------- ----------- ---------- ---------- -----------
Net income.......................... $ 1,075,113 $ 1,902,660 $1,606,809 $1,345,881 $ 2,081,807
=========== =========== ========== ========== ===========
Per share information:
Income before extraordinary item.... $ .29
Extraordinary item, net of tax
expense........................... .01
-----------
Net earnings........................ $ .30
===========
Weighted average common shares
outstanding....................... 6,926,795
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 74
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Predecessor:
Balance, January 1, 1993............ $ 58,049 -- $ 979,575 $ (54,287) $ 983,337
Capital contribution................ 4,502 -- -- -- 4,502
Dividend paid to shareholders....... -- -- (270,096) -- (270,096)
Stock dividend issued to
shareholders..................... 229,582 -- (229,582) -- --
Foreign currency translation
adjustments...................... -- -- -- 13,724 13,724
Net income for the year............. -- -- 1,075,113 -- 1,075,113
--------- ----------- ----------- ----------- -----------
Predecessor:
Balance, December 31, 1993.......... $ 292,133 -- $1,555,010 $ (40,563) $1,806,580
Foreign currency translation
adjustments...................... -- -- -- (2,076,278) (2,076,278)
Net income for the year............. -- -- 1,902,660 -- 1,902,660
--------- ----------- ----------- ----------- -----------
Predecessor:
Balance, December 31, 1994.......... $ 292,133 -- $3,457,670 $(2,116,841) $1,632,962
Foreign currency translation
adjustments...................... -- -- (738,792) (738,792)
Net income for the year............. -- -- 1,606,809 -- 1,606,809
Capital contribution................ 27,663 -- -- -- 27,663
Dividend paid to shareholders....... -- -- (701,902) -- (701,902)
--------- ----------- ----------- ----------- -----------
Predecessor:
Balance, December 31, 1995.......... $ 319,796 -- $4,362,577 $(2,855,633) $1,826,740
Successor:
Foreign currency translation
adjustments (unaudited).......... -- -- -- (340,821) (340,821)
Recapitalization of predecessor
company (unaudited).............. (303,330) 303,330 -- -- --
Acquisition of Paragon
(unaudited)...................... 13,143 (1,033,442) (1,020,299)
Acquisition of Kemp (unaudited)..... 391 293,429 293,820
Initial public offering of common
stock net of underwriting
discount and offering costs
(unaudited)...................... 46,000 28,609,493 -- -- 28,655,493
Dividend to predecessor company
shareholders (unaudited)......... -- -- (4,510,403) -- (4,510,403)
Net income for the period
(unaudited)...................... -- -- 2,081,807 -- 2,081,807
--------- ----------- ----------- ----------- -----------
Balance, September 30, 1996
(unaudited)...................... $ 76,000 $28,172,810 $1,933,981 $(3,196,454) $26,986,337
========= =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 75
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ------------
PREDECESSOR PREDECESSOR PREDECESSOR PREDECESSOR SUCCESSOR
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ 1,075,113 $ 1,902,660 $ 1,606,809 $ 1,345,881 $ 2,081,807
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and
amortization................. 989,992 1,468,357 661,657 530,518 2,787,897
Gain on sale of fixed assets... -- -- (350,430) -- (87,442)
Changes in operating assets and
liabilities:
Effect of change in exchange
rate on operating assets and
liabilities.................. 108,854 (61,328) 197,319 148,863 20,748
(Increase) decrease in
receivables.................. (1,065,155) 368,591 504,363 637,411 (9,060,630)
(Increase) decrease in other
assets....................... 299,238 (56,098) 66,154 254,142 (1,517,583)
Increase (decrease) in accounts
payable...................... 70,175 356,398 (1,156,410) (970,241) 3,029,824
Increase (decrease) in accrued
liabilities.................. 669,373 (484,815) 38,744 (234,280) (405,879)
Increase in deferred
revenues..................... -- -- -- -- 418,190
Provision for deferred
income taxes................. 7,779 962,628 130,044 (404,186) 76,156
Increase (decrease) in
taxes payable................ 43,729 (57,249) (26,283) 276,565 567,798
----------- ----------- ----------- ----------- ------------
Total adjustments......... 1,123,985 2,496,484 65,158 238,792 (4,170,921)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used
in) operating
activities.............. 2,199,098 4,399,144 1,671,967 1,584,673 (2,089,114)
Cash flows from investing
activities:
Cash consideration paid to acquire
Operating Subsidiaries and
PIASA.......................... -- -- -- -- (10,328,000)
Purchase of property and
equipment, net................. (714,601) (3,262,335) (146,776) (123,229) (12,269,880)
Proceeds on sale of equipment..... -- -- 350,430 -- 113,860
Investment in securities.......... (31,959) -- -- -- --
----------- ----------- ----------- ----------- ------------
Net cash provided by (used
in) investing
activities.............. (746,560) (3,262,335) 203,654 (123,229) (22,484,020)
Cash flows from financing
activities:
Payment of dividends to owners of
predecessor company............ (270,096) -- (701,902) -- (3,510,000)
Proceeds from initial public
offering, net of underwriting
discounts...................... -- -- -- -- 32,085,000
Costs in connection with initial
public offering................ -- -- -- -- (3,430,669)
Cash paid to retire indebtedness
of Operating Subsidiaries and
PIASA.......................... -- -- -- -- (4,599,000)
Net (payments on) borrowings under
factor agreements.............. 1,300,465 (1,314,965) (206,782) (206,782)
Issuance of Common Stock of
predecessor company............ 4,502 -- 27,663 27,663 --
Cash proceeds from borrowings
under notes payable and capital
leases......................... -- -- -- -- 12,933,947
Payments on borrowings and capital
leases......................... (1,097,450) (742,972) (542,471) (483,825) (8,316,835)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used
in) financing
activities.............. (62,579) (2,057,937) (1,423,492) (662,944) 25,162,443
----------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash..... 1,389,959 (921,128) 452,129 798,500 589,309
Cash at beginning of period......... 469,886 1,858,343 241,823 241,823 609,480
Effect of change in exchange rate on
cash balance...................... (1,502) (695,392) (84,472) (53,023) 7,210
----------- ----------- ----------- ----------- ------------
Cash at end of period............... $ 1,858,343 $ 241,823 $ 609,480 $ 987,300 $ 1,205,999
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 76
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
On February 9, 1996, 3-D Geophysical, Inc. ("Company") consummated an
initial public offering (the "Initial Public Offering") and simultaneously
acquired in separate transactions, in exchange for cash, notes and shares of
Common Stock, Geoevaluaciones, S.A. de C.V. ("Geoevaluaciones"), certain assets
and liabilities of the land-based seismic data operations of Northern
Geophysical of America, Inc. ("Northern"), Paragon Geophysical, Inc. ("Paragon")
and Kemp Geophysical Corporation ("Kemp") (collectively referred to as the
"Operating Subsidiaries") and Procesos Interactivos Avanzados, S.A. de C.V.
("PIASA"),
For accounting purposes the acquisitions of Geoevaluaciones and PIASA have
been treated as a recapitalization of Geoevaluaciones and PIASA with
Geoevaluaciones (combined with PIASA) deemed to be the acquiror of the Company
and considered the predecessor company. For purposes of identification and
description, the Company is referred to as the "Predecessor" for the period
prior to the Initial Public Offering and the acquisition of the Operating
Subsidiaries and PIASA as described below, the "Successor" for the period
subsequent to the Initial Public Offering and the acquisition of the Purchased
Companies and the "Company" for both periods.
The acquisitions of Northern, Paragon and Kemp have been treated as
business combinations accounted for by the purchase method of accounting as
prescribed by Accounting Principles Board Opinion No. 16 and SEC Staff
Accounting Bulletin No. 48. Northern and Kemp were valued at the fair market
value of consideration given. In connection with the acquisitions of Northern
and Kemp, the excess of consideration given over the fair market value of net
assets acquired are being amortized on a straight-line basis over 15 years. The
acquisition of Paragon's common stock in exchange for shares of the Company's
Common Stock was accounted for at Paragon's historical costs. The accompanying
consolidated financial statements include the accounts of Northern, Kemp and
Paragon from February 9, 1996, the effective date of the acquisitions. As a
result, the Company's statement of operations for the nine months ended
September 30, 1996 is not comparable to the statement of operations for the nine
months ended September 30, 1995, and the Company's balance sheet as of September
30, 1996 is not comparable to its balance sheet as of December 31, 1995.
The consideration paid to the former owners of Northern, Kemp and Paragon
and the allocation of such consideration to the acquired assets is as follows:
<TABLE>
<S> <C>
Cash paid for the stock and assets of the Operating Subsidiaries and
PIASA................................................................. $10,328,000
Debt payable to former owner of Northern................................ 1,149,000
Common Stock issued to the former owners of Kemp at the Initial Public
Offering price of $7.50 per share..................................... 294,000
Assumption of the liabilities in excess of assets of Paragon............ (1,020,000)
Liabilities assumed:
Bank overdraft.......................................................... 162,000
Accounts payable........................................................ 4,984,000
Accrued and other current liabilities................................... 1,130,000
Debt assumed:
Current............................................................... 8,007,000
Non-current........................................................... 3,187,000
-----------
Amounts allocated to acquired assets.................................... $28,221,000
===========
</TABLE>
F-16
<PAGE> 77
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED
Allocation of the purchase price to the acquired assets:
<TABLE>
<S> <C>
Accounts receivable:
Trade.................................................................. $6,575,000
Other.................................................................. 123,000
Deferred income tax assets............................................... 108,000
Prepaid expenses and other current assets................................ 209,000
Property and equipment................................................... 14,106,000
Goodwill................................................................. 6,147,000
Other assets............................................................. 953,000
-----------
$28,221,000
===========
</TABLE>
UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Successor as of
September 30, 1996 and the results of the operations and cash flows for the
nine-month periods ended September 30, 1995 and 1996 for the Predecessor and the
Successor, respectively. The results of operations for all interim periods
presented are not necessarily indicative of the results to be expected for the
full year.
CONDENSED CONSOLIDATED PRO FORMA INFORMATION (UNAUDITED)
The accompanying condensed consolidated pro forma information for the
Company for the nine months ended September 30, 1995 and 1996 and for the year
ended December 31, 1995 represents the operations of the Company as if the
acquisitions of the Operating Subsidiaries and PIASA and the Company's Initial
Public Offering had occurred on January 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------------
1995 1995 1996
------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues............................................. $ 37,835 $25,669 $39,974
======= ======= =======
Net earnings............................................. $ 703 $ 470 $ 1,776
======= ======= =======
Earnings per share....................................... $ .11 $ .08 $ .28
======= ======= =======
</TABLE>
The pro forma results described above assume weighted average common shares
outstanding of 6,232,000 shares.
The condensed consolidated pro forma information is not necessarily
indicative of the actual results that would have been achieved if the Initial
Public Offering, recapitalization and acquisitions had occurred on the date
indicated or which may be realized in the future.
2. INITIAL PUBLIC OFFERING OF COMMON STOCK
On February 9, 1996, the Company completed the offering of 4,000,000 shares
of Common Stock at a price to the public of $7.50 per share. Subsequently, on
February 21, 1996, the underwriters exercised their overallotment option to
purchase an additional 600,000 shares at a price to the public of $7.50 per
share. The proceeds, net of the underwriters' discounts and the Company's
offering costs, were approximately $28,654,000. Of those net proceeds,
$3,510,000 was treated, for accounting purposes, as a dividend to the
F-17
<PAGE> 78
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
former stockholders of GEO and PIASA, approximately $10,328,000 was used to
purchase Northern and all of the capital stock of Kemp, approximately $4,599,000
was used to retire certain indebtedness of the Operating Subsidiaries, $152,000
was used to retire capital leases and $1,149,000 was paid subsequent to the
closing of the acquisitions as a purchase price adjustment for the purchase of
the land-based seismic data operations of Northern. The Company recognized
$57,000 of extraordinary gain, net of tax, from the retirement of a certain
portion of this debt.
3. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company generates revenue through performing seismic data acquisition.
Revenues from seismic data services are recognized as the work progresses on the
percentage of completion method.
Net revenues for the nine months ended September 30, 1995 and 1996 included
contractual revenue adjustments from the Mexican operations for which the
related seismic data acquisition and geophysical services have been provided.
These revenue adjustments are based on independent economic data, primarily the
Mexican inflation rate as measured by the consumer price index. Certain of these
revenue adjustments recognized for the nine months ended September 30, 1996, for
which the Company has the contractual right to invoice, have not been invoiced
pending final review by the Company's major customer in Mexico. The Company,
historically, has not experienced difficulty in collecting these revenue
adjustments and, accordingly, the Company has not recorded a valuation allowance
against these amounts as of December 31, 1995 or September 30, 1996.
MAJOR CUSTOMER
One customer, PEMEX, which is owned by the Mexican government, accounted
for approximately 98% of the revenues of the Predecessor for the year ended
December 31, 1995. As of December 31, 1994 and 1995, this customer accounted for
approximately 100% and 99%, respectively, of the Predecessor's trade accounts
receivable. As of September 30, 1996, two customers accounted for 29.1%, and
28.0% of the Successor's trade accounts receivable.
During the nine months ended September 30, 1995, one customer accounted for
100% of net revenues of the Predecessor and during the nine months ended
September 30, 1996, three customers accounted for 25.1%, 18.1% and 16.4% of the
Successor's net revenues, respectively.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Predecessor and the operations of the
Successor in Mexico use the Mexican peso as the functional currency. Assets and
liabilities are translated into U.S. dollars at the prevailing exchange rate at
the respective balance sheet date. The resulting translation adjustments are
included in stockholders' equity. Income and expenses are translated at the
average exchange rate during the respective reporting period. Gains and losses
resulting from foreign currency transactions are included in income currently.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, adjusted for accumulated
depreciation and amortization. Equipment held under capital leases is stated at
the present value of future minimum lease payments at the inception of the
leases. Property and equipment are depreciated on the straight-line method over
the estimated useful lives of the assets, which range from three to seven years.
Equipment held under capital leases is amortized on the straight-line method
over the estimated useful life of the assets or the terms of the lease.
F-18
<PAGE> 79
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts
receivable, accounts payable and notes payable approximate fair value because of
the immediate or short-term maturity of these financial instruments. The
carrying amount of the obligation under capital lease approximates fair value
because the lease agreements bear interest at variable rates which are adjusted
monthly. The carrying amounts reported for long-term debt approximates fair
value based on current replacement values.
ACCOUNTING FOR INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in earnings in
the period in which the tax rate change was enacted. The Company establishes a
valuation allowance when it is more likely than not that a deferred tax asset
will not be recovered.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of ("Statement 121"). Statement 121 addresses the
accounting for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used. It also
addresses the accounting for long-lived assets and certain identifiable
intangibles to be disposed of. Statement 121 establishes guidance for
recognizing and measuring impairment losses and requires that the carrying
amount of impaired assets be reduced to fair value. Statement 121 will be
effective for fiscal years beginning after December 15, 1995. Management does
not expect the impact of the adoption of Statement 121 to have a material
adverse effect on the Successor's financial condition or results of operations.
During the fourth quarter of 1995, "Statement of Financial Accounting
Standards No. 123" (SFAS 123) was issued by the FASB. The Company will continue
to account for future grants of Common Stock options using the intrinsic value
method under Accounting Principles Board Opinion No. 25, "Accounting for Stock
issued to Employees" and will adopt the disclosure requirements of SFAS 123.
EARNINGS PER SHARE
Earnings per share is computed using weighted average common shares
outstanding for the period. The number of shares used in the earnings per share
calculation for the nine months ended September 30, 1996 is determined as
follows:
<TABLE>
<S> <C>
Shares issued to 3-D stockholders giving effect to the 2,717.66
for 1 stock split............................................... 1,400,681
Shares deemed to have been issued to fund cash portion of
Geoevaluaciones dividend........................................ 468,000
Shares issued to acquire Operating Subsidiaries and PIASA......... 1,406,677
Shares sold in the Initial Public Offering........................ 3,515,401
Common stock equivalents, principally common stock options........ 136,036
---------
Weighted average common shares outstanding........................ 6,926,795
=========
</TABLE>
F-19
<PAGE> 80
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on December 31, 1994 and 1995
for the combined financial statements, and September 30, 1996 for the
consolidated financial statements and the reported amounts of revenue and
expenses during the reporting periods. A significant estimate in the preparation
of the Company's financial statements is related to the percentage of revenue
recognized based on the stage of completion of the Company's contracts. Actual
results could differ from those estimates.
4. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
--------------------------- 30,
1994 1995 1996
----------- ----------- ----------
PREDECESSOR PREDECESSOR SUCCESSOR
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid equipment rental................. $ -- $ -- $ 293,392
Prepaid income tax....................... 235,805 153,434 --
Prepaid mobilization cost................ -- -- 756,464
Prepaid insurance........................ 26,965 28,097 659,132
Other miscellaneous assets............... $ 42,114 $ 57,199 203,621
----------- ----------- -----------
$ 304,884 $ 238,730 $1,912,609
=========== =========== ===========
</TABLE>
5. PROPERTY AND EQUIPMENT, NET
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
--------------------------- 30,
1994 1995 1996
----------- ----------- ----------
PREDECESSOR PREDECESSOR SUCCESSOR
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Field equipment.......................... $3,580,676 $2,403,711 $25,812,570
Transportation equipment................. 1,119,131 698,379 3,470,877
Computer equipment....................... 1,146,548 352,221 1,099,632
Office equipment, furniture and
fixtures............................... 50,330 35,330 173,060
Buildings and property................... -- -- 555,677
----------- ----------- -----------
5,896,685 3,489,641 31,111,816
Less accumulated depreciation............ (2,436,677) (1,743,597) (4,180,828)
----------- ----------- -----------
Property and equipment, net.............. $3,460,008 $1,746,044 $26,930,988
=========== =========== ===========
</TABLE>
6. ACCRUED LIABILITIES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- ---------
PREDECESSOR
-----------------------
<S> <C> <C>
Value added tax payable..................................... $273,558 $ 328,094
Accrued salaries, wages and payroll taxes................... 335,027 226,818
Other accrued expenses...................................... 358,744 450,761
-------- ----------
$967,329 $1,005,673
========= ==========
</TABLE>
F-20
<PAGE> 81
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER
1994 1995 30, 1996
-------- -------- ----------
PREDECESSOR SUCCESSOR
---------------------- (UNAUDITED)
<S> <C> <C> <C>
Notes payable to Mexican banks under accounts
receivable factoring agreements bearing
interest at 24.0%........................... $206,782 $ -- $ --
Note payable to First Interstate Bank of
Texas, N.A., due in monthly installments
through July 31, 1999 at a variable interest
rate of 9.25% at September 30, 1996......... 11,716,553
Note payable to former shareholders of the
Predecessor, due in semi-annual installments
through February 9, 1998 at a fixed interest
rate of 8.0%................................ 750,000
Note payable to Input/Output, due in monthly
installments through October, 1996 at a
fixed interest rate of 9.5%................. 249,955
Capital lease obligations payable to Century
Geophysical, due in monthly installments
through May, 1997 at a fixed interest rate
of 12.0%.................................... 86,351
Note payable to the Chubb Group of Insurance
Companies, due in monthly installments
through December 1, 1996 at a fixed interest
rate of 9.0%................................ 85,156
Notes payable to LTI Wire Services, due in
monthly installments through February, 1997
at a fixed interest rate of 10.0%........... 196,963
Capital lease obligations to Southwest Leasing
Company, due in monthly installments through
June, 2000 at fixed interest rates varying
from 9.6% to 12.2%.......................... 878,427
Revolving Credit Loan with First Interstate
Bank of Texas, N.A., at an interest rate of
9.25% at September 30, 1996................. 1,000,000
Capital lease obligation to Softech Financial
at a fixed interest rate of 9.4%............ 149,184
Capital lease obligation to Input/Output due
in monthly installments through 1996 at a
fixed interest rate of 10.0%................ 309,000 181,744
Capital lease obligations to various Mexican
financial institutions due in monthly
installments through 1995 at variable
interest rates ranging from 18.0% to 20.0%
at December 31, 1994........................ 415,215
Miscellaneous notes payable and capital lease
obligations, interest payable from 5.9% to
10.75%, due in monthly installments through
January, 2000............................... 203,591
-------- -------- -----------
$930,997 $181,744 $15,316,180
======== ======== ===========
Current portion............................... $621,997 $181,744 $ 6,593,625
Less: Debt issuance costs allocated to current
portion..................................... (76,921)
-----------
$ 6,516,704
===========
Non-current portion........................... $309,000 -- $ 8,722,555
Less: Debt issuance costs allocated to
non-current portion......................... (40,132)
-----------
$ 8,682,423
===========
</TABLE>
F-21
<PAGE> 82
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total accounts receivable serving as collateral under the factoring
agreements was approximately $260,000 at December 31, 1994. These invoices are
all stated in Mexican pesos which amounted to 1,300,000 pesos at December 31,
1994.
On May 31, 1996, the Company acquired seismic data acquisition equipment
(the "Equipment") from the manufacturer thereof, Input/Output, Inc. for an
aggregate of approximately $8.5 million in cash and refinanced certain
conditional sales agreements with Input/Output, Inc. for an additional $4.5
million of equipment. A portion of the purchase price for the Equipment and the
funds for the refinancing were paid from the proceeds of a $12 million borrowing
under a $15 million term loan (the "Term Loan") from First Interstate Bank of
Texas, N.A. (the "Bank") pursuant to a Loan Agreement between the Company and
the Bank, dated as of May 29, 1996 (the "Loan Agreement"). The Term Loan is
payable in substantially equal monthly installments through July 31, 1999, bears
interest at an annual rate equal to the prime rate plus 1% (9.25% at September
30, 1996) and is secured by a lien on the Company's accounts, accounts
receivable, equipment, machinery, fixtures, inventory, goods, chattel paper,
documents, instruments, investment property, general intangibles, and other
personal property, whether then owned or thereafter acquired, and all products
and proceeds thereof, and by guarantees by certain of the Company's
subsidiaries. The Loan Agreement also provides for a $3 million revolving credit
loan (the "Revolving Credit Loan") which may be drawn down from time to time
through May 29, 1997 in an amount of up to 70% of the Company's "Eligible
Accounts" (as defined in the Loan Agreement). The rate of interest and the
security for the Revolving Credit Loan are the same as those described above for
the Term Loan. In addition to certain customary affirmative covenants, the Loan
Agreement contains restrictions on the Company with respect to (i) incurring
Debt (as defined), incurring or permitting to exist Liens (as defined) on its
property, assets or revenues, (iii) declaring or paying any dividends or other
distributions on its capital stock (or acquiring any of its capital stock), (iv)
issuing capital stock, (v) entering into transactions with affiliates, (vi)
disposing of assets, and (vii) certain other matters. The Loan Agreement also
contains financial covenants with respect to minimum tangible net worth, the
ratio of tangible net worth to net liabilities and the ratio of earnings to debt
service.
8. COMMITMENTS AND CONTINGENCIES
Geoevaluaciones has a dispute, and may be threatened with litigation, in
connection with certain agreements it entered into with Capilano International
Inc., a Canadian company ("Capilano"). The dispute concerns a certain Letter of
Intent and a Technical Assistance Agreement, dated June 3, 1991 and June 1,
1992, respectively (the "Capilano Agreements"). Capilano stated in its 1994
Annual Report to Shareholders that it has had difficulty in collecting amounts
owing from a Mexican company (presumably, Geoevaluaciones) to which Capilano
supplied technical assistance and stated in its 1995 Annual Report that it had
written down by approximately C$1.9 million accounts receivable in Mexico.
Geoevaluaciones maintains that it is not obligated to compensate Capilano for
certain services Geoevaluaciones believes were either inadequately provided or
not provided at all by Capilano. Representatives of Capilano and Geoevaluaciones
have had ongoing discussions since May 1996 in an effort to resolve this
dispute. The Company currently is not able to estimate the effect, if any, on
its results of operations and financial position which may result from the
resolution of this matter. Therefore, the financial statements of the Company do
not reflect any adjustments related to this matter. A portion of the amounts
payable to the former stockholders of Geoevaluaciones in connection with the
acquisition by 3-D Geophysical of the stock of Geoevaluaciones owned by such
stockholders is held in escrow and available to pay amounts in settlement or
otherwise in connection with the dispute with Capilano.
The Predecessor rents office facilities under annual operating leases. Rent
expense was $489,512, $302,140 and $298,900 for the years ended December 31,
1993, 1994 and 1995, respectively.
F-22
<PAGE> 83
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EXTRAORDINARY ITEM
The Company recognized a $57,000 extraordinary item in the nine months
ended September 30, 1996, net of tax expense of $36,000. The extraordinary item
is due to a gain recognized on the early extinguishment of debt.
10. INCOME TAXES
The classifications of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
PREDECESSOR PREDECESSOR PREDECESSOR
----------- ----------- -----------
<S> <C> <C> <C>
Current........................................ $ 410,036 $ 37,774 $ --
Deferred -- tax depreciation greater (less)
than depreciation for financial reporting.... 7,779 962,628 130,044
---------- ----------- ---------
Provision for income taxes..................... $ 417,815 $ 1,000,402 $ 130,044
========== =========== =========
</TABLE>
The difference between the statutory federal income tax rate of 34% on
income before taxes and the Predecessors' reported provision for income taxes,
is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
PREDECESSOR PREDECESSOR PREDECESSOR
----------- ----------- -----------
<S> <C> <C> <C>
Tax expense at statutory rate.................. $ 507,596 $ 987,041 $ 546,346
Non-deductible profit sharing expense.......... 62,325 65,166 42,500
Net effects of inflation....................... (152,106) (51,805) (458,802)
----------- ----------- ---------
Tax expense at actual rate..................... $ 417,815 $ 1,000,402 $ 130,044
========== =========== =========
</TABLE>
The deferred tax liability at December 31, 1993, 1994 and 1995 and
September 30, 1996 (unaudited) is the result of differences between the
financial statement carrying value and the tax basis of property and equipment.
The effective income tax rates for the nine months ended September 30, 1995
and 1996 are 6% and 24%, respectively. The differences between the statutory
federal income tax rate on income before provision for income taxes and
extraordinary item, and the Company's effective income tax rate, result
primarily from the tax benefits associated with inflation adjustments with
respect to the operations of Geoevaluaciones and PIASA for the nine months ended
September 30, 1995 and the anticipated change in the valuation allowance
previously established with respect to net operating loss carryforwards and
inflation adjustments in Mexico for the nine months ended September 30, 1996.
11. COMMON STOCK
The Predecessor is required under Mexican law to establish a legal reserve
equal to 5% of each company's earnings until such time as the reserve equals 20%
of the minimum capital of the company. In 1993, Geoevaluaciones capitalized
$229,582 of earnings.
On February 9, 1996, the former stockholders of Geoevaluaciones (the
"Former Geoevaluaciones Stockholders") sold all of the issued and outstanding
shares of capital stock of Geoevaluaciones to the Company. Pursuant to the
Geoevaluaciones stock purchase agreement, the aggregate consideration paid to
the Former Geoevaluaciones Stockholders by the Company was: (i) $2.45 million
paid in cash at closing; and (ii) $1.0 million paid by delivery at closing of
four promissory notes, payable in installments at six, 12, 18 and 24 months
after the closing in following aggregate amounts (which amounts include interest
at 8% per
F-23
<PAGE> 84
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMON STOCK, CONTINUED
annum): $290,000, $280,000, $270,000 and $260,000, respectively. In connection
with this acquisition, each of the Former Geoevaluaciones Stockholders entered
into a separate non-competition agreement with the Company pursuant to which the
Company paid to the Former Geoevaluaciones Stockholders: (i) 100,000 shares of
Common Stock held in trusts with Mexican banks for the benefit of the Former
Geoevaluaciones Stockholders, and to be released February 9, 1998; and (ii) $2.0
million, reduced by the amount of any liabilities Geoevaluaciones had not
disclosed to 3-D and by any amount paid by Geoevaluaciones to settle or
otherwise in connection with Geoevaluaciones' dispute with Capilano, such
portion of the consideration consisting of (a) $1.0 million in cash deposited at
the closing in a bank account, and which, subject to any such reduction, may be
disbursed only upon the approval of certain individuals; and (b) 117,647 shares
of Common Stock to be delivered at closing to trusts with Mexican banks for the
benefit of the Former Geoevaluaciones Stockholders, and which may not be
released until June 30, 1997 and then only upon the approval of certain
individuals. Pursuant to such stock purchase agreement, the Company agreed to
assume up to an aggregate of $600,000 of the obligations under any borrowings of
Geoevaluaciones from a bank or other financial institution for working capital
purposes.
On February 6, 1996, the former stockholders of PIASA, pursuant to a stock
purchase agreement dated November 7, 1995, sold all of the shares of capital
stock of PIASA to the Company. The aggregate consideration paid by the Company
was approximately $300,000, consisting of $60,000 in cash and approximately
28,235 shares of Common Stock.
In October 1995, the Predecessor and Kemp Geophysical Corporation formed a
joint venture to perform certain land-based seismic data acquisition activities.
In November, the joint venture incurred debt (bearing interest at an annual rate
of 10.75% payable over three years) of $3.9 million to acquire an I/O SYSTEM
TWO(R) system. On July 1, 1996, the Company signed a dissolution agreement
terminating the joint venture which provided for the assets to be transferred to
Geoevaluacines. The debt was repaid in connection with the execution of the
Credit Facility as discussed in Note 7.
12. SUPPLEMENTARY CASH FLOW INFORMATION
The following supplementary cash flow transactions occurred for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
PREDECESSOR PREDECESSOR PREDECESSOR
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid........................................ $ 680,200 $ 449,950 $ 788,900
Income taxes paid.................................... 366,307 209,006 26,283
Equipment acquired under capital leases.............. 118,176 556,985 --
Equipment acquisitions financed under long term
finance plan....................................... -- 306,000 --
</TABLE>
F-24
<PAGE> 85
3-D GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS (UNAUDITED)
The Company has granted the following stock options to its employees,
officers and directors:
<TABLE>
<CAPTION>
NUMBER VESTING
GRANT DATE OF SHARES EXERCISE PRICE PERIOD
- ----------------------------------------------------------- --------- -------------- -------
<S> <C> <C> <C>
February 8, 1996........................................... 525,000 $ 7.50 3 years
April 26, 1996............................................. 41,400 7.375 4 years
April 26, 1996............................................. 225,150 12.3125 4 years
April 26, 1996............................................. 10,000 12.3125 3 years
August 9, 1996............................................. 17,800 7.375 4 years
September 30, 1996......................................... 40,002 8.50 1 year
September 30, 1996......................................... 30,000 8.25 3 years
---------
Total............................................ 889,352
=======
</TABLE>
At September 30, 1996, there are no exercisable options.
14. SUBSEQUENT EVENTS (UNAUDITED)
On December 10, 1996, the Company entered into a stock purchase agreement
(the "Stock Purchase Agreement") to acquire J.R.S. Exploration Company Limited
("J.R.S. Exploration"), a land-based seismic data acquisition business
headquartered in Calgary, Alberta. Under the terms of the Stock Purchase
Agreement, the Company proposes to acquire all of the issued and outstanding
shares of capital stock of the intermediate holding companies that own all of
the issued and outstanding capital stock of J.R.S. Exploration for Canadian $3.5
million (approximately U.S. $2.6 million) in cash and a number of shares of the
Common Stock having a value of Canadian $3.35 million (approximately U.S. $2.5
million) valued on the basis of the average closing price of the Common Stock
prior to the closing. The acquisition is subject to certain customary
conditions. The closing of this proposed acquisition is anticipated to occur in
January 1997.
On October 8, 1996, the Company filed a Registration Statement on Form S-1
(No. 333-13665) with the Securities and Exchange Commission relating to a
proposed underwritten sale to the public of 4,000,000 shares of Common Stock
(plus an over-allotment option of 600,000 shares). On November 19, 1996, the
Company filed an amendment to such registration statement and increased the
number of shares of Common Stock to be offered to 4,300,000 (plus an
over-allotment option of 645,000).
In October 1996, the Company signed four separate lease agreements for the
lease of seismic data acquisition equipment with rental terms ranging from three
to six months and providing for aggregate minimum lease payments of
approximately $3.8 million. Two of the leases are with Andrews Group
International, a related party. Each of these two leases has a six month minimum
lease term and provides that the Company has the option to purchase the
equipment being leased, with 80% of rental payments applying towards the
purchase price. Minimum lease payments under these leases are approximately
$660,000 and $173,000, respectively.
The Company also entered into two lease agreements with Geco-Prakla, a
division of Schlumberger Technology Corporation. One lease has a three-month
minimum lease term and provides that the Company has the option to purchase the
equipment being leased, with 75% of rental payments applying towards the
purchase price. Minimum lease payments under this lease are approximately
$338,000. The other lease has a three-month minimum lease term and contains no
option to purchase the equipment being leased. Minimum lease payments under this
lease are approximately $2.6 million.
The Company believes that it is probable that the inflation rate in Mexico,
as measured by the consumer price index, will exceed 100% for the three-year
period ending December 31, 1996. Accordingly, the Company will likely adopt the
U.S. dollar as the functional currency for the Mexican Operations beginning on
January 1, 1997 in accordance with Statement of Financial Accounting Standards
No. 52. Using the U.S. Dollar as the functional currency will result in an
adjustment to the consolidated statement of operations for translation gains and
losses.
F-25
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Northern Geophysical of America, Inc.:
We have audited the accompanying balance sheet of the Land-Based Seismic
Data Operations of Northern Geophysical of America, Inc. (the "Company") as of
December 31, 1994 and September 30, 1995, and the related statements of
operations, changes in net equity and cash flows for each of the two years in
the period ended December 31, 1994 and the nine month period ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Land-Based Seismic Data
Operations of Northern Geophysical of America, Inc. as of December 31, 1994 and
September 30, 1995, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1994 and the nine month
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
Denver, Colorado COOPERS & LYBRAND L.L.P.
December 19, 1995
F-26
<PAGE> 87
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER DECEMBER
31, 30, 31,
1994 1995 1995
---------- --------- --------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash............................................... $ -- $ -- $ --
Accounts receivable, trade:
Billed.......................................... 1,162,051 3,860,383 4,949,456
Unbilled........................................ 461,696 1,629,655 2,139,195
Employee advances.................................. 12,289 99,161 58,920
Prepaid expenses................................... 131,431 191,798 62,580
Other current assets............................... 6,646 -- --
---------- ---------- -----------
Total current assets....................... 1,774,113 5,780,997 7,210,151
Property and equipment, net.......................... 4,725,610 3,753,539 3,415,755
Other assets, net.................................... 20,508 23,662 15,209
---------- ---------- -----------
Total assets............................... $6,520,231 $9,558,198 $10,641,115
========== ========== ===========
LIABILITIES AND NET EQUITY
Current liabilities:
Accounts payable................................... $1,998,335 $5,078,939 $5,533,995
Notes payable, current portion..................... 3,201,595 1,525,308 927,389
Obligations under capital leases, current
portion......................................... 107,953 144,529 138,362
Accrued liabilities................................ 232,973 349,022 537,516
---------- ---------- -----------
Total current liabilities.................. 5,540,856 7,097,798 7,137,262
Notes payable, less current portion.................. 41,667 18,289 15,642
Obligations under capital leases, less current
portion............................................ 184,360 305,348 278,305
Deferred income tax liability........................ 248,862 102,824 105,656
Commitments and contingencies (Note 6)
Net equity........................................... 504,486 2,033,939 3,104,250
---------- ---------- -----------
Total liabilities and net equity........... $6,520,231 $9,558,198 $10,641,115
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 88
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
NINE FOR THE
MONTHS YEAR
FOR THE YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER DECEMBER
-------------------------- 30, 31,
1993 1994 1995 1995
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues.............................. $13,595,840 $15,423,893 $12,734,391 $19,903,147
Cost of data acquisition.................. 9,484,957 10,654,165 10,714,692 16,465,216
----------- ----------- ----------- -----------
4,110,883 4,769,728 2,019,699 3,437,931
General and administrative expenses....... 1,144,958 1,383,506 956,741 1,458,231
Depreciation and amortization............. 1,631,314 1,980,422 1,350,381 1,754,590
Interest expense.......................... 291,077 329,656 204,295 265,415
(Gain) loss on disposal of equipment...... (32,707) 4,588 100,410 66,817
Interest income........................... -- -- (192) --
----------- ----------- ----------- -----------
3,034,642 3,698,172 2,611,635 3,545,053
Income (loss) before income taxes......... 1,076,241 1,071,556 (591,936) (107,122)
Provision (benefit) for income taxes...... -- 321,840 (219,016) (39,635)
----------- ----------- ----------- -----------
Net income (loss)......................... $ 1,076,241 $ 749,716 $ (372,920) $ (67,487)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 89
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
STATEMENT OF CHANGES IN NET EQUITY
<TABLE>
<S> <C>
Net equity, January 1, 1993.................................................... $ 74,063
Increase in net equity......................................................... 3,936,653
Net income..................................................................... 1,076,241
----------
Net equity, December 31, 1993.................................................. 5,086,957
----------
Decrease in net equity......................................................... (5,332,187)
Net income..................................................................... 749,716
----------
Net equity, December 31, 1994.................................................. 504,486
----------
Increase in net equity......................................................... 1,902,373
Net loss....................................................................... (372,920)
----------
Net equity, September 30, 1995................................................. 2,033,939
----------
Increase in net equity (unaudited)............................................. 764,878
Net income (unaudited)......................................................... 305,433
----------
Net equity, December 31, 1995 (unaudited)...................................... $3,104,250
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 90
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE
MONTHS YEAR
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER DECEMBER
----------------------- 30, 31,
1993 1994 1995 1995
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $1,076,241 $ 749,716 $ (372,920) $ (67,487)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 1,631,314 1,980,422 1,350,381 1,754,590
(Gain) loss on sale of equipment.......................... (32,707) 4,588 100,410 66,817
Changes in assets and liabilities:
(Increase) decrease in total accounts receivable,
trade.............................................. (2,248,157) 1,810,901 (3,866,291) (5,464,903)
(Increase) decrease in employee advances............. 31,109 (7,404) (86,872) (46,631)
Decrease in prepaid expenses and other current
assets............................................. 58,436 37,474 (53,721) 80,795
Increase (decrease) in accounts payable, trade and
accrued liabilities................................ 897,727 128,263 3,196,653 3,840,203
Increase (decrease) in deferred income tax
liability.......................................... -- 248,862 (146,038) (143,206)
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities..... 1,413,963 4,952,822 121,602 20,178
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.......................... (1,635,872) (298,914) (215,413) (266,052)
Proceeds from sale of equipment............................. 22,045 8,110 -- 22,218
Other....................................................... (8,796) (7,650) (3,154) (4,230)
----------- ----------- ----------- -----------
Net cash used by investing activities................ (1,622,623) (298,454) (218,567) (248,064)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on notes payable......................... (8,190,753) (3,476,880) (4,420,443) (6,041,753)
Borrowings on notes payable................................. 4,535,400 4,285,776 2,720,778 3,742,500
Principal payments on capital leases........................ (72,640) (131,077) (105,743) (140,112)
Increase (decrease) in net equity........................... 3,936,653 (5,332,187) 1,902,373 2,667,251
----------- ----------- ----------- -----------
Net cash used by financing activities................ 208,660 (4,654,368) 96,965 227,886
----------- ----------- ----------- -----------
Net change in cash and cash equivalents....................... -- -- -- --
Cash and cash equivalents:
Beginning of period......................................... -- -- -- --
----------- ----------- ----------- -----------
End of period............................................... $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 280,992 $ 292,839 $ 277,939 $ 236,580
Income taxes paid to Northern............................. -- 72,978 (72,978) 103,571
Supplemental schedule of noncash financing and investing
activities:
Purchase of equipment through the assumption of notes
payable and capital lease obligations................... $3,700,898 $ 599,836 $ 263,307 $ 263,307
Acquisition of property and equipment..................... 93,000 -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 91
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The financial statements presented herein include the accounts of the
land-based seismic data operations (the "Company") of Northern Geophysical of
America, Inc. ("Northern"). Net equity presented in the accompanying financial
statements is principally the result of the Company's cash receipts and
disbursements which were processed through Northern's centralized cash
management system. Additionally, the accompanying financial statements do not
include certain debt obligations of Northern to its Parent (as defined below)
and related interest expense, which are collateralized by certain of the
Company's seismic equipment, because such debt was not specifically allocated to
the land-based seismic data operations in the past.
At December 31, 1994, September 30, 1995 and December 31, 1995 (unaudited),
Fairwater Capital Corporation ("Fairwater" or the "Parent") held 81% of the
outstanding common stock of Northern, and all of the outstanding preferred stock
of Northern. The remaining outstanding common stock of Northern is held by
employees. The Company is engaged in land-based seismic data acquisition.
On February 9, 1996, Northern sold certain of its assets and operations to
3-D Geophysical, Inc. ("3-D Geophysical"). The aggregate consideration paid by
3-D Geophysical was approximately $10.9 million cash, reduced by the amount of
any and all outstanding indebtedness of Northern secured by the assets acquired
by 3-D Geophysical other than indebtedness owed to affiliates of Northern, and
further reduced to the extent the net working capital, as defined, of the assets
acquired on the day of the closing was negative, or, alternatively, increased to
the extent such net working capital was positive. The sale of these assets
occurred simultaneously in conjunction with an initial public offering of
securities by 3-D Geophysical. Commencing February 9, 1996, the results of
operations of the Company are included in the financial statements of 3-D
Geophysical, Inc. and Subsidiaries.
Revenue Recognition:
Revenues from seismic and geophysical services are recorded based on the
percentage of completion method.
Property and Equipment:
Property and equipment are carried at cost and include assets under capital
leases which are carried at the lower of cost or present value of future minimum
lease payments at the inception of the lease. Maintenance and repairs are
charged to expense as incurred and expenditures for major improvements are
capitalized. Gains and losses from retirement or replacement are included in
operations.
Depreciation and amortization of equipment, furniture and assets under
capital leases are provided over the estimated useful lives of the assets or the
term of the lease using the straight-line method.
Concentration of Credit Risk:
During the years ended December 31, 1993 and 1994, for the nine months
ended September 30, 1995 and for the year ended December 31, 1995, one customer
accounted for approximately 33%, 26%, 29% and 19.4% (unaudited), respectively,
of seismic and geophysical revenues.
The Company has not incurred any credit losses relating to its seismic and
geophysical services. Allowances for potential credit losses relating to seismic
and geophysical revenues are not maintained nor does the Company require
collateral.
F-31
<PAGE> 92
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
General and Administrative Expenses:
General and administrative expenses represent actual costs incurred by
Northern, except for certain costs not related to the land-based seismic data
operations which were determined based on number of employees. Management of the
Company believes the allocation method is reasonable.
Income Taxes:
Northern files federal and certain state income tax returns which include
the operations of the Company. For financial reporting purposes, the Company
computes its provision for income taxes on a separate company basis utilizing
the tax elections made by Northern.
Unaudited Financial Information:
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial condition, results of operations and
cash flows of the Company as of and for the year ended December 31, 1995.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. A significant estimate in the preparation of the Company's financial
statements is related to the percentage of revenue recognized based on the stage
of completion of the Company's contracts. Actual results could differ from those
estimates.
2. COST AND BILLINGS ON UNCOMPLETED CONTRACTS:
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER DECEMBER
31, 30, 31,
1994 1995 1995
-------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cost incurred and estimated earnings on
uncompleted contracts....................... $461,696 $4,500,278 $7,330,524
Billings on uncompleted contracts............. -- 2,870,623 5,191,329
-------- ---------- ----------
Unbilled accounts receivable.................. $461,696 $1,629,655 $2,139,195
======== ========== ==========
</TABLE>
Unbilled accounts receivable under customer contracts represents revenue
earned under the percentage of completion method but not yet billable under the
terms of the contract.
F-32
<PAGE> 93
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
The major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
USEFUL LIVES 1994 1995 1995
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Recording instruments.......... 2 - 5 years $10,387,927 $10,185,537 $10,222,644
Field equipment................ 2 - 5 years 1,837,972 1,775,366 1,773,007
Vehicles....................... 3 - 5 years 765,576 750,393 750,393
Office furniture and
fixtures..................... 7 years 131,921 77,883 78,727
Buildings and property......... 15 years 193,986 151,952 46,348
----------- ----------- ------------
13,317,382 12,941,131 12,871,119
Less accumulated depreciation
and amortization............. (8,591,772) (9,187,592) (9,455,364)
----------- ----------- ------------
$ 4,725,610 $ 3,753,539 $ 3,415,755
=========== =========== ============
</TABLE>
4. NOTES PAYABLE AND OTHER DEBT:
Notes payable and other debt at December 31, 1994, September 30, 1995 and
December 31, 1995 (unaudited) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Century Geophysical Corp.,
interest payable at 12%, due in monthly
installments through February, 1996,
collateralized by certain property and
seismic equipment............................ $ 1,982,481 $ 739,930 $ 298,932
Note payable to Century Geophysical Corp.,
interest payable at 12% due in monthly
installments through August, 1995,
collateralized by certain seismic
equipment.................................... 76,151 -- --
Note payable to First Interstate Bank,
interest payable at prime, (8.5% at December
31, 1995, due in full March 31, 1995
(subsequently extended to March, 1996),
collateralized by trade accounts receivable
and a letter of credit from the Parent in the
amount of $750,000........................... 740,000 640,000 590,000
Note payable to B.O.T. Financial, interest
payable at 10.00%, due in monthly
installments through August 31, 1995,
collateralized by certain seismic
equipment.................................... 152,900 -- --
Notes payable to AFCO, interest payable from
6.04% to 8.244%, due in monthly installments
through April, 1996, collateralized by paid
and unearned insurance premiums.............. 165,960 122,429 19,922
</TABLE>
F-33
<PAGE> 94
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE AND OTHER DEBT, CONTINUED:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Pelton Company, Inc.,
interest payable at 9%, due in monthly
installments through March 1995,
collateralized by certain seismic
equipment.................................... 57,355 -- --
Miscellaneous notes payable, interest from
prime to 10.75%, due in monthly installments
through
October 31, 1997, collateralized by certain
seismic equipment............................ 68,415 41,238 34,177
----------- ----------- ---------
3,243,262 1,543,597 943,031
Less current portion......................... (3,201,595) (1,525,308) (927,389)
----------- ----------- ---------
$ 41,667 $ 18,289 $ 15,642
=========== =========== =========
</TABLE>
Covenants on notes payable outstanding at December 31, 1995 include
Northern maintaining a minimum amount of shareholders' equity, the maintenance
of certain property insurance coverages and the requirement of informing debtors
of the physical location of the collateral.
The Company was not in compliance with a covenant on a note payable as of
September 30, 1995 and December 31, 1995. The balance of this note, $739,930 and
$298,932 (unaudited), is classified as a current liability at September 30, 1995
and December 31, 1995, respectively.
Annual maturities on the Company's notes payable as of December 31, 1995
(unaudited) are as follows:
<TABLE>
<S> <C>
Current........................................... $927,389
1997.............................................. 4,607
1998.............................................. 11,035
1999.............................................. --
2000.............................................. --
</TABLE>
F-34
<PAGE> 95
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE
MONTHS YEAR
YEAR ENDED DECEMBER ENDED ENDED
31, SEPTEMBER DECEMBER
-------------------- 30, 31,
1993 1994 1995 1995
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal............................... $ -- $ 67,061 $ (67,061) $ 95,182
State................................. -- 5,917 (5,917) 8,389
-------- -------- -------- ---------
-- 72,978 (72,978) 103,571
Deferred:
Federal............................... $ -- 228,684 (134,197) (131,606)
State................................. -- 20,178 (11,841) (11,600)
-------- -------- -------- ---------
-- 248,862 (146,038) (143,206)
-------- -------- -------- ---------
$ -- $321,840 $(219,016) $ (39,635)
======== ======== ======== =========
</TABLE>
The effective income tax rate on income before income taxes differed from
the U.S. federal statutory income tax rate for the following reasons:
<TABLE>
<CAPTION>
NINE
MONTHS YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER DECEMBER
---------------- 30, 31,
1993 1994 1995 1995
---- ---- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
U.S. federal statutory rate.................... 34% 34% (34)% (34)%
State taxes, net of federal benefit............ 3 3 (3) (3)
Change in valuation allowance.................. (37) (7) -- --
--- --- --- ---
--% 30% (37)% (37)%
=== === === ===
</TABLE>
The temporary differences which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER DECEMBER
31, 30, 31,
1994 1995 1995
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Vacation accrual............................ $ 16,058 $ 25,425 $ 54,589
Net operating loss carryovers............... -- 232,660 232,660
Less valuation allowance.................... -- -- --
--------- --------- ---------
16,058 258,085 287,249
Deferred tax liabilities:
Property, plant and equipment............... (264,920) (360,909) (392,905)
--------- --------- ---------
Net deferred tax assets (liabilities)......... $(248,862) $(102,824) $(105,656)
========= ========= =========
</TABLE>
As of December 31, 1995, the Company has incurred approximately $630,000
(unaudited) of net operating loss carryforwards available to reduce income taxes
in future periods. These carryforwards will expire in 2010. The net operating
loss carryforwards will not be available to 3-D Geophysical, Inc. as a result of
the transaction discussed in Note 1.
F-35
<PAGE> 96
NORTHERN GEOPHYSICAL OF AMERICA, INC.
(LAND-BASED SEISMIC DATA OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
Capital Leases:
The following schedule sets forth the future minimum lease payments under
capital leases, together with the present value of the minimum lease payments as
of December 31, 1995 (unaudited):
<TABLE>
<S> <C>
Year ending December 31:
1996.................................................................... $180,758
1997.................................................................... 146,220
1998.................................................................... 114,591
1999.................................................................... 59,260
2000.................................................................... --
--------
Total lease payments...................................................... 500,829
Less amount representing interest and executory costs..................... 84,162
--------
Present value of minimum lease payments................................... 416,667
Less current portion...................................................... 138,362
--------
Long-term obligations under capital lease................................. $278,305
========
</TABLE>
Operating Leases:
The Company leases premises, vehicles and equipment under operating leases.
One of the premises' lease has a three-year renewal option with a planned rental
increase of 5%. Rent expense was $654,230, $1,815,135, $1,044,667 and $2,798,113
(unaudited), for the years ended December 31, 1993, 1994, for the nine months
ended September 30, 1995 and for the year ended December 31, 1995 (unaudited),
respectively.
Minimum lease payments under operating leases in effect at December 31,
1995 (unaudited) are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996.................................................................. $ 72,469
1997.................................................................. 24,235
1998.................................................................. --
1999.................................................................. --
2000.................................................................. --
--------
$ 96,704
========
</TABLE>
F-36
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Paragon Geophysical, Inc.:
We have audited the accompanying balance sheet of Paragon Geophysical, Inc.
(as defined in Note 1) as of December 31, 1994 and September 30, 1995 and the
related statements of operations, stockholders' deficit and cash flows for the
period from August 25, 1994 through December 31, 1994, the period from January
1, 1994 through August 24, 1994, for the year ended December 31, 1993 and the
nine months ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 1 to the financial statements, the Successor Company
purchased substantially all of the net assets of the Predecessor Company as of
August 25, 1994. The transaction was accounted for as a purchase whereby the
purchase price was allocated to the assets and liabilities of the Predecessor
based upon their estimated fair value as of August 25, 1994. Accordingly, the
financial statements of the Successor Company are not comparable to those of the
Predecessor Company.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paragon Geophysical, Inc.
(as defined in Note 1) as of December 31, 1994 and September 30, 1995, and the
results of its operations and its cash flows for the period from August 25, 1994
through December 31, 1994, the period from January 1, 1994 through August 24,
1994, for the year ended December 31, 1993 and the nine months ended September
30, 1995 in conformity with generally accepted accounting principles.
Cleveland, Ohio COOPERS & LYBRAND L.L.P.
December 6, 1995
F-37
<PAGE> 98
PARAGON GEOPHYSICAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 67,285 $ 141,113 $ 244,002
Receivables:
Trade, net of allowance for doubtful accounts of
$61,964, $50,331 and $48,786 (unaudited),
respectively................................... 884,349 685,530 389,093
Other............................................ 53,965 95,266 73,019
Inventory........................................... 29,050 17,363 15,585
Prepaid expenses.................................... 4,829 4,749 4,391
---------- ---------- -----------
Total current assets........................ 1,039,478 944,021 726,090
---------- ---------- -----------
Property and equipment, net........................... 1,964,028 3,151,035 3,016,219
Other assets.......................................... 48,036 318,877 536,899
---------- ---------- -----------
Total assets................................ $3,051,542 $4,413,933 $ 4,279,208
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt................... $1,427,146 $2,501,134 $ 4,608,861
Accounts payable.................................... 81,349 194,751 215,865
Accrued liabilities................................. 229,474 248,815 301,210
Deposits............................................ 21,480 6,200 6,200
---------- ---------- -----------
Total current liabilities................... 1,759,449 2,950,900 5,132,136
---------- ---------- -----------
Long-term liabilities:
Long-term debt...................................... 1,532,616 1,959,034 41,836
---------- ---------- -----------
Stockholders' deficit:
Common stock, 40 shares issued and outstanding,
recorded at stated value......................... 3,000 3,000 3,000
Additional paid-in capital.......................... 150,000 150,000 150,000
Accumulated deficit................................. (393,523) (649,001) (1,047,764)
---------- ---------- -----------
Total stockholders' deficit................. (240,523) (496,001) (894,764)
---------- ---------- -----------
Total liabilities and stockholders'
deficit................................... $3,051,542 $4,413,933 $ 4,279,208
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 99
PARAGON GEOPHYSICAL, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE NINE
FOR THE FROM JANUARY 1, FROM AUGUST 25, MONTHS FOR THE
YEAR ENDED 1994 THROUGH 1994 THROUGH ENDED YEAR ENDED
DECEMBER 31, AUGUST 24, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1994 1995 1995
------------ --------------- --------------- ------------- ------------
PREDECESSOR PREDECESSOR SUCCESSOR SUCCESSOR SUCCESSOR
------------ --------------- --------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues....................................... $4,462,931 $3,336,863 $1,955,088 $3,909,528 $4,694,711
Cost of data acquisition........................... 3,427,360 2,693,024 1,632,845 3,146,189 3,896,579
---------- --------- --------- --------- ----------
1,035,571 643,839 322,243 763,339 798,132
---------- --------- --------- --------- ----------
General and administrative expenses................ 347,172 184,628 195,548 295,817 463,735
Depreciation and amortization...................... 409,411 251,064 363,708 422,923 565,686
Miscellaneous...................................... (20,140) 512 -- -- 22,500
Interest expense................................... 144,843 11,411 155,810 293,660 393,195
Loss on sale of assets............................. 13,018 4,401 700 6,417 7,257
---------- --------- --------- --------- ----------
894,304 452,016 715,766 1,018,817 1,452,373
---------- --------- --------- --------- ----------
Income (loss) before income taxes.................. $ 141,267 $ 191,823 (393,523) (255,478) (654,241)
========= =========
Provision for income taxes......................... -- -- --
--------- --------- ----------
Net loss................................... $(393,523) $(255,478) $ (654,241)
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 100
PARAGON GEOPHYSICAL, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT
------ ------ ---------- -----------
<S> <C> <C> <C> <C>
Predecessor:
Balance December 31, 1992................................. 100 $ 500 $ 283,423 $ (459,445)
Distribution to stockholder............................... -- -- -- (65,000)
Net income for the year................................... -- -- -- 141,267
---- ------ --------- -----------
Predecessor:
Balance December 31, 1993................................. 100 500 283,423 (383,178)
Net income for the period................................. -- -- -- 191,823
---- ------ --------- -----------
Predecessor:
Balance August 24, 1994................................... 100 $ 500 $ 283,423 $ (191,355)
==== ====== ========= ===========
Successor:
Issuance of common stock on August 25, 1994............... 40 $3,000 $ 150,000 --
Net loss for the period................................... -- -- -- $ (393,523)
---- ------ --------- -----------
Successor:
Balance December 31, 1994................................. 40 3,000 150,000 (393,523)
Successor:
Net loss for the period................................... -- -- -- (255,478)
---- ------ --------- -----------
Successor:
Balance September 30, 1995................................ 40 $3,000 $ 150,000 $ (649,001)
Successor:
Net loss for the period(unaudited)........................ -- -- -- (398,763)
---- ------ --------- -----------
Successor:
Balance December 31, 1995(unaudited)...................... 40 $3,000 $ 150,000 $(1,047,764)
==== ====== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 101
PARAGON GEOPHYSICAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FOR THE FROM JANUARY 1, FROM AUGUST 25, FOR THE NINE FOR THE
YEAR ENDED 1994 THROUGH 1994 THROUGH MONTHS ENDED YEAR ENDED
DECEMBER 31, AUGUST 24, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1994 1995 1995
------------ --------------- --------------- ------------- ------------
PREDECESSOR PREDECESSOR SUCCESSOR SUCCESSOR SUCCESSOR
------------ --------------- --------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................. $ 141,267 $ 191,823 $ (393,523) $(255,478) $ (654,241)
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and
amortization................. 409,411 251,064 363,708 422,923 565,686
Loss on sale of assets......... 13,018 4,401 700 6,417 7,257
(Increase) decrease in
receivables.................. (3,539) (304,492) (253,077) 157,518 495,256
(Increase) decrease in
inventory.................... -- -- (29,050) 11,687 13,465
(Increase) decrease in prepaid
expenses..................... (9,952) 1,678 10,729 80 438
(Increase) decrease in other
assets and liabilities....... 112,348 (112,348) 20,490 (10,732) (12,447)
Increase (decrease) in accounts
payable...................... (17,422) 70,531 (400) 113,402 134,516
Increase (decrease) in accrued
liabilities.................. 63,925 (26,909) 146,913 19,341 71,736
---------- --------- ----------- --------- ----------
Total adjustments......... 567,789 (116,075) 260,013 720,636 1,275,907
---------- --------- ----------- --------- ----------
Net cash provided (used)
by operating
activities.............. 709,056 75,748 (133,510) 465,158 621,666
Cash flows from investing
activities:
Purchase of business, net of cash
acquired....................... -- -- (1,100,000) -- --
Payments of organizational cost... -- -- (23,650) -- --
Loan to affiliate................. -- -- -- (275,389) (517,093)
Proceeds from the sale of
equipment...................... 5,850 3,050 20,200 90,318 91,318
Purchase of property and
equipment...................... (239,334) (426,324) (35,852) (190,835) (194,279)
---------- --------- ----------- --------- ----------
Net cash used by investing
activities.............. (233,484) (423,274) (1,139,302) (375,906) (620,054)
Cash flows from financing
activities:
Proceeds from capital
contributions of new owners.... -- -- 153,000 -- --
Proceeds from borrowings.......... -- -- 1,100,000 291,500 621,500
Distribution to stockholder....... (65,000) -- -- -- --
Payments on borrowings............ (21,888) (17,482) (57,360) (306,924) (446,395)
---------- --------- ----------- --------- ----------
Net cash provided (used)
by financing
activities.............. (86,888) (17,482) 1,195,640 (15,424) 175,105
---------- --------- ----------- --------- ----------
Net (decrease) increase............. 388,684 (365,008) (77,172) 73,828 176,717
Cash beginning of period............ 120,781 509,465 144,457 67,285 67,285
---------- --------- ----------- --------- ----------
Cash at end of period............... $ 509,465 $ 144,457 $ 67,285 $ 141,113 $ 244,002
========== ========= =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 102
PARAGON GEOPHYSICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company: On August 25, 1994, Paragon Geophysical, Inc., a Delaware
corporation (the "Buyer"), purchased substantially all of the net assets of
Paragon Geophysical, Inc., an Ohio corporation (the "Seller"), for $1,100,000
and accounted for the transaction by the purchase method of accounting (the
"Acquisition").
The assets and liabilities purchased in this transaction are as follows:
<TABLE>
<S> <C>
Current assets.................................................. $ 864,654
Property and equipment.......................................... 2,292,989
Other assets.................................................... 23,790
Current liabilities............................................. (189,311)
Long-term liabilities........................................... (1,892,122)
----------
Purchase price.................................................. $1,100,000
==========
</TABLE>
In connection with the Acquisition, the Seller relinquished the rights to
its name to the Buyer. Concurrent with the Acquisition, the Buyer sold certain
assets to the sole shareholder of the Seller for $19,400. For purposes of
identification and description, the Company is referred to as the "Predecessor"
for the period prior to the Acquisition, the "Successor" for the period
subsequent to the Acquisition and the "Company" for both periods.
The Company is a land geophysical services company primarily engaged in the
contract acquisition of two and three dimensional seismic data. The Company was
founded in 1987 and has grown to include two offices (one in Mount Gilead, Ohio
and a second located in Millersburg, Ohio). As of December 31, 1995, the Company
employs approximately 50 workers and operates two crews primarily in the
Appalachian Basin. The main customers for seismic data are oil and gas
exploration companies.
The unaudited pro forma results of operations for the year ended December
31, 1994 assuming the Successor had acquired the net assets of the Predecessor
as of the beginning of the year ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
TOTAL
PRO FORMA PRO FORMA
PREDECESSOR SUCCESSOR ADJUSTMENTS BALANCES
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues......................... $ 3,336,863 $1,955,088 $ -- $5,291,951
Operating, general and administrative
expenses, primarily depreciation of
property and equipment............. (3,128,716) (2,192,101) (417,515) (5,738,332)
Other expenses, primarily interest... (16,324) (156,510) (64,282) (237,116)
----------- ---------- ----------- ----------
Net income (loss).......... $ 191,823 $ (393,523) $(481,797) $ (683,497)
========== ========== ========= ==========
</TABLE>
Acquisition of the Company by 3-D Geophysical: In November 1995 the Company
entered into a merger agreement among the Company, 3-D Geophysical and a
subsidiary of 3-D Geophysical, Inc, ("3-D"). The Company merged with a
subsidiary of 3-D, with the Company being the surviving entity. The Company's
stockholders received approximately 1,314,261 shares of 3-D common stock in
connection with the merger. In addition, 3-D assumed approximately $4.8 million
of the Company's debt. Commencing February 9, 1996, the results of operations of
the Company are included in the financial statements of 3-D.
Receivables: The Company's trade and other receivables are primarily from
entities within the oil and gas industry. The Company has established an
allowance for doubtful accounts based upon the historical data of its customers
and other current information. Bad debt expense of $30,331, $25,125, $53,497,
$20,000, and $20,000 was charged to operations for the periods August 25, 1994
through December 31, 1994, January 1,
F-42
<PAGE> 103
PARAGON GEOPHYSICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
1994 through August 24, 1994, the year ended December 31, 1993, the nine months
ended September 30, 1995, and the year ended December 31, 1995, respectively.
Property and Equipment: Property and equipment is recorded at cost.
Depreciation and amortization is provided over their estimated useful lives and
applied on the straight-line and declining-balance methods. Expenditures for
maintenance, repairs and minor renewals are charged to earnings as incurred.
Expenditures for additions, improvements, replacements, betterments and major
renewals are capitalized. Costs of property and equipment sold or retired and
the related accumulated depreciation are removed from the accounts; resulting
gains or losses are included in earnings.
Inventory: Inventory represents explosive material used by the Company in
order to obtain seismological data. The inventory is stated at the lower of cost
or market. Cost is determined using the first-in, first-out method. Management
has determined no valuation allowance is necessary as of December 31, 1995.
Organizational Costs: The Company has capitalized costs incurred in the
organization of the Successor and is amortizing these costs over a five year
period using the straight-line method.
Revenue Recognition: Revenues from seismic and geophysical services are
recorded based on the percentage of completion method.
Income Taxes: Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to the differences between the financial
statement carrying value of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net earnings
in the period in which the tax rate change was enacted. The Company establishes
a valuation allowance when it is more likely than not that a deferred tax asset
will not be recovered.
Supplemental Cash Flows Information: The Successor paid interest of
$69,810 and $269,750 during the period August 25, 1994 through December 31, 1994
and the nine months ended September 30, 1995, respectively. The Predecessor paid
interest of $11,411 and $144,843 during the period January 1, 1994 through
August 25, 1994 and the year ended December 31, 1993, respectively. The
Predecessor financed the purchase of five vehicles in 1994 for $104,653 and
seven vehicles in 1993 for $100,305. The Successor financed the purchase of
equipment and vehicles for $1,515,830 during the twelve months ended December
31, 1995.
Unaudited Financial Information: In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring items) necessary to present fairly the financial
position of the Company as of December 31, 1995 and the results of their
operations and cash flows for the year ended December 31, 1995.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenue and expenses during the
reporting periods. A significant estimate in the preparation of the Company's
financial statements is related to the percentage of revenue recognized based on
the stage of completion of the Company's contracts. Actual results could differ
from those estimates.
F-43
<PAGE> 104
PARAGON GEOPHYSICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment, at cost:
Land....................................... $ 62,500 $ 62,500 $ 62,500
Building and improvements.................. 402,220 402,220 402,220
Furniture and fixtures..................... 15,093 15,093 15,093
Equipment.................................. 1,384,815 2,941,411 2,944,856
Vehicles................................... 462,713 502,863 499,413
Construction in progress................... -- -- --
---------- ---------- ----------
2,327,341 3,924,087 3,924,082
Less accumulated depreciation.............. 363,313 773,052 907,863
---------- ---------- ----------
Net property and equipment......... $ 1,964,028 $3,151,035 $3,016,219
========== ========== ==========
</TABLE>
3. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Organizational costs, net of amortization.... $23,256 $ 19,708 $ 18,526
Loan to 3-D Geophysical...................... -- 275,389 517,093
Other........................................ 24,780 23,780 1,280
------- -------- --------
$48,036 $318,877 $536,899
======= ======== ========
</TABLE>
4. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued interest............................ $ 86,000 $109,910 $162,188
Accrued salaries, wages and payroll taxes... 143,474 138,905 139,022
-------- -------- --------
$229,474 $248,815 $301,210
======== ======== ========
</TABLE>
5. LONG-TERM DEBT:
In August 1994, the Company entered into a promissory note with Chase
Manhattan Bank for $1,100,000 due on October 31, 1996 with an interest rate
equal to the prime rate (8.5% as of December 31, 1995). This note is personally
guaranteed by three of the Company's stockholders.
Effective January 1, 1994, the Company issued a promissory note to a former
stockholder of the Predecessor, for $1,700,000 due February 15, 1996. The annual
interest rate on this note is 8%. This note is guaranteed by the Company and
collateralized by certain assets of the Company. This agreement superseded the
original promissory note between the Predecessor and the former stockholder in
the same amount.
F-44
<PAGE> 105
PARAGON GEOPHYSICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT, CONTINUED:
In January 1995, the Company issued a promissory note for the purchase of
Input/Output equipment for $1,480,380 with an interest rate of 9.5%
collateralized by the Input/Output equipment.
During the second quarter of 1995, the Company obtained an unsecured line
of credit for $350,000 from Bank One of Ohio. Borrowings under the line of
credit are due on demand and bear interest at prime plus 1%. This line of credit
is personally guaranteed by three of the Company's stockholders.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Promissory note payable to former stockholder
with an interest rate of 8%................. $ 1,700,000 $ 1,700,000 $ 1,700,000
Promissory note payable to Chase Manhattan
Bank with a variable interest rate (8.5% as
of December 31, 1995) due on October 31,
1996........................................ 1,100,000 1,100,000 1,400,000
Note payable to a financial institution with
an interest rate of 9.5% due March 1998,
collateralized by Input/Output equipment.... -- 1,231,149 1,116,445
Line of credit to Bank One collateralized by
accounts receivable with a variable interest
rate of 9.75% at September 30, 1995 and 9.5%
at December 31, 1995........................ -- 291,500 321,500
Various notes payable collateralized by
certain vehicles of the Company with
interest rates ranging from 5.9% to 10% due
in installments to January 2000, primarily
collateralized by vehicles.................. 159,762 137,519 112,752
----------- ----------- -----------
2,959,762 4,460,168 4,650,697
Current portion of long-term debt............. (1,427,146) (2,501,134) (4,608,861)
----------- ----------- -----------
$ 1,532,616 $ 1,959,034 $ 41,836
=========== =========== ===========
</TABLE>
Aggregate principal payments on long-term debt outstanding as of December
31, 1995 (unaudited) is as follows:
<TABLE>
<S> <C>
1996.......................................................... $4,608,861
1997.......................................................... 22,456
1998.......................................................... 10,177
1999.......................................................... 8,460
2000.......................................................... 743
----------
$4,650,697
==========
</TABLE>
6. INCOME TAXES:
Prior to the Acquisition, the Predecessor elected to be treated as an S
corporation under the provisions of Section 1361 of the Internal Revenue Code.
As an S corporation, the Predecessor was not subject to tax on its
F-45
<PAGE> 106
PARAGON GEOPHYSICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES, CONTINUED:
income; rather the shareholders of the Predecessor were taxed on their share of
the Predecessor's taxable income, whether or not the income was distributed.
Effective August 25, 1994, the Company rescinded its S corporation election
under the Internal Revenue Code and became subject to tax on its income.
A reconciliation of the differences between income taxes computed at the
U.S. federal statutory rate of 35% and the Company's reported federal income
taxes follows:
<TABLE>
<CAPTION>
AUGUST 25,
1994 NINE MONTHS
THROUGH ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER DECEMBER 31,
1994 30, 1995 1995
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Income tax benefit at statutory rate at 35%....... $(137,700) $(89,417) $(196,440)
Depreciation not recognized for books............. (1,430) (53,689) (72,584)
Net operating loss carryforward not recognized.... 139,130 143,106 269,024
--------- -------- ---------
Federal income taxes.............................. $ 0 $ 0 $ 0
========= ======== =========
</TABLE>
The following is a summary of the deferred tax balances:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax asset (net operating loss
carryforward)................................... $ 139,130 $ 282,236 $ 339,472
Deferred tax liability (depreciation)............. (1,430) (55,119) (74,014)
Valuation allowance on the deferred tax asset..... (137,700) (227,117) (265,458)
--------- --------- ---------
Net deferred taxes................................ $ 0 $ 0 $ 0
========= ========= =========
</TABLE>
At December 31, 1995 (unaudited) the Company has net operating loss
carryforwards of approximately $807,000 which expire in the years 2009 and 2010.
F-46
<PAGE> 107
AUDITORS' REPORT
To the Directors of J.R.S. Exploration Company Limited:
We have audited the balance sheet of J.R.S. Exploration Company Limited as at
November 30, 1995 and the statements of operations and retained earnings and
changes in financial position for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at November 30, 1995 and the
results of its operations and changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
/s/ GARRETT POWER
Chartered Accountants
Calgary, Alberta
July 31, 1996
F-47
<PAGE> 108
J.R.S. EXPLORATION COMPANY LIMITED
BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1995 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and term deposits............................................ $ 711,698 $ 560,936
Accounts receivable............................................... 1,855,745 1,255,887
Income taxes recoverable.......................................... 35,751 --
Prepaid expenses.................................................. 77,191 48,478
Current portion of agreement receivable........................... 66,666 66,667
---------- ----------
2,747,051 1,931,968
Fixed assets (Note 2)............................................... 5,430,531 4,556,526
Agreement receivable (Note 3)....................................... 33,334 33,333
---------- ----------
$8,210,916 $6,521,827
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loan (Note 4)................................................ $ 200,000 $ 175,000
Accounts payable (Note 10)........................................ 1,395,532 412,433
Income taxes payable.............................................. -- 188,304
Advances from related parties (Note 5)............................ 160,811 --
Current portion of long term debt................................. 1,552,533 1,774,507
---------- ----------
3,308,876 2,550,244
Long term debt (Note 6)............................................. 1,488,829 200,219
Deferred income taxes............................................... 304,538 304,538
Shareholders' equity:
Share capital (Note 7)............................................ 66 66
Retained earnings................................................. 3,108,607 3,466,760
---------- ----------
3,108,673 3,466,826
---------- ----------
$8,210,916 $6,521,827
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 109
J.R.S. EXPLORATION COMPANY LIMITED
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
NOVEMBER 30, AUGUST 31, AUGUST 31,
1995 1995 1996
----------- ---------------- ----------------
C $ C $
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Contract revenue............................ $11,074,354 $ 9,395,525 $ 8,911,495
Interest.................................... 71,002 57,932 19,362
----------- ------------ ------------
11,145,356 9,453,457 8,930,857
Direct expenses:
Consulting, management and bonuses.......... 425,785 337,785 418,268
Recording equipment repairs and
maintenance.............................. 1,205,215 713,929 1,195,734
Small tools and field supplies.............. 31,129 22,439 18,510
Turnkey costs............................... 2,459,422 2,041,163 1,014,837
Vehicle and equipment rentals............... 343,969 248,253 175,860
Vehicle repairs and fuel.................... 412,325 456,636 512,983
Wages and benefits, including office........ 3,146,860 2,572,481 2,622,701
Depreciation................................ 1,971,583 1,479,084 1,491,846
----------- ------------ ------------
9,996,288 7,871,770 7,450,739
----------- ------------ ------------
Gross profit.................................. 1,149,068 1,581,687 1,480,118
General and administrative costs (see note
11)......................................... 1,238,547 921,633 913,009
----------- ------------ ------------
Income (loss) before the following............ (89,479) 660,054 567,109
Gain on sale of fixed assets.................. 4,507 -- --
----------- ------------ ------------
Income (loss) before provision for income
taxes....................................... (84,972) 660,054 567,109
Provision for (recovery of) income taxes...... (64,940) 241,668 208,956
----------- ------------ ------------
Net income (loss) for the period.............. (20,032) 418,386 358,153
Retained earnings at beginning of period...... 3,128,639 3,128,639 3,108,607
----------- ------------ ------------
Retained earnings at end of period............ $ 3,108,607 $ 3,547,025 $ 3,466,760
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 110
J.R.S. EXPLORATION COMPANY LIMITED
STATEMENT OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
NOVEMBER 30, AUGUST 31, AUGUST 31,
1995 1995 1996
------------ ----------- -----------
C $ C $ C $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operations:
Net income (loss)................................... $ (20,032) $ 418,386 $ 358,153
Add: Items not requiring a current cash outlay
Depreciation..................................... 2,004,989 1,503,869 1,513,950
Deferred income taxes............................ (182,454) -- --
Gain on sale of fixed assets..................... (4,507) -- --
---------- ---------- ----------
Funds from operations................................. 1,797,996 1,922,255 1,872,103
Decrease (increase) in non-cash working capital....... (270,008) (1,227,623) (130,473)
---------- ---------- ----------
Cash provided by operations........................... 1,527,988 694,632 1,741,630
---------- ---------- ----------
Investing:
Acquisition of fixed assets......................... (285,410) (220,675) (639,945)
Proceeds on sale of fixed assets.................... 8,150 3,000 --
Decrease in investment tax credits.................. 55,843 -- --
---------- ---------- ----------
Cash used in investing................................ (221,417) (217,675) (639,945)
---------- ---------- ----------
Financing:
Decrease in long term debt.......................... (2,079,356) (1,646,685) (1,066,636)
Decrease in advances from related parties........... (326,000) (326,000) (160,811)
---------- ---------- ----------
Cash used in financing................................ (2,405,356) (1,972,685) (1,227,447)
---------- ---------- ----------
Increase (decrease) in cash*.......................... (1,098,785) (1,495,728) (125,762)
Cash at beginning of year............................. 1,610,483 1,610,483 511,698
---------- ---------- ----------
Cash at end of year................................... $ 511,698 $ 114,755 $ 385,936
========== ========== ==========
</TABLE>
- ---------------
* For the purpose of this statement, cash is defined as cash and term deposits,
net of bank loan.
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 111
J.R.S. EXPLORATION COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Financial statements are denominated in Canadian dollars and are presented
in accordance with Canadian generally accepted accounting principles.
DEPRECIATION
Depreciation is calculated using the straight-line (equipment -- 20%) and
declining balance (vehicles -- 30%; office -- 20%) methods at rates which will
depreciate the assets over their estimated useful lives.
INVESTMENT TAX CREDITS
Investment tax credits are recorded using the cost reduction method.
2. FIXED ASSETS:
Fixed assets are recorded at cost and are comprised of the following.
<TABLE>
<CAPTION>
1995
--------------------------
ACCUMULATED
COST DEPRECIATION
----------- ----------
<S> <C> <C>
Equipment.................................. $12,097,741 $7,224,900
Vehicles................................... 1,471,725 1,060,322
Office..................................... 315,448 169,161
----------- -----------
$13,884,914 $8,454,383
=========== ===========
</TABLE>
3. AGREEMENT RECEIVABLE:
The agreement receivable is unsecured, bears interest at 7% and is
repayable in annual installments of $33,333 plus interest. The 1995 installment
is in arrears.
4. BANK LOAN:
The revolving bank loan is payable on demand and bears interest at prime
plus 1/2%. Security on the loan is described in Note 6.
5. ADVANCES FROM RELATED PARTIES:
The advances from related parties, including shareholders and companies
controlled by shareholders, are non-interest bearing and have no fixed terms of
repayment.
F-51
<PAGE> 112
J.R.S. EXPLORATION COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Bank loan, bearing interest at prime plus 1 1/2%, is payable on demand. The bank
has agreed to accept blended monthly installments of $133,000................. $2,711,997
Finance loan, bearing interest at 5 1/4%, is repayable in quarterly installments
of U.S.$19,115 to October 1996................................................ 101,998
Finance contracts, bearing interest at rates ranging from 12% to 13%, repayable
in blended monthly installments of $12,416 to July 1997....................... 227,367
----------
3,041,362
Less: amount due within one year................................................ 1,552,533
----------
$1,488,829
=========
</TABLE>
The bank loans are secured by a general security agreement, a debenture
providing a first charge on specific equipment and a floating charge on all
assets of the Company and postponement of claim by certain shareholders and
directors.
The finance loan and contracts are secured by specific equipment and
vehicles.
Estimated principal repayments over the next three years are as follows:
<TABLE>
<S> <C>
1996.................................... $1,552,533
1997.................................... 1,476,832
1998.................................... 11,997
</TABLE>
7. SHARE CAPITAL:
<TABLE>
<S> <C>
Authorized --
Unlimited number of Class A voting shares
Unlimited number of Class B non-voting shares
Unlimited number of Class D preferred shares
Issued --
Class A voting shares................................................ 33
Class B non-voting shares............................................ 33
---
66
==
</TABLE>
No Class D preferred shares were issued at November 30, 1995.
8. INCOME TAXES:
The income tax provision on the income statement differs from the expected
income tax provision as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Expected income taxes @ 44.34%.................................... $(37,677)
Add (deduct) effects of:
Small business tax reduction.................................... (51,000)
Non deductible expenses......................................... 23,737
--------
$(64,940)
========
</TABLE>
F-52
<PAGE> 113
J.R.S. EXPLORATION COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS:
Subsequent to November 30, 1995, the Company entered into a lease
agreement, with a related company (see Note 10), for their business premises.
The lease calls for annual payments of $96,840 and expires in May 2001.
10. RELATED PARTY TRANSACTIONS:
The following summarizes transactions and balances with companies which are
owned by parties related to the shareholders:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Pavelow Investments Ltd.
Rent charged on premises........................................ $ 96,840
Malpaso Surveys Ltd.
Survey fees charged............................................. 280,707
Balance included in accounts payable............................ 28,109
C.M.J. Holdings Ltd.
Equipment lease charges......................................... 42,185
Balance included in accounts payable............................ 67,909
</TABLE>
11. GENERAL AND ADMINISTRATIVE COSTS:
General and administrative costs include interest expense of $416,082,
$303,116 (unaudited) and $197,501 (unaudited), and depreciation of $33,406,
$22,104 (unaudited), and $24,785 (unaudited), for the year ended November 30,
1995, the nine months ended August 31, 1995, and the nine months ended August
31, 1996, respectively.
F-53
<PAGE> 114
3-D GEOPHYSICAL, INC. currently operates nine crews with six state-of-the-art,
24-bit seismic data acquisition systems in the Western Hemisphere. The Company
utilizes a fleet of vibroseis units, as well as dynamite, for energy sources in
its land seismic surveys.
[Photograph of crew laying cable.]
[Photograph of vibroseis trucks in the field.]
[Photograph of 3-D image.]
The Company's personnel are considerate of the safety of people and the
importance of the natural surroundings. Safeguarding the public, protecting
the natural environment, and ensuring employee welfare and priorities.
Through its processing arm, PIASA (Procesos Interactivos Avanzados, S.A. de
C.V.), 3-D Geophysical provides advanced data processing and interpretation
services. The Company uses sophisticated systems to process seismic data in
regional offices in Mexico City and Lima.
Complex 3-D imaging requires the latest in design and mapping capabilities.
Using complex software, the Company's geophysicists can assist clients with
program design by balancing cost with proper imaging of geologic objectives.
[LOGO]
<PAGE> 115
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH AN OFFER IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Summary Historical and Pro Forma
Financial and Operating Data........ 6
Risk Factors.......................... 9
The Company........................... 13
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 14
Capitalization........................ 14
Selected Historical and Pro Forma
Financial and Operating Data........ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 28
Management............................ 37
Security Ownership of Management and
Principal Stockholders.............. 44
Certain Transactions.................. 45
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 55
Experts............................... 55
Additional Information................ 56
Glossary.............................. 57
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,300,000 SHARES
3-D GEOPHYSICAL, INC.
COMMON STOCK
[3D GEOPHYSICAL LOGO]
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
SIMMONS & COMPANY
INTERNATIONAL
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discount, incurred or to be incurred in connection with the sale of
the Common Stock being registered (all amounts are estimated except the
Securities and Exchange Commission ("Commission") registration fee, the NASD
filing fee and the Nasdaq National Market listing fee), all of which will be
paid by the Registrant.
<TABLE>
<S> <C>
SEC registration fee..................................................... $ 13,861
NASD filing fee.......................................................... 5,075
Nasdaq National Market listing fee....................................... 17,500
Printing and engraving costs............................................. 225,000
Legal fees and expenses.................................................. 400,000
Accounting fees and expenses............................................. 200,000
Blue Sky fees and expenses............................................... 12,000
Transfer agent and registrar fees........................................ 2,000
Miscellaneous............................................................ 224,564
----------
Total.......................................................... $1,100,000
==========
</TABLE>
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1.1*** -- Underwriting Agreement.
2.1 -- Asset Purchase Agreement dated as of November 8, 1995 between 3-D
Geophysical, Inc. and Northern Geophysical of America, Inc. (the
"Asset Purchase Agreement") (Incorporated by reference to Exhibit 2.1
of the Registrant's Registration Statement on Form S-1 (No.
33-99240)).
2.2 -- Stock Purchase Agreement among 3-D Geophysical, Inc., Geo Acquisition
Sub, Inc. and the stockholders of Geoevaluaciones, S.A. de C.V.,
dated as of October 20, 1995 (Incorporated by reference to Exhibit
2.2 of the Registrant's Registration Statement on Form S-1 (No.
33-99240)).
2.3 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Luis
Ferran dated as of October 20, 1995 (Incorporated by reference to
Exhibit 2.3 of the Registrant's Registration Statement on Form S-1
(No. 33-99240)).
2.4 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Antonia
Echeverria Castellot dated as of October 20, 1995 (Incorporated by
reference to Exhibit 2.4 of the Registrant's Registration Statement
on Form S-1 (No. 33-99240)).
2.5 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Yolanda
Blasquez Leyva dated as of October 20, 1995 (Incorporated by
reference to Exhibit 2.5 of the Registrant's Registration Statement
on Form S-1 (No. 33-99240)).
2.6 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Yolanda
Echeverria Blasquez dated as of October 20, 1995 (Incorporated by
reference to Exhibit 2.6 of the Registrant's Registration Statement
on Form S-1 (No. 33-99240)).
2.7 -- Stock Purchase Agreement among 3-D Geophysical, Inc. and the
stockholders of Kemp Geophysical Corporation, dated as of October 24,
1995 (Incorporated by reference to Exhibit 2.7 of the Registrant's
Registration Statement on Form S-1 (No. 33-99240)).
</TABLE>
II-1
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
2.8 -- Stock Purchase Agreement among 3-D Geophysical, Inc., Geo Acquisition
Sub, Inc. and the stockholders of Procesos Interactivos Avanzados,
S.A. de C.V., dated as of November 7, 1995 (Incorporated by reference
to Exhibit 2.8 of the Registrant's Registration Statement on Form S-1
(No. 33-99240)).
2.9 -- Agreement and Plan of Merger dated as of November 29, 1995, among 3-D
Geophysical, Inc., 3-D Paragon Acquisition Sub, Inc. and Paragon
Geophysical, Inc., as amended (the "Agreement and Plan of Merger")
(Incorporated by reference to Exhibit 2.9 of the Registrant's
Registration Statement on Form S-1 (No. 33-99240)).
2.10** -- Amendment to the Agreement and Plan of Merger dated as of January 23,
1996.
2.11** -- Amendment dated January 31, 1996 to the Asset Purchase Agreement.
2.12*** -- Stock Purchase Agreement among 3-D Geophysical, Inc., 3-D Geophysical
of Canada, Inc., D.E. Janveau, Gladys Mueller and W.G. Mueller, dated
as of December 10, 1996.
2.13*** -- Stock Purchase Agreement among 3-D Geophysical, Inc., 3-D Geophysical
of Canada, Inc., C. David Siegfried and Peggy J. Siegfried, dated as
of December 10, 1996.
2.14*** -- Form of Deed of Trust dated October 20, 1995 among 3-D Geophysical,
Inc., Banca Nacional Financiera S.N.C. and the beneficiary pursuant
to Section 2.2(a) of the Non-Competition Agreement.
2.15*** -- Form of Deed of Trust dated October 20, 1995 among 3-D Geophysical,
Inc., Banca Nacional Financiera S.N.C. and the beneficiary pursuant
to Section 2.2(b) of the Non-Competition Agreement.
3.1** -- Amended and Restated Certificate of Incorporation of 3-D Geophysical,
Inc.
3.2** -- Amended and Restated By-laws of 3-D Geophysical, Inc.
4.1 -- Specimen 3-D Geophysical, Inc. common stock certificate (Incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-99240)).
5.1*** -- Opinion of Kramer, Levin, Naftalis & Frankel regarding the legality
of the securities being registered.
10.1** -- Employment agreement dated February 8, 1995, between 3-D Geophysical,
Inc. and G.C.L. Kemp.
10.2** -- Employment agreement dated February 6, 1995, between 3-D Geophysical,
Inc. and Charles O. Merchant.
10.3 -- Employment agreement dated January 31, 1996, between 3-D Geophysical,
Inc. and Richard D. Davis (Incorporated by reference to Exhibit 10.2
to the Registrant's Registration Statement on Form S-1 (No.
33-99240)).
10.4** -- Employment agreement dated January 31, 1995, between 3-D Geophysical,
Inc. and Wayne P. Widynowski.
10.5** -- Employment agreement dated September 30, 1996, between 3-D
Geophysical, Inc. and Ronald L. Koons.
10.6*** -- Amended and Restated Termination Agreement dated as of October 1,
1996, between 3-D Geophysical, Inc. and John D. White, Jr.
10.7** -- Employment agreement dated February 1, 1996, between 3-D Geophysical,
Inc. and Luis H. Ferran Arroyo.
10.8 -- 3-D Geophysical 1995 Long-Term Incentive Compensation Plan, as
amended (Incorporated by reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-1 (No. 33-99240)).
</TABLE>
II-2
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.9** -- Employment agreement dated February 1, 1995, between 3-D Geophysical,
Inc. and Joel Friedman.
10.10 -- Loan Agreement between 3-D Geophysical, Inc. and First Interstate
Bank of Texas, N.A., dated as of May 29, 1996 (Incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form
8-K dated May 31, 1996 (File No. 0-27564)).
10.11 -- Guaranty Agreement by Northern Geophysical of America, Inc. in favor
of First Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.6 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.12 -- Security Agreement between Geoevaluaciones, S.A. de C.V. and First
Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.13 -- Guaranty Agreement by Paragon Geophysical, Inc. in favor of First
Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.7 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.14 -- Guaranty Agreement by Geoevaluaciones, S.A. de C.V. in favor of First
Interstate Bank of Texas, N.A., dated as of May 29, 1996.
(Incorporated by reference to Exhibit 10.8 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.15 -- Security Agreement between Northern Geophysical of America, Inc. and
First Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.16 -- Security Agreement between Paragon Geophysical, Inc. and First
Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.17 -- Security Agreement between 3-D Geophysical, Inc. and First Interstate
Bank of Texas, N.A., dated as of May 29, 1996 (Incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form
8-K dated May 31, 1996 (File No. 0-27564)).
21.1** -- List of subsidiaries of 3-D Geophysical, Inc.
23.1*** -- Consent of Coopers & Lybrand L.L.P.
23.2*** -- Consent of Garrett Power.
23.3*** -- Consent of Kramer, Levin, Naftalis & Frankel (included in Exhibit
5.1)
27.1*** -- Financial Data Schedule.
</TABLE>
- ---------------
** Previously filed.
*** Filed herewith.
(b) Financial Statement Schedules
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULES
NONE.
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
II-3
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement, or amendment thereto, to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on December 12, 1996.
3-D GEOPHYSICAL, INC.
By: /s/ RICHARD DAVIS
------------------------------------
Richard Davis,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, or amendment thereto, has been signed by the following
persons in the capacities indicated on the 12th day of December, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOEL FRIEDMAN Chairman and Director
- ---------------------------------------------
Joel Friedman
/s/ RICHARD DAVIS Chief Executive Officer, President
- --------------------------------------------- and Director (principal executive
Richard Davis officer)
/s/ RONALD L. KOONS Vice President, Chief Financial
- --------------------------------------------- Officer, Secretary and Treasurer
Ronald L. Koons (principal financial and accounting
officer)
/s/ LUIS H. FERRAN ARROYO Director
- ---------------------------------------------
Luis H. Ferran Arroyo
/s/ ROBERT PACE ANDREWS Director
- ---------------------------------------------
Robert Pace Andrews
/s/ RALPH M. BAHNA Director
- ---------------------------------------------
Ralph M. Bahna
/s/ DOUGLAS W. BRANDRUP Director
- ---------------------------------------------
Douglas W. Brandrup
/s/ ARTHUR D. EMIL Director
- ---------------------------------------------
Arthur D. Emil
/s/ P. DENNIS O'BRIEN Director
- ---------------------------------------------
P. Dennis O'Brien
/s/ EMIR L. TAVELLA Director
- ---------------------------------------------
Emir L. Tavella
/s/ JOHN D. WHITE, JR. Director
- ---------------------------------------------
John D. White, Jr.
</TABLE>
II-4
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ---------- ---------------------- -----------
<S> <C>
1.1*** -- Form of Underwriting Agreement.
2.1 -- Asset Purchase Agreement dated as of November 8, 1995 between 3-D
Geophysical, Inc. and Northern Geophysical of America, Inc. (the
"Asset Purchase Agreement") (Incorporated by reference to Exhibit 2.1
of the Registrant's Registration Statement on Form S-1 (No.
33-99240)).
2.2 -- Stock Purchase Agreement among 3-D Geophysical, Inc., Geo Acquisition
Sub, Inc. and the stockholders of Geoevaluaciones, S.A. de C.V.,
dated as of October 20, 1995 (Incorporated by reference to Exhibit
2.2 of the Registrant's Registration Statement on Form S-1 (No.
33-99240)).
2.3 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Luis
Ferran dated as of October 20, 1995 (Incorporated by reference to
Exhibit 2.3 of the Registrant's Registration Statement on Form S-1
(No. 33-99240)).
2.4 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Antonia
Echeverria Castellot dated as of October 20, 1995 (Incorporated by
reference to Exhibit 2.4 of the Registrant's Registration Statement
on Form S-1 (No. 33-99240)).
2.5 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Yolanda
Blasquez Leyva dated as of October 20, 1995 (Incorporated by
reference to Exhibit 2.5 of the Registrant's Registration Statement
on Form S-1 (No. 33-99240)).
2.6 -- Non-Competition Agreement between 3-D Geophysical, Inc. and Yolanda
Echeverria Blasquez dated as of October 20, 1995 (Incorporated by
reference to Exhibit 2.6 of the Registrant's Registration Statement
on Form S-1 (No. 33-99240)).
2.7 -- Stock Purchase Agreement among 3-D Geophysical, Inc. and the
stockholders of Kemp Geophysical Corporation, dated as of October 24,
1995 (Incorporated by reference to Exhibit 2.7 of the Registrant's
Registration Statement on Form S-1 (No. 33-99240)).
2.8 -- Stock Purchase Agreement among 3-D Geophysical, Inc., Geo Acquisition
Sub, Inc. and the stockholders of Procesos Interactivos Avanzados,
S.A. de C.V., dated as of November 7, 1995 (Incorporated by reference
to Exhibit 2.8 of the Registrant's Registration Statement on Form S-1
(No. 33-99240)).
2.9 -- Agreement and Plan of Merger dated as of November 29, 1995, among 3-D
Geophysical, Inc., 3-D Paragon Acquisition Sub, Inc. and Paragon
Geophysical, Inc., as amended (the "Agreement and Plan of Merger")
(Incorporated by reference to Exhibit 2.9 of the Registrant's
Registration Statement on Form S-1 (No. 33-99240)).
2.10** -- Amendment to the Agreement and Plan of Merger dated as of January 23,
1996.
2.11** -- Amendment dated January 31, 1996 to the Asset Purchase Agreement.
2.12*** -- Stock Purchase Agreement among 3-D Geophysical, Inc., 3-D Geophysical
of Canada, Inc., D.E. Janveau, Gladys Mueller and W.G. Mueller, dated
as of December 10, 1996.
2.13*** -- Stock Purchase Agreement among 3-D Geophysical, Inc., 3-D Geophysical
of Canada, Inc., C. David Siegfried and Peggy J. Siegfried, dated as
of December 10, 1996.
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ---------- ---------------------- -----------
<S> <C>
2.14*** -- Form of Deed of Trust dated October 20, 1995 among 3-D Geophysical,
Inc., Banca Nacional Financiera S.N.C. and the beneficiary pursuant
to Section 2.2(a) of the Non-Competition Agreement.
2.15*** -- Form of Deed of Trust dated October 20, 1995 among 3-D Geophysical,
Inc., Banca Nacional Financiera S.N.C. and the beneficiary pursuant
to Section 2.2(b) of the Non-Competition Agreement.
3.1** -- Amended and Restated Certificate of Incorporation of 3-D Geophysical,
Inc.
3.2** -- Amended and Restated By-laws of 3-D Geophysical, Inc.
4.1 -- Specimen 3-D Geophysical, Inc. common stock certificate (Incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-99240)).
5.1*** -- Opinion of Kramer, Levin, Naftalis & Frankel regarding the legality
of the securities being registered.
10.1** -- Employment agreement dated February 8, 1995, between 3-D Geophysical,
Inc. and G.C.L. Kemp.
10.2** -- Employment agreement dated February 6, 1995, between 3-D Geophysical,
Inc. and Charles O. Merchant.
10.3 -- Employment agreement dated January 31, 1996, between 3-D Geophysical,
Inc. and Richard D. Davis (Incorporated by reference to Exhibit 10.2
to the Registrant's Registration Statement on Form S-1 (No.
33-99240)).
10.4** -- Employment agreement dated January 31, 1995, between 3-D Geophysical,
Inc. and Wayne P. Widynowski.
10.5** -- Employment agreement dated September 30, 1996, between 3-D
Geophysical, Inc. and Ronald L. Koons.
10.6*** -- Amended and Restated Termination Agreement dated as of October 1,
1996, between 3-D Geophysical, Inc. and John D. White, Jr.
10.7** -- Employment agreement dated February 1, 1996, between 3-D Geophysical,
Inc. and Luis H. Ferran Arroyo.
10.8 -- 3-D Geophysical 1995 Long-Term Incentive Compensation Plan, as
amended (Incorporated by reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-1 (No. 33-99240)).
10.9** -- Employment agreement dated February 1, 1995, between 3-D Geophysical,
Inc. and Joel Friedman.
10.10 -- Loan Agreement between 3-D Geophysical, Inc. and First Interstate
Bank of Texas, N.A., dated as of May 29, 1996 (Incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form
8-K dated May 31, 1996 (File No. 0-27564)).
10.11 -- Guaranty Agreement by Northern Geophysical of America, Inc. in favor
of First Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.6 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.12 -- Security Agreement between Geoevaluaciones, S.A. de C.V. and First
Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ---------- ---------------------- -----------
<S> <C>
10.13 -- Guaranty Agreement by Paragon Geophysical, Inc. in favor of First
Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.7 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.14 -- Guaranty Agreement by Geoevaluaciones, S.A. de C.V. in favor of First
Interstate Bank of Texas, N.A., dated as of May 29, 1996.
(Incorporated by reference to Exhibit 10.8 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.15 -- Security Agreement between Northern Geophysical of America, Inc. and
First Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.16 -- Security Agreement between Paragon Geophysical, Inc. and First
Interstate Bank of Texas, N.A., dated as of May 29, 1996
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Current Report on Form 8-K dated May 31, 1996 (File No. 0-27564)).
10.17 -- Security Agreement between 3-D Geophysical, Inc. and First Interstate
Bank of Texas, N.A., dated as of May 29, 1996 (Incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form
8-K dated May 31, 1996 (File No. 0-27564)).
21.1** -- List of subsidiaries of 3-D Geophysical, Inc.
23.1*** -- Consent of Coopers & Lybrand L.L.P.
23.2*** -- Consent of Garrett Power.
23.3*** -- Consent of Kramer, Levin, Naftalis & Frankel (included in Exh. 5.1)
27.1*** -- Financial Data Schedule.
</TABLE>
- ---------------
** Previously filed.
*** Filed herewith.
<PAGE> 1
EXHIBIT 1.1
4,300,000 Shares
3-D GEOPHYSICAL, INC.
Common Stock
UNDERWRITING AGREEMENT
December , 1996
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
SIMMONS & COMPANY INTERNATIONAL
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
3-D Geophysical, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 4,300,000 shares (the "Firm Shares")
of its common stock, $0.01 par value per share (the "Common Stock"), to the
several Underwriters named in Schedule I hereto (the "Underwriters"). The
Company also proposes to sell to the Underwriters, upon the terms and
conditions set forth in Section 2 hereof, up to an additional 645,000 shares
(the "Additional Shares") of Common Stock. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares".
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 (Registration
No. 333-13665) under the Act (the "registration statement"), including a
prospectus subject to completion relating to the Shares. The term
"Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement or a new registration statement pursuant to Rule 462(b) of the Act
will be filed and must be declared effective before the offering of the Shares
may commence, the term "Registration Statement" as used in this Agreement means
the registration statement as amended by said post-effective amendment or such
new registration statement. The term "Prospectus" as used in this Agreement
means the prospectus in the form included in the Registration Statement, or, if
the prospectus included in the Registration Statement omits information in
reliance on Rule 430A under the Act and such information is
<PAGE> 2
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus"
as used in this Agreement means the prospectus subject to completion in the
form included in the registration statement at the time of the initial filing
of the registration statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
2. Agreements to Sell and Purchase. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $________ per
Share (the "purchase price per share"), the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Shares increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters
shall have the right to purchase from the Company, at the purchase price per
share, pursuant to an option (the "over-allotment option") which may be
exercised at any time and from time to time prior to 9:00 P.M., New York City
time, on the 30th day after the date of the Prospectus (or, if such 30th day
shall be a Saturday or Sunday or a holiday, on the next business day thereafter
when the New York Stock Exchange is open for trading), up to an aggregate of
600,000 Additional Shares. Additional Shares may be purchased only for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. Upon any exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments as you may determine in order to
avoid fractional shares) which bears the same proportion to the number of
Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares increased as set forth in Section 10 hereof) bears
to the aggregate number of Firm Shares.
3. Terms of Public Offering. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York 10103, at 10:00 A.M.,
New York City time, on , 1996 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from you on
-2-
<PAGE> 3
behalf of the Underwriters to the Company of the Underwriters' determination to
purchase a number, specified in such notice, of Additional Shares. The place
of closing for any Additional Shares and the Option Closing Date for such
Shares may be varied by agreement between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
5. Agreements of the Company. The Company agrees with the
several Underwriters as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement, a post-effective
amendment thereto or a new registration statement filed under Rule 462(b) to be
declared effective before the offering of the Shares may commence, the Company
will endeavor to cause the Registration Statement or such post-effective
amendment or new registration statement to become effective as soon as possible
and will advise you promptly and, if requested by you, will confirm such advice
in writing, when the Registration Statement or such post-effective amendment or
new registration statement has become effective.
(b) The Company will advise you promptly and, if
requested by you, will confirm such advice in writing: (i) of any request by
the Commission for amendment of or a supplement to the Registration Statement,
any Prepricing Prospectus or the Prospectus or for additional information; (ii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein (with respect to the
Prospectus, in light of the circumstances under which they were made) not
misleading, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented) to comply with the Act or any state securities law.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company will furnish to you, without charge, four
signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and
all exhibits thereto, and will also furnish to you, without charge,
-3-
<PAGE> 4
such number of conformed copies of the registration statement as originally
filed and of each amendment thereto, but without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall
reasonably object after being so advised or (ii) so long as, in the opinion of
counsel for the Underwriters, a Prospectus is required to be delivered in
connection with sales of Shares by any Underwriter or dealer, file any
information, documents or reports pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), without delivering a copy of such
information, documents or reports to you, as Representatives of the
Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this
Agreement, the Company has delivered to you, without charge, in such quantities
as you have reasonably requested, copies of each form of the Prepricing
Prospectus. The Company consents to the use, in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by dealers, prior
to the date of the Prospectus, of each Prepricing Prospectus so furnished by
the Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the opinion of counsel for the Underwriters a prospectus is required by the Act
to be delivered in connection with sales of Shares by any Underwriter or
dealer, the Company will expeditiously deliver to each Underwriter and each
dealer, without charge, as many copies of the Prospectus (and of any amendment
or supplement thereto) as you may request. The Company consents to the use of
the Prospectus (and of any amendment or supplement thereto) in accordance with
the provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and
by all dealers to whom Shares may be sold, both in connection with the offering
and sale of the Shares and for such period of time thereafter as the Prospectus
is required by the Act to be delivered in connection with sales of Shares by
any Underwriter or dealer. If during such period of time any event shall occur
that in the judgment of the Company or in the opinion of counsel for the
Underwriters is required to be set forth in the Prospectus (as then amended or
supplemented) or should be set forth therein in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary to supplement or amend the Prospectus to
comply with the Act or any state securities law, the Company will forthwith
prepare and, subject to the provisions of paragraph (d) above, file with the
Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of
the several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel
for the Underwriters in connection with the registration or qualification of
the Shares for offering and sale by the several Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as you may
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified
-4-
<PAGE> 5
or to take any action which would subject it to service of process in suits,
other than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its
security holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section ll(a) of the Act.
(i) During the period of five years hereafter, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to stockholders or filed with the Commission, and (ii) from
time to time such other information concerning the Company as you may
reasonably request.
(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 or Section 11 hereof) or if
this Agreement shall be terminated by the Underwriters because of any failure
or refusal on the part of the Company to comply with the terms or fulfill any
of the conditions of this Agreement, the Company agrees to reimburse the
Representatives for all out-of-pocket expenses (including reasonable fees and
expenses of counsel for the Underwriters) incurred by you in connection
herewith.
(k) The Company will apply the net proceeds from the sale
of the Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will
advise you of the time and manner of such filing.
(m) Except as provided in this Agreement, the Company
will not sell, offer to sell, solicit an offer to buy, contract to sell or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for or any rights to purchase
or acquire, shares of Common Stock, or grant any options or warrants to
purchase Common Stock (other than the grant of options under the 3-D
Geophysical, Inc. 1995 Long-Term Incentive Compensation Plan, as amended (the
"Plan"), and Common Stock issuable upon exercise of options granted under the
Plan or otherwise to officers, directors and key employees of the Company), for
a period of 120 days after the date of the Prospectus, without the prior
written consent of Smith Barney Inc.
(n) The Company has furnished to you "lock-up" letters,
in form and substance satisfactory to you, signed by each of its current
officers and directors.
(o) Except as stated in this Agreement and in the
Prepricing Prospectus and Prospectus, the Company has not taken, nor will it
take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
-5-
<PAGE> 6
(p) The Company will use its best efforts to have the
Shares listed, subject to notice of issuance, on the Nasdaq National Market
concurrently with the effectiveness of the registration statement.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The registration statement in the form in which it
became or becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective and the Prospectus and
any supplement or amendment thereto when filed with the Commission under Rule
424(b) under the Act, complied or will comply in all material respects with the
provisions of the Act and did not or will not at any such times contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein (with respect
to the Prospectus, in light of the circumstances under which they were made)
not misleading, except that this representation and warranty does not apply to
statements in or omissions from the registration statement or the Prospectus
made in reliance upon and in conformity with information furnished to the
Company in writing by or on behalf of any Underwriter through you expressly for
use therein.
(c) All the outstanding shares of Common Stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights; the Shares have
been duly authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable and free of any preemptive or similar rights; and
the capital stock of the Company conforms to the description thereof in the
Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
(e) All the Company's subsidiaries (collectively, the
"Subsidiaries") (other than those Subsidiaries not required to be listed
pursuant to Item 601(a)(21)(ii) of Regulation S-K) are listed in an exhibit to
the Registration Statement. Each Subsidiary is listed on Schedule II hereto
and is a corporation duly organized, validly existing and in good standing in
the jurisdiction of its incorporation, with full corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus, and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place
-6-
<PAGE> 7
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a Material Adverse Effect; all the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned by the Company
directly, or indirectly through one of the other Subsidiaries, free and clear
of any lien, adverse claim, security interest, equity or other encumbrance.
(f) There are no legal or governmental proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or
to which any of their respective properties is subject, that are required to be
described in the Registration Statement or the Prospectus but are not described
as required, and there are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act.
(g) Neither the Company nor any of the Subsidiaries is in
violation of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, or in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, except such violations or defaults which would not,
either singly or in the aggregate, be reasonably likely to result in a Material
Adverse Effect.
(h) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby (i)
requires any consent, approval, authorization or other order of or registration
or filing with any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required for the
registration of the Shares under the Act and compliance with the securities or
Blue Sky laws of various jurisdictions, all of which have been or will be
effected in accordance with this Agreement) or conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, the
certificate or articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Subsidiaries or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default
under, any material agreement, indenture, lease or other instrument to which
the Company or any of the Subsidiaries is a party or by which any of them or
any of their respective properties may be bound, or violates or will violate
any statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
(i) The accountants, Coopers & Lybrand L.L.P. and Garrett
Powers, who have certified or shall certify the financial statements included
in the Registration Statement and the Prospectus (or any amendment or
supplement thereto) are independent public accountants as required by the Act.
-7-
<PAGE> 8
(j) The consolidated historical and pro forma financial
statements, together with related schedules and notes, included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) comply as to form in all material respects with the requirements of
the Act. Such historical financial statements present fairly the consolidated
financial position, results of operations and changes in financial position of
the Company and the Subsidiaries on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which they
apply and have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods involved,
except as disclosed therein. The financial statements of Northern Geophysical
of America, Inc. (Land-based Seismic Data Operations) ("Northern"), Paragon
Geophysical, Inc. ("Paragon") and J.R.S. Exploration Company Limited
("J.R.S."), together with related schedules and notes, included in the
Registration Statement and the Prospectus (and any amendments or supplement
thereto) comply as to form in all material respects with the requirements of
the Act. Such historical financial statements present fairly the financial
position, results of operations and changes in financial position of Northern,
Paragon and J.R.S., respectively, on the basis stated in the Registration
Statement at the respective dates and for the respective periods to which they
apply and have been prepared in accordance with GAAP consistently applied
throughout the periods involved, except as disclosed therein. The pro forma
consolidated financial statements have been prepared on a basis consistent with
the historical consolidated financial statements of the Company and the
Subsidiaries and the historical financial statements of Northern, Paragon, and
Kemp Geophysical Corporation, except for the pro forma adjustments specified
therein, and give effect to assumptions made on a reasonable basis and present
fairly the historical and proposed transactions contemplated by the Prospectus.
The other financial and statistical information and data included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company and the
Subsidiaries.
(k) The execution and delivery of, and the performance by
the Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the rights of creditors generally and by general
equitable principles and (ii) to the extent that rights to indemnity and
contribution hereunder may be limited by federal or state securities laws.
(l) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(m) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of
-8-
<PAGE> 9
all liens, claims, security interests or other encumbrances except such as are
described in the Registration Statement and the Prospectus or in a document
filed as an exhibit to the Registration Statement and all the material property
described in the Prospectus as being held under lease by each of the Company
and the Subsidiaries is held by it under valid, subsisting and enforceable
leases.
(n) The Company has not distributed and, prior to the
later to occur of (i) the Closing Date and (ii) completion of the distribution
of the Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(o) The Company and each of the Subsidiaries has such
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and
to conduct its business in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus, except for such
permits the absence of which would not, either singly or in the aggregate, be
reasonably likely to result in a Material Adverse Effect; the Company and each
of the Subsidiaries has fulfilled and performed all its material obligations
with respect to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any
such permit, subject in each case to such qualification as may be set forth in
the Prospectus; and, except as described in the Prospectus, none of such
permits contains any restriction that is materially burdensome to the Company
or any of the Subsidiaries.
(p) The Company and each of the Subsidiaries are in
material compliance with all Environmental Laws (defined below). To the
Company's knowledge under current law, there are no existing circumstances that
would prevent, interfere with or increase the cost of such compliance in the
future, which prevention, interference or increase in cost is reasonably likely
to result in a Material Adverse Effect. As used in this Agreement,
"Environmental Laws" means all United States or foreign federal, state, local
or municipal laws, rules, regulations, statutes, ordinances or orders of any
governmental entity relating to (i) the control of any potential pollutant or
protection of the air, water or land, (ii) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal or transportation, and (iii)
exposure to hazardous, toxic or other substances alleged to be harmful.
(q) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), there is no material
claim under any Environmental Law, including common law, pending or, to the
Company's knowledge, threatened against the Company or any of the Subsidiaries
("Environmental Claim") and, to the Company's best knowledge, under applicable
law, there are no past or present actions, activities, circumstances, events or
incidents, including, without limitation, releases of any material into the
environment that is reasonably likely to form the basis of any claim against
the Company or any of the Subsidiaries that, if determined adversely to the
Company or any of the Subsidiaries, is reasonably likely to result in a
Material Adverse Effect.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's
-9-
<PAGE> 10
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(s) To the Company's knowledge, neither the Company nor
any of its Subsidiaries nor any employee or agent of the Company or any
Subsidiary has made any payment of funds of the Company or any Subsidiary or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
(t) The Company and each of the Subsidiaries have filed
all tax returns required to be filed, which returns are complete and correct,
and neither the Company nor any Subsidiary is in default in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto.
(u) No holder of any security of the Company has any
right to require registration of shares of Common Stock or any other security
of the Company because of the filing of the registration statement or
consummation of the transactions contemplated by this Agreement.
(v) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and the Company is
not aware of any claim to the contrary or any challenge by any other person to
the rights of the Company and the Subsidiaries with respect to the foregoing.
(w) The Company is not now, and after sale of the Shares
to be sold by it hereunder and application of the net proceeds from such sale
as described in the Prospectus under the caption "Use of Proceeds" will not be,
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(x) The Company has filed in a timely manner each
document or report required to be filed by it pursuant to the Exchange Act and
the rules and regulations thereunder; each such document or report at the time
it was filed conformed to the requirements of the Exchange Act and the rules
and regulations thereunder; and none of such documents or reports contained an
untrue statement of any material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(y) The Company has complied with all provisions of
Florida Statutes, Section 517.075, relating to issuers doing business with
Cuba.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each of you and each other Underwriter and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein
a material
-10-
<PAGE> 11
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information furnished in
writing to the Company by or on behalf of any Underwriter through you expressly
for use in connection therewith; provided, however, that the indemnification
contained in this paragraph (a) with respect to any Prepricing Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Shares by such Underwriter to
any person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Company has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing indemnity agreement shall be
in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in respect of
which indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Company has agreed in writing to pay such fees and
expenses, (ii) the Company has failed to assume the defense and employ counsel,
or (iii) the named parties to any such action, suit or proceeding (including
any impleaded parties) include both such Underwriter or such controlling person
and the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards
of professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the Company shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Company shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The Company shall not be liable for any
settlement of any such action, suit or proceeding effected without its written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the Company
agrees to indemnify and hold harmless any Underwriter, to the extent provided
in the preceding paragraph, and any such controlling person from and against
any loss, claim, damage, liability or expense by reason of such settlement or
judgment.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, and any person who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the
-11-
<PAGE> 12
Exchange Act, to the same extent as the foregoing indemnity from the Company to
each Underwriter, but only with respect to information furnished in writing by
or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, or any
such controlling person based on the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such Underwriter's
expense), and the Company, its directors, any such officer, and any such
controlling person shall have the rights and duties given to the Underwriters
by paragraph (b) above. The foregoing indemnity agreement shall be in addition
to any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7
is unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise
-12-
<PAGE> 13
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 7 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule I hereto (or such numbers of
Firm Shares increased as set forth in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or a new registration statement filed pursuant to Rule 462(b)
under the Act to be declared effective before the offering of the Shares may
commence, the registration statement or such post-effective amendment or such
new registration statement shall have become effective not later than 5:30
P.M., New York City time, on the date hereof, or at such later date and time as
shall be consented to in writing by you, and all filings, if any, required by
Rules 424 and 430A under the Act shall have been timely made; no stop order
suspending the effectiveness of the registration statement shall have been
issued and no proceeding for that purpose shall have been instituted or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company and
the Subsidiaries taken as a whole not contemplated by the Prospectus, which in
your reasonable opinion, as Representatives of the several Underwriters, would
materially, adversely affect the market for the Shares, or (ii) any event or
development relating to or involving the Company or any officer
-13-
<PAGE> 14
or director of the Company which makes any statement made in the Prospectus
untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to or
change in the Prospectus in order to state a material fact required by the Act
or any other law to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if amending or supplementing the Prospectus to reflect
such event or development would, in your reasonable opinion, as Representatives
of the several Underwriters, materially adversely affect the market for the
Shares.
(c) You shall have received on the Closing Date, an
opinion of Kramer, Levin, Naftalis & Frankel, counsel for the Company, dated
the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of Delaware with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), and is
duly registered and qualified to conduct its business and is in good standing
in each jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth or results
of operations of the Company and the Subsidiaries taken as a whole;
(ii) Each of the Subsidiaries, with the exception
of Geoevaluaciones, S.A. de C.V. and Procesos Interactivos Avanzados, S.A. de
C.V. (the "Mexican Subsidiaries"), and 3-D Geophysical of Latin America, Inc.
("3-D of Latin America"), is a corporation duly organized and validly existing
in good standing under the laws of the jurisdiction of its organization, with
full corporate power and authority to own, lease, and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto); and all the outstanding
shares of capital stock of each of the Subsidiaries, with the exception of the
Mexican Subsidiaries and 3-D of Latin American, have been duly authorized
and validly issued and are fully paid and nonassessable, and all of the
outstanding shares of capital stock of each of the Subsidiaries are owned by the
Company directly, or indirectly through one of the other Subsidiaries, free and
clear of any perfected security interest;
(iii) The authorized and outstanding capital stock
of the Company is as set forth under the caption "Capitalization" in the
Prospectus; and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock";
(iv) All the shares of capital stock of the
Company outstanding prior to the issuance of the Shares have been duly
authorized and validly issued, and are fully paid and nonassessable;
(v) The Shares have been duly authorized and,
when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any statutory, or to the knowledge of such counsel
after reasonable inquiry, other similar preemptive rights;
-14-
<PAGE> 15
(vi) The form of certificates for the Shares
conforms to the requirements of the Delaware General Corporation Law;
(vii) The Registration Statement and all
post-effective amendments, if any, have become effective under the Act and, to
the knowledge of such counsel after reasonable inquiry, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule 424(b)
has been made in accordance with Rule 424(b);
(viii) The Company has corporate power and authority
to enter into this Agreement and to issue, sell and deliver the Shares to the
Underwriters as provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and is a valid, legal and binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights generally and by general equitable principles;
(ix) Neither the Company nor any of the
Subsidiaries, with the exception of the Mexican Subsidiaries and 3-D of Latin
America, is in violation of its respective certificate or articles of
incorporation or bylaws, or other organizational documents;
(x) Neither the offer, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof nor consummation by the Company of the
transactions contemplated hereby conflicts with or constitutes a breach of, or a
default under, the certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any of the Subsidiaries, with the
exception of the Mexican Subsidiaries and 3-D of Latin America, or any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries, with the exception of the Mexican Subsidiaries and 3-D of
Latin America, is a party or by which any of them or any of their respective
properties is bound that is an exhibit to the Registration Statement, or is
known to such counsel after reasonable inquiry, or will result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of the Subsidiaries, nor will any such action result in any
violation of any existing law, regulation, ruling (assuming compliance with all
applicable federal and state securities and Blue Sky laws) of the United States,
the State of New York or the General Corporation Law of the State of Delaware,
judgment, injunction, order or decree known to such counsel after reasonable
inquiry, applicable to the Company, the Subsidiaries or any of their respective
properties;
(xi) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the Act
or such as may be required under state securities or Blue Sky laws governing
the purchase and
-15-
<PAGE> 16
distribution of the Shares) for the valid issuance and sale of the Shares to
the Underwriters as contemplated by this Agreement;
(xii) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and statistical
data included therein, as to which such counsel need not express any opinion)
comply as to form in all material respects with the requirements of the Act;
(xiii) To the knowledge of such counsel after
reasonable inquiry, (A) other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectus (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be;
(xiv) The statements in the Registration Statement
and Prospectus, insofar as they are descriptions of contracts, agreements or
other legal documents, or refer to statements of law or legal conclusions, are
accurate and present fairly the information required to be shown;
Such counsel shall also state that although counsel
has not undertaken, except as otherwise indicated in their opinion, to
determine independently, and does not assume any responsibility for, the
accuracy or completeness of the statements in the Registration Statement, such
counsel has participated in the preparation of the Registration Statement and
the Prospectus, including review and discussion of the contents thereof, and
nothing has come to the attention of such counsel that has caused it to believe
that the Registration Statement at the time the Registration Statement became
effective, or the Prospectus, as of its date and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein (as to the Prospectus, in the light
of the circumstances under which they were made) not misleading or that any
amendment or supplement to the Prospectus, as of its respective date, and as of
the Closing Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need make no statement with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data included in the Registration Statement or the Prospectus).
-16-
<PAGE> 17
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United States
or the State of New York, provided that (A) each such local counsel is
acceptable to the Representatives, (B) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance satisfactory to them and their
counsel, and (C) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date, an
opinion of De Ovando y Martinez del Campo, S.C., counsel for the Mexican
Subsidiaries, dated the Closing Date and addressed to you, as Representatives
of the several Underwriters, as to the Mexican Subsidiaries with respect to the
matters referred to in clauses (ii), (ix), (x), (xiii) and (xiv) of the
foregoing paragraph 8.(c) and such other related matters as you may request.
(e) You shall have received on the Closing Date an
opinion of Fulbright & Jaworski L.L.P., counsel for the Underwriters, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, with respect to the matters referred to in clauses (v), (vii),
(viii) and (xii) and the penultimate paragraph of Section 8(c) above and such
other related matters as you may request.
(f) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Coopers & Lybrand L.L.P. and Garrett Powers, independent
certified public accountants, substantially in the forms heretofore approved by
you.
(g)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the Company (except
upon the grant of options under the Company's 1995 Long-Term Incentive
Compensation Plan or the exercise of options) nor any material increase in the
short-term or long-term debt of the Company (other than in the ordinary course
of business) from that set forth or contemplated in the Registration Statement
or the Prospectus (or any amendment or supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries taken as
a whole; (iv) the Company and the Subsidiaries shall not have any liabilities
or obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 8(g) and in Section
8(h) hereof.
-17-
<PAGE> 18
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(i) The Shares shall have been listed or approved for
listing upon notice of issuance on the Nasdaq National Market.
(j) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, in connection with the Closing hereunder shall be deemed a
representation and warranty by the Company to each Underwriter as to the
statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option
Closing Date of the conditions set forth in this Section 8, except that, if any
Option Closing Date is other than the Closing Date, the certificates, opinions
and letters referred to in paragraphs (c) through (f) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c) and (d)
shall be revised to reflect the sale of Additional Shares.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the original issuance and sale of the Shares; (iv) the
printing (or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Shares;
(v) the listing of the Shares on the Nasdaq National Market; (vi) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(g)
hereof (including the reasonable fees, expenses and disbursements of counsel
for the Underwriters relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental Blue Sky Memoranda and such
registration and qualification); (vii) the filing fees and the reasonable fees
and expenses of counsel for the Underwriters in connection with any filings
required to be made with the National Association of Securities Dealers, Inc.;
(viii) the transportation and other expenses incurred by or on behalf of
Company representatives in connection with presentations to prospective
purchasers of the Shares; (ix) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company.
-18-
<PAGE> 19
10. Effective Date of Agreement. This Agreement shall become
effective: (a) upon the execution and delivery hereof by the parties hereto; or
(b) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence or a new
registration statement to be filed pursuant to Rule 462(b) of the Act, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission or when such new
registration statement has been filed pursuant to Rule 462(b) of the Act.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying you, or by you, as Representatives of
the several Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters
are obligated to purchase on the Closing Date, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule I hereto bears to the aggregate
number of Firm Shares set forth opposite the names of all non-defaulting
Underwriters or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market shall have been suspended or materially
limited, (ii) a general moratorium on commercial banking activities in New York
or Colorado shall have been declared by either federal or state authorities, or
(iii) there shall have occurred any outbreak or escalation of hostilities or
other international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which
-19-
<PAGE> 20
on the financial markets of the United States is such as to make it, in your
reasonable judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the
Shares by the Underwriters. Notice of such termination may be given to the
Company by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (a) if to the Company, at the office of
the Company at 7076 South Alton Way, Building H, Englewood, Colorado 80112,
Attention: Richard Davis, President and Chief Executive Officer; or (ii) if to
you, as Representatives of the several Underwriters, care of Smith Barney Inc.,
388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective heirs,
personal representatives, successors and assigns, to the extent provided
herein, and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
-20-
<PAGE> 21
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
3-D GEOPHYSICAL, INC.
By______________________________________
Joel Friedman
Chairman of the Board
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
SIMMONS & COMPANY INTERNATIONAL
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By___________________________
Managing Director
-21-
<PAGE> 22
SCHEDULE I
NAME OF COMPANY
<TABLE>
<CAPTION>
Number Number
of Firm of Firm
Underwriter Shares Underwriter Shares
------------------------------------- ------------- ---------------------------------- -------------
<S> <C> <C> <C>
Smith Barney Inc.
Rauscher Pierce Refsnes, Inc.
Simmons & Company International
Total . . . . . . . . . . . . . . . =============
</TABLE>
<PAGE> 23
SCHEDULE II
LIST OF SUBSIDIARIES OF 3-D GEOPHYSICAL, INC.
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation
- ---------------------------------------------- -----------------------------
<S> <C>
Geo Acquisition Sub, Inc. Delaware
Geoevaluaciones, S.A. de C.V. Mexico
Kemp Geophysical Corporation Texas
Northern Geophysical of America, Inc. Delaware
Paragon Geophysical, Inc. Delaware
Procesos Interactivos Avanzados, S.A. de C.V. Mexico
3-D Geophysical of Canada, Inc. Canada
3-D Geophysical of Latin America, Inc. Cayman Islands
</TABLE>
<PAGE> 1
STOCK PURCHASE AGREEMENT
among
3-D GEOPHYSICAL, INC.,
3-D GEOPHYSICAL OF CANADA, INC.,
D. E. JANVEAU, GLADYS MUELLER
and
W. G. MUELLER
Dated as of December 10, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Purchase and Sale of Janvo Shares and Calcore Shares . . . . . . . . . 5
ARTICLE III Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Certain Actions at Closing . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV Representations and Warranties of Sellers . . . . . . . . . . . . . . 8
4.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . 8
4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 No Conflict; Transactions with Certain Persons . . . . . . . . . . . . 11
4.6 Financial Statements; Undisclosed Liabilities; Receivables;
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.8 Title to Properties; Absence of Encumbrances . . . . . . . . . . . . . 14
4.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 15
4.10 Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . . . 15
4.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.13 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.14 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.15 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.16 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 19
4.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 20
4.18 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.19 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . 23
4.20 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.21 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . 23
4.22 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.23 Absence of Certain Business Practices . . . . . . . . . . . . . . . . 25
4.24 Customer Relationships . . . . . . . . . . . . . . . . . . . . . . . . 25
4.25 No Broker or Finder . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.26 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.27 Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.28 Residency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE V Representations and Warranties of 3-D and Buyer . . . . . . . . . . . 27
5.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.6 Financial Condition; Etc. . . . . . . . . . . . . . . . . . . . . . . 29
5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.8 No Broker or Finder . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI Covenants of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.1 Normal Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3 Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4 Best Efforts to Satisfy Conditions . . . . . . . . . . . . . . . . . . 30
6.5 Delivery of Financial Statements . . . . . . . . . . . . . . . . . . . 31
6.6 Intercompany Payments . . . . . . . . . . . . . . . . . . . . . . . . 31
6.7 Resignation of Officers and Directors . . . . . . . . . . . . . . . . 31
6.8 Amendment to the Lease . . . . . . . . . . . . . . . . . . . . . . . . 31
6.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII Covenants of 3-D and Buyer . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Best Efforts to Satisfy Conditions . . . . . . . . . . . . . . . . . . 31
7.3 Amendments to Registration Statement. . . . . . . . . . . . . . . . . 32
7.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII Conditions Precedent to Obligations of 3-D and Buyer . . . . . . . . . 32
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . 32
8.2 Compliance with Covenants . . . . . . . . . . . . . . . . . . . . . . 32
8.3 Certain Financial Tests . . . . . . . . . . . . . . . . . . . . . . . 32
8.4 Lack of Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 32
8.5 Update Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.6 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.7 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Consents of Third Parties to Contracts . . . . . . . . . . . . . . . . 33
8.9 No Violation of Orders . . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 Escrow Agreement; Employment Agreements; Lease Amendment . . . . . . 34
8.11 Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.12 Other Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX Conditions Precedent to Obligations of Sellers . . . . . . . . . . . . 34
9.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . 34
9.2 Compliance with Covenants . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Update Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.5 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.6 No Violation of Orders . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
9.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . 35
9.8 Release of Personal Guarantees. . . . . . . . . . . . . . . . . . . . 35
ARTICLE X Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . 35
10.1 Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Transaction Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Survival of Representations, Warranties and Covenants . . . . . . . . 35
11.2 Indemnification by Sellers . . . . . . . . . . . . . . . . . . . . . . 36
11.3 Indemnification by 3-D and Buyer . . . . . . . . . . . . . . . . . . . 36
11.4 Assumption of Defense . . . . . . . . . . . . . . . . . . . . . . . . 36
11.5 Non-Assumption of Defense . . . . . . . . . . . . . . . . . . . . . . 37
11.6 Indemnified Party's Cooperation as to Proceedings . . . . . . . . . . 37
11.7 General Limitations on Indemnification . . . . . . . . . . . . . . . . 38
ARTICLE XII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.2 Entirety of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 38
12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.5 Nonwaiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.7 Assignment; Binding Nature; No Beneficiaries . . . . . . . . . . . . . 39
12.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.9 Governing Law; Consent to Jurisdiction . . . . . . . . . . . . . . . . 39
12.10 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.11 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.12 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
-iii-
<PAGE> 5
Schedules
IV Disclosure Schedule
Exhibits
A Description of rights, privileges, restrictions and
conditions of Terms of Buyer's Shares
B-1 Form of Employment Agreement for D.E. Janveau
B-2 Form of Employment Agreement for W.G. Mueller
C Escrow Agreement
D Interim Balance Sheet
E Share Exchange Agreement
F Support Agreement
G Major Customers
H List of New Officers and Directors
I Legal Opinion of Sellers' Counsel
J-1 Legal Opinion of Buyer's United States Counsel
J-2 Legal Opinion of Buyer's Canadian Counsel
-iv-
<PAGE> 6
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
December 10, 1996, by and among 3-D Geophysical, Inc., a Delaware corporation
("3-D"), 3-D Geophysical of Canada, Inc., a Canadian corporation ("Buyer"),
D.E. Janveau ("DJ"), Gladys Mueller ("GM") and W.G. Mueller ("WGM"; DJ, GM and
WGM being sometimes referred to individually as a "Seller" and collectively as
"Sellers").
RECITALS
WHEREAS, DJ owns all of the issued and outstanding shares of
capital stock of Jan Vo Equities Ltd., an Alberta corporation ("Janvo");
WHEREAS, Janvo owns 27 shares of Class A Common Stock and 27
shares of Class B Common Stock of J.R.S. Exploration Company Limited, an
Alberta corporation ("Company");
WHEREAS, GM owns 80 shares of Class A Common Stock and WGM
owns 120 shares of Class A Common Stock of Cal-Core Properties, Ltd., an
Alberta corporation ("Calcore");
WHEREAS, Calcore owns 200 shares of Class A Common Stock of W.
G. Mueller Consulting Services, Ltd., an Alberta corporation ("Mueller
Consulting");
WHEREAS, Mueller Consulting owns 6 shares of Class A Common
Stock and 6 shares of Class B Common Stock of Company; and
WHEREAS, Buyer desires to acquire all of the issued and
outstanding capital stock of Company by purchasing all of the issued and
outstanding shares of capital stock of Janvo and Calcore, and Sellers desire to
sell the same, on the terms and conditions hereinafter contained;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
Certain Definitions
"Act" means the United States Securities Act of 1933, as
amended.
"Affiliated Person(s)" has the meaning set forth in Section
4.5(b).
<PAGE> 7
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Bank" means Province of Alberta Treasury Branches.
"Business Day" means any day that is not a Saturday or Sunday
or a legal holiday on which banks are authorized or required by law to be
closed in Calgary, Canada or New York, New York.
"Buyer" has the meaning set forth in the preamble to this
Agreement.
"Buyer's Shares" means the exchangeable non-voting shares in
the capital of Buyer having substantially the rights, privileges, restrictions
and conditions set forth on Exhibit A attached hereto to be issued to Sellers
pursuant to Section 2.1.
"Calcore Shares" has the meaning set forth in Section 4.2(d).
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section 3.1.
"Code" has the meaning set forth in Section 4.7(c)(x).
"Company" has the meaning set forth in the recitals.
"Company Class A Stock" has the meaning set forth in Section
4.2(a).
"Company Class B Stock" has the meaning set forth in Section
4.2(a).
"Company Shares" has the meaning set forth in Section 4.2(a).
"Contracts" has the meaning set forth in Section 4.10(b).
"Common Stock" means the shares of common stock, par value
0.01 per share, of 3-D.
"Common Stock Market Price" has the meaning set forth in
Section 2.1 (b).
"Disclosure Schedule" has the meaning set forth in the
preamble to Article IV.
"Dollars" or "$" means Canadian dollars, unless otherwise
specified.
"Employee Benefit Plan(s)" has the meaning set forth in
Section 4.16(a).
"Employees" has the meaning set forth in Section 4.4(b).
-2-
<PAGE> 8
"Employment Agreements" means the employment agreements
between Company and DJ and between Company and WGM, in substantially the forms
attached hereto as Exhibits B-1 and B-2, respectively, to be entered into by
Company and DJ and Company and WGM at the Closing.
"Encumbrance" means any lien, pledge, mortgage, security
interest, charge, restriction, adverse claim or other encumbrance of any kind
or nature whatsoever.
"Environment" has the meaning set forth in Section 4.17(i).
"Environmental Laws" has the meaning set forth in Section
4.17(i).
"Environmental Permits" has the meaning set forth in Section
4.17(i).
"Escrow Agent" means Montreal Trust Company of Canada, a
financial institution organized under the laws of Canada.
"Escrow Agreement" means the Escrow Agreement among 3-D,
Buyer, Sellers and the Escrow Agent, in substantially the form attached hereto
as Exhibit C, to be entered into at the Closing.
"Financial Statements" means the balance sheet and statements
of earnings, shareholders' equity and cash flows of Company as of, and for the
fiscal year ended, November 30 in each of the years 1993 through 1995 and as
of, and for the ten months ended, September 30, 1996.
"GAAP" means Canadian generally accepted accounting
principles.
"Hazardous Substance(s)" has the meaning set forth in Section
4.17(i).
"Indemnification Obligations" means the indemnification
obligations of Sellers or Buyer under Article XI.
"Intellectual Property" means all patents and patent
applications, all trademarks, trade names, business names, brand names, service
marks and copyrights, all applications for registration of such trademarks,
trade names, business names, brand names, service marks and copyrights, all
common law trade names and all common law or statutory trade secrets, including
know-how, inventions, designs, processes and computer programs (including
source codes).
"Interim Balance Sheet" means the balance sheet of Company as
of August 31, 1996, a copy of which is attached hereto as Exhibit D.
"Janvo Class A Stock" has the meaning set forth in Section
4.2(b).
"Janvo Class B Stock" has the meaning set forth in Section
4.2(b).
-3-
<PAGE> 9
"Janvo Class C Stock" has the meaning set forth in Section
4.2(b)
"Janvo Preferred Stock" has the meaning set forth in Section
4.2(b).
"Janvo Shares" has the meaning set forth in Section 4.2(b).
"Lease" has the meaning set forth in Section 4.5(b).
"Loss(es)", in respect of any matter, means any loss,
liability, cost, expense, judgment, settlement or other damage arising directly
or indirectly as a result of or in connection with such matter, including
reasonable attorneys', consultants' and other advisors' fees and expenses,
reasonable costs of investigating or defending any claim, action, suit or
proceeding or of avoiding the same or the imposition of any judgment or
settlement, and reasonable costs of enforcing any Indemnification Obligations.
"Major Customers" has the meaning set forth in Section 4.24.
"Material Adverse Effect" means any material adverse effect on
the business, operations, assets, condition (financial or otherwise),
liabilities, results of operations or prospects of Company, Janvo, Mueller
Consulting or Calcore, as the case may be.
"Mueller Consulting Shares" has the meaning set forth in
Section 4.2(c).
"Parent Common Stock" means the shares of Common Stock
issuable in accordance with the share provisions attaching to the Buyer's
Shares.
"Permitted Encumbrances" has the meaning set forth in Section
4.8(c).
"Person" means an individual, partnership, venture,
unincorporated association, organization, syndicate, corporation, trust and
trustee, executor, administrator or other legal or personal representative or
any government or any agency or political subdivision thereof.
"Pre-Closing Period" means all taxable periods ending on or
before the Closing Date and the portion ending on or before the Closing Date of
any taxable period that includes (but does not end on) the Closing Date.
"Prospectus" has the meaning set forth in Section 4.26(b).
"Public Offering" means the underwritten public offering of
Common Stock by the Company that is contemplated by the Registration Statement.
"Registration Statement" means 3-D's registration statement on
Form S-1 initially filed with the SEC on October 8, 1996 (Registration No.
333-13665), including all amendments thereto.
-4-
<PAGE> 10
"SEC" means the United States Securities and Exchange
Commission.
"Share Exchange Agreement" means the Share Exchange Agreement
among 3-D and the Buyer in substantially the form attached hereto as Exhibit E
to be entered into by 3-D and the Buyer at the Closing.
"Support Agreement" means the Support Agreement between 3-D
and Buyer in substantially the form attached hereto as Exhibit F to be entered
into by 3-D and Buyer at the Closing.
"Tax(es)" means all federal, provincial, local, foreign and
other taxes, assessments or other governmental charges, including without
limitation, income, estimated income, gross receipts, business, capital,
occupation, franchise, property, value added, goods and services, sales, use,
transfer, excise, employment, payroll and withholding taxes, including
interest, penalties and additions in connection therewith.
"United States" or "U.S." means the United States of America.
ARTICLE II
Purchase and Sale
2.1 Purchase and Sale of Janvo Shares and Calcore Shares.
(a) Subject to and upon the terms and conditions hereinafter set forth, at the
Closing, and in reliance upon the representations and warranties of each other
contained in this Agreement or made pursuant hereto:
(i) DJ shall sell, convey, assign, transfer and deliver
to Buyer (a) 1 share of Janvo Class A Stock, 1 share of Janvo Class B Stock, 1
share of Janvo Class C Stock and 27 shares of Janvo Preferred Stock, free and
clear of any and all Encumbrances, and Buyer shall purchase the same for a
number of Buyer's Shares determined pursuant to Section 2.1(b), and (b) 1 share
of Janvo Class A Stock, 2 shares of Janvo Class C Stock and 27 shares of Janvo
Preferred Stock, free and clear of any and all Encumbrances, and Buyer shall
purchase the same for $2,863,630.00 in cash;
(ii) GM shall sell, convey, assign, transfer and deliver
to Buyer (a) 40 Calcore Shares, free and clear of any and all Encumbrances, and
Buyer shall purchase the same for a number of Buyer's Shares determined
pursuant to Section 2.1(b), and (b) 40 Calcore Shares, free and clear of any
and all Encumbrances, and Buyer shall purchase the same for $254,555.00 in
cash; and
(iii) WGM shall sell, convey, assign, transfer and deliver
to Buyer (a) 60 Calcore Shares, free and clear of any and all Encumbrances, and
Buyer shall purchase the same for a number of Buyer's Shares determined
pursuant to Section 2.1(b) and (b) 60
-5-
<PAGE> 11
Calcore Shares, free and clear of any and all Encumbrances, and Buyer shall
purchase the same for $381,815.00 in cash.
(b) The number of Buyer's Shares to be delivered to DJ
pursuant to Section 2.1(a)(i) shall equal the result obtained by multiplying
$3,350,000 by 81.818% and by dividing the product so obtained by the Common
Stock Market Price; the number of Buyer's Shares to be delivered to GM pursuant
to Section 2.1(a)(ii) shall equal the result obtained by multiplying $3,350,000
by 7.273% and by dividing the product so obtained by the Common Stock Market
Price; and the number of Buyer's Shares to be delivered to WGM pursuant to
Section 2.1(a)(ii) shall equal the result obtained by multiplying $3,350,000 by
10.909% and by dividing the product so obtained by the Common Stock Market
Price; provided, however, that in no event shall Buyer issue any fractional
share and any such fraction shall be rounded up to the nearest whole number.
The Common Stock Market Price means the equivalent in Canadian dollars as
provided below of the average closing price (in U.S. dollars) of one share of
Common Stock on the NASDAQ National Market for the three consecutive Business
Days ending on the Business Day immediately prior to the Closing Date, as
reported by The Wall Street Journal (provided, however, that if such average is
less than $8.00 (U.S.) or more than $10.00 (U.S.), such average shall be deemed
to be $8.00 (U.S.) or $10.00 (U.S.), respectively for purposes of determining
the Common Stock Market Price), which average (or deemed average) shall be
translated into Canadian dollars at the exchange rate therefor as reported by
The Wall Street Journal on the last Business Day immediately prior to the
Closing Date.
(c) Each of DJ, GM and WGM and the Buyer shall elect
jointly under subsection 85(1) of the Income Tax Act (Canada) in respect of the
purchase and sale of shares provided for in this Section 2.1 and shall specify
therein as each Seller's proceeds of disposition of the Janvo Shares or Calcore
Shares, as the case may be, and Buyer's cost of such shares shall be such
amount as such Seller determines, subject to the several limitations of said
section 85. Such election shall be made in the manner and filed within the
time provided by said section 85.
ARTICLE III
Closing
3.1 Closing Date. Subject to the fulfillment or waiver
of the conditions precedent set forth in Articles VIII and IX, the closing of
the transactions contemplated hereby (the "Closing") shall be held on January
7, 1997 at 10:00 a.m., prevailing local time, at the offices of Beaumont
Church, AGT Tower, 2200-411 1st Street S.E., Calgary, Canada, or at such other
time or other place as may be agreed to by Buyer and Sellers. The date on
which the Closing occurs is herein referred to as the "Closing Date"; provided,
however, that, subject to Section 10.2, if any condition to a party's
obligation hereunder to close shall not have been satisfied (or waived by the
party entitled to waive it) on the day prior to the date determined by Buyer
and Sellers to be the Closing Date, then the party whose obligation to close is
subject to a condition not satisfied or waived may postpone the Closing, from
time to time, by giving notice to the other parties, until the condition has
been met. For
-6-
<PAGE> 12
accounting purposes, the parties agree that the Closing shall be deemed to have
occurred at 12:01 A.M., local time in Calgary, Canada, on December 1, 1996.
3.2 Certain Actions at Closing. (a) At the Closing:
(i) DJ shall deliver to Buyer one or more
certificates representing in the aggregate all of the Janvo Shares,
duly endorsed in blank or accompanied by duly executed stock transfer
powers, and Buyer shall duly issue and deliver to DJ two or more
certificates registered in DJ's name representing in the aggregate the
number of Buyer's Shares determined pursuant to the provisions of
Section 2.1(b) and $2,863,636.36 in cash, payable by certified or
official bank check payable to the order of DJ or as DJ may otherwise
direct in writing;
(ii) GM shall deliver to Buyer one or more
certificates representing in the aggregate 80 Calcore Shares, duly
endorsed in blank or accompanied by duly executed stock transfer
powers, and Buyer shall duly issue and deliver to GM two or more
certificates registered in GM's name representing in the aggregate the
number of Buyer's Shares determined pursuant to the provisions of
Section 2.1(b) and $254,545.46 in cash, payable by certified or
official bank check payable to the order of GM or as GM may otherwise
direct in writing.
(iii) WGM shall deliver to Buyer one or more
certificates representing in the aggregate 120 Calcore Shares, duly
endorsed in blank or accompanied by duly executed stock transfer
powers, and Buyer shall duly issue and deliver to WGM two or more
certificates registered in WGM's name representing in the aggregate
the number of Buyer's Shares determined pursuant to the provisions of
Section 2.1(b) and $381,818.18 in cash, payable by certified or
official bank check payable to the order of WGM or as WGM may
otherwise direct in writing;
(iv) 3-D and Buyer shall execute and deliver the
Support Agreement and the Share Exchange Agreement;
(v) The Employees and Company shall execute and
deliver the Employment Agreements;
(vi) Sellers shall execute and/or deliver to Buyer
each other document, certificate or other instrument required to be
executed and/or delivered by Sellers under this Agreement at or prior
to the Closing;
(vii) 3-D, Buyer, Sellers and the Escrow Agent
shall execute and deliver the Escrow Agreement;
(viii) Each of DJ, GM and WGM shall deposit with the
Escrow Agent one or more certificates registered in their respective
names (together with appropriate stock powers duly executed in blank)
and representing 50% of the aggregate of the
-7-
<PAGE> 13
number of Buyer's Shares issued to him or her, as the case may be,
pursuant to the provisions of Section 2.1(b).
(ix) 3-D and Buyer shall execute and/or deliver to
Sellers each other document, certificate or other instrument required
to be executed and/or delivered by 3-D or Buyer under this Agreement
at or prior to the Closing; and
(x) Sellers shall cause Company, Janvo, Mueller
Consulting and Calcore to deliver to Buyer their minute books, share
certificate books, stock register, stock transfer records, books of
account, accounting records and all other corporate records and
documents.
(b) Sellers shall be liable for and shall pay all Taxes,
direct or indirect, if any, attributable to the transfer of the Janvo Shares or
the Calcore Shares, as the case may be, and, in connection therewith, shall
affix any necessary transfer stamps to the stock certificates (or stock
transfer powers) evidencing such shares.
ARTICLE IV
Representations and Warranties of Sellers
Sellers, jointly and severally, hereby represent and warrant
to the Buyer that, except as set forth in the disclosure schedule accompanying
this Agreement (the "Disclosure Schedule"), each of the statements contained in
this Article IV is true, correct and complete. The Disclosure Schedule will be
arranged in sections corresponding to the Sections of this Article IV.
4.1 Organization and Good Standing.
(a) Company, Janvo, Mueller Consulting and Calcore are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation, as set out in Section
4.1(a) of the Disclosure Schedule. Each of Company, Janvo, Mueller Consulting
and Calcore has full corporate power and authority to own its properties and to
carry on its business as it is now being conducted and as it is proposed to be
conducted. Each of Company, Janvo, Mueller Consulting and Calcore is duly
qualified to transact business and is in good standing in each jurisdiction
wherein the nature of the business done or the property owned, leased or
operated by it requires such qualification. Copies of the constating documents
and by-laws of Company, Janvo, Mueller Consulting and Calcore and all
amendments thereto have been delivered to Buyer and are true and complete. The
corporate minutes, corporate records and stock register and transfer records of
Company, Janvo, Mueller Consulting and Calcore have been made available to
Buyer and are true and complete. Such corporate minutes reflect all actions
taken by the Board of Directors (or any committee thereof) and shareholders of
Company, Janvo, Mueller Consulting and Calcore.
-8-
<PAGE> 14
(b) The business carried on by Company has been conducted
by Company directly, and not through any Affiliated Person, or any shareholder,
officer, director or employee of any Affiliated Person, or through any other
Person. Company has no subsidiaries and is not a party to, directly or
indirectly, or under any obligation to enter into, any joint venture,
partnership or other profit sharing arrangement.
(c) Neither Janvo, Mueller Consulting nor Calcore owns
any property or assets, conducts any operations, carries on any business or
provides any services, except that Janvo and Mueller Consulting own shares of
capital stock of Company and Calcore owns the Mueller Consulting Shares.
Company provides land-based seismic data acquisition services in the provinces
of Alberta, British Columbia, Manitoba, Northwest Territories, the Yukon and
Saskatchewan, Canada and conducts no other operations, carries on no other
business and provides no other services. Neither Janvo, Mueller Consulting nor
Calcore is a party to, directly or indirectly, or under any obligation to enter
into, any joint venture, partnership or other profit sharing arrangement.
(d) Each Seller has full legal capacity to enter into and
carry out his or her obligations under this Agreement and is not under any
prohibition or restriction, contractual, statutory or otherwise, against doing
so.
4.2 Capitalization. (a) Company's authorized capital
stock consists solely of an unlimited number of shares of Class A Voting Common
Stock ("Company Class A Stock") and an unlimited number of shares of Class B
Non-Voting Common Stock ("Company Class B Common Stock"), of which 33 shares
(and no more) of Company Class A Stock and 33 shares (and no more) of Company
Class B Stock (collectively, "Company Shares") are validly issued and
outstanding, fully paid and non-assessable.
(b) Janvo's authorized capital stock consists solely of
1,000 shares of Class A Voting Common Stock ("Janvo Class A Stock"), 1,000
shares of Class B Non-Voting Common Stock ("Janvo Class B Stock"), 1,000 shares
of Class C Non Voting Common Stock ("Janvo Class C Stock") and 1,000,000 shares
of Class D Preferred Stock ("Janvo Preferred Stock"), of which 2 shares (and no
more) of Janvo Class A Stock, 1 share (and no more) of Janvo Class B Stock, 3
shares (and no more) of Janvo Class C Stock and 54 shares (and no more) of
Janvo Preferred Stock (collectively, "Janvo Shares") are validly issued and
outstanding, fully paid and non-assessable.
(c) Mueller Consulting's authorized capital stock
consists solely of 20,000 shares of Class A Common Stock ("Mueller Consulting
Shares"), of which 200 shares (and no more) are validly issued and outstanding,
fully paid and non-assessable.
(d) Calcore's authorized capital stock consists solely of
10,000 shares of Class A Common Stock ("Calcore Shares"), of which 200 shares
(and no more) are validly issued and outstanding, fully paid and
non-assessable.
(e) There are no outstanding or authorized options,
warrants, purchase agreements, subscription rights, conversion rights, exchange
rights or other securities,
-9-
<PAGE> 15
contracts or commitments that could require Company, Janvo, Mueller Consulting
or Calcore to issue, sell or otherwise cause to become outstanding any of their
authorized but unissued shares of capital stock or to create, authorize, issue,
sell or otherwise cause to become outstanding any new class of capital stock.
None of the issued and outstanding shares of capital stock of Company, Janvo,
Mueller Consulting or Calcore has been issued in violation of any rights of any
Person or in violation of the prospectus or registration requirements of any
Canadian or United States securities law.
4.3 Ownership of Shares. (a) DJ owns beneficially and of
record, and has good, valid and marketable title to and the right to transfer
to Buyer, all of the Janvo Shares, free and clear of any and all Encumbrances.
GM and WGM own beneficially and of record, and have good, valid and marketable
title to and the right to transfer to Buyer, 80 and 120, respectively, of the
Calcore Shares, free and clear of any and all Encumbrances. Calcore owns
beneficially and of record, and has good, valid and marketable title to, all of
the Mueller Consulting Shares free and clear of any and all Encumbrances.
Mueller Consulting owns beneficially and of record 6 shares of Company Class A
Stock and 6 shares of Company Class B Stock and Janvo owns beneficially and of
record 27 shares of Company Class A Stock and 27 shares of Company Class B
Stock, and each of Mueller Consulting and Janvo has good, valid and marketable
title to such shares of Company Class A Stock and Company Class B Stock, free
and clear of any and all Encumbrances. At the Closing, Buyer will own, and
have good, valid and marketable title to, all of the issued and outstanding
shares of capital stock of Janvo and Calcore, Calcore will own, and have good,
valid and marketable title to, all of the issued and outstanding shares of
capital stock of Mueller Consulting and Janvo and Mueller Consulting will,
together, own, and have good, valid and marketable title to, all of the issued
and outstanding shares of capital stock of Company, in each and every case free
and clear of any and all Encumbrances.
(b) No person other than Buyer has any written or oral
agreement or option to or any right or privilege (whether by law, pre-emptive
or contractual) capable of becoming an agreement or option for the purchase or
acquisition (i) from any Seller of any of the shares of capital stock of Janvo
or Calcore, (ii) from Calcore of any of the Mueller Consulting Shares, or (iii)
from either Janvo or Mueller Consulting of any shares of capital stock of
Company.
4.4 Authorization. (a) This Agreement has been duly
executed and delivered by each Seller and constitutes a legal, valid and
binding obligation of each Seller, enforceable against him or her, as the case
may be in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other laws
affecting the rights of creditors generally and by general principles of
equity.
(b) At the Closing, (i) the Employment Agreements shall
be duly executed and delivered by DJ and WGM (the "Employees") and will
constitute legal, valid, binding and enforceable obligations of the Employees,
and (ii) the Escrow Agreement shall be duly executed and delivered by DJ, GM
and WGM and will constitute the legal, valid, binding and enforceable
obligation of DJ, GM and WGM, respectively.
-10-
<PAGE> 16
4.5 No Conflict; Transactions with Certain Persons.
(a) Except as set forth in Section 4.5(a) of the
Disclosure Schedule, neither the execution and delivery of this Agreement or
the Escrow Agreement by any of Sellers, nor the consummation of the
transactions contemplated hereby or thereby, will (i) conflict with or violate
the constating documents or by-laws or resolutions of the directors or
shareholders of Company, Janvo, Mueller Consulting or Calcore, or (ii) conflict
with, violate, result in the breach of any term of, constitute a default under,
require the consent or approval of or any notice to or filing with any third
party or governmental authority under, or create an Encumbrance on any of the
shares of capital stock or the assets of Company, Janvo, Mueller Consulting or
Calcore under, any note, mortgage, deed of trust or other agreement or
instrument to which any of Sellers or Company, Janvo, Mueller Consulting or
Calcore is a party or by which any of Sellers or Company, Janvo, Mueller
Consulting or Calcore is bound, or any law, order, rule, regulation, decree,
writ, injunction, license, approval, authorization, franchise or permit of any
governmental body having jurisdiction over any of Sellers or Company, Janvo,
Mueller Consulting or Calcore or their respective properties.
(b) Except as described in Section 4.5(b) of the
Disclosure Schedule, (i) Company has not at any time since July 1, 1990,
directly or indirectly, purchased, leased or otherwise acquired any property or
obtained any services from, or sold, leased or otherwise disposed of any
property or furnished any services to (except in each case with respect to
remuneration for services rendered as a director, officer or employee of
Company), in the ordinary course of business or otherwise, any Seller, Janvo,
Mueller Consulting or Calcore, any member of the immediate family of any Seller
or any other Person (other than Company) that, directly or indirectly, alone or
together with others, controls, is controlled by or is under common control
with Company, Janvo, Mueller Consulting or Calcore or any Seller or any member
of the immediate family of any Seller (the Persons listed in this clause (i)
being referred to herein collectively as "Affiliated Persons" and individually
as an "Affiliated Person"), except for the lease of certain real property
located at 4750 30th Street S.E., Calgary Alberta, dated as of June 1, 1996
between Pavelow Investments Ltd. and the Company] (the "Lease") pursuant to
terms set forth in Section 4.5(b) of the Disclosure Schedule; (ii) neither
Company, Janvo, Mueller Consulting nor Calcore owes any amount to any
Affiliated Person; and (iii) no Affiliated Person owes any amount to Company,
Janvo, Mueller Consulting or Calcore and no part of the property or assets of
any Affiliated Person is used by Company in the conduct or operation of its
business, except for the property referred to in Section 4.5(b)(i).
4.6 Financial Statements; Undisclosed Liabilities;
Receivables; Supplies.
(a) The Financial Statements, complete and correct copies
of which have been delivered to Buyer, fairly present the financial condition
of Company as at their respective dates and the results of operations and cash
flows of Company for the periods covered thereby. The Financial Statements
have been prepared from the books and records of Company in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby.
-11-
<PAGE> 17
(b) Except as and to the extent reflected or reserved
against on the Interim Balance Sheet or as set forth in Section 4.6(b) of the
Disclosure Schedule, as of the date of the Interim Balance Sheet, Company had
no liabilities, debts or obligations (whether absolute, accrued, contingent or
otherwise) of any nature that would be required as of such date to have been
included on a balance sheet prepared in accordance with GAAP. Since the date
of the Interim Balance Sheet, there has been no material adverse change in the
business, operations, assets, condition (financial or otherwise), liabilities,
results of operations or prospects of Company, and no event has occurred which
is reasonably likely to result in a Material Adverse Effect.
(c) Except as set forth in Section 4.6(c) of the
Disclosure Schedule, all receivables of Company (including accounts receivable,
loans receivable and advances) which are reflected on the Interim Balance
Sheet, and all such receivables which arise thereafter and prior to the
Closing, have arisen or will have arisen only from bona fide transactions in
the ordinary course of business and such receivables (i) shall be fully
collectible at the aggregate recorded amounts thereof (except to the extent of
appropriate reserves therefor established in accordance with GAAP), and (ii)
are not and will not be subject to defense, counterclaim or offset.
(d) All items of supplies and other consumables reflected
on the Interim Balance Sheet, and all such items of supplies and other
consumables that are acquired thereafter and prior to the Closing, are or will
be useable in the ordinary course of business. Company has and will through
the Closing maintain a sufficient but not an excessive quantity of each type of
such supplies and other consumables in order to meet the normal requirements of
its business and operations.
(e) As of the date of this Agreement, and as of the
Closing Date, neither Janvo, Mueller Consulting nor Calcore has or will have
any liabilities, debts or obligations (whether absolute, accrued, contingent or
otherwise).
4.7 Taxes.
(a) Each of Company, Janvo, Mueller Consulting and
Calcore has timely filed with the appropriate taxing authorities all returns
and reports in respect of Taxes ("Returns") required to be filed by it (taking
into account any extension of time to file). The information on such Returns
is complete and accurate in all respects. Each of Company, Janvo, Mueller
Consulting and Calcore has paid on a timely basis all Taxes (whether or not
shown on any Return) due and payable, except for Taxes which Company, Janvo,
Mueller Consulting or Calcore, as the case may be, in good faith, represent are
not due and payable because they are being diligently contested by appropriate
proceedings and for which the Company, Janvo, Mueller Consulting or Calcore, as
the case may be, has set aside on its books reserves to the extent required by
GAAP; there are no such Taxes being contested at the date of this Agreement and
such Taxes shall not aggregate in excess of $10,000. There are no liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
Company, Janvo, Mueller Consulting or Calcore.
-12-
<PAGE> 18
(b) No unpaid (or unreserved in accordance with GAAP)
deficiencies for Taxes have been claimed, proposed or assessed by any taxing or
other governmental authority with respect to Company, Janvo, Mueller Consulting
or Calcore for any Pre-Closing Period, and there are no pending or threatened
audits, investigations or claims or issued and outstanding assessments for or
relating to any liability in respect of Taxes of Company, Janvo, Mueller
Consulting or Calcore. None of Company, Janvo, Mueller Consulting and Calcore
has requested any extension of time within which to file any currently unfiled
returns in respect of any Taxes and no extension of a statute of limitations
relating to any Taxes is in effect with respect to Company, Janvo, Mueller
Consulting or Calcore. All taxation years of Company up to and including
November 30, 1991 are considered closed by Canadian federal and provincial tax
authorities for purposes of all Taxes.
(c) (i) Each of Company, Janvo, Mueller Consulting and
Calcore has made or will make provision for all Taxes payable by it with
respect to any Pre-Closing Period which are not payable prior to the Closing
Date; (ii) the provisions for Taxes with respect to Company, Janvo, Mueller
Consulting and Calcore for the Pre-Closing Period (excluding any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) are adequate to cover all Taxes with respect to such period; (iii) each
of Company, Janvo, Mueller Consulting and Calcore has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor, shareholder or
other third party; (iv) all material elections with respect to Taxes affecting
Company, Janvo, Mueller Consulting or Calcore as of the date hereof are set
forth in Section 4.7(c)(iv) of the Disclosure Schedule; (v) none of Company,
Janvo, Mueller Consulting and Calcore has any net capital losses, non-capital
losses or other loss carryovers, tax credits or other favorable tax attributes;
(vi) there are no advance tax rulings in respect of any Tax pending between
Company, Janvo, Mueller Consulting or Calcore and any taxing authority; (vii)
none of Company, Janvo, Mueller Consulting and Calcore owns any interest in
real property in the State of New York; (viii) the taxation year end for each
of Company, Janvo, Mueller Consulting and Calcore is November 30th and none of
Company, Janvo, Mueller Consulting and Calcore has ever been a member of an
affiliated group or filed or been included in a combined, consolidated or
unitary return of any Person; (ix) none of Company, Janvo, Mueller Consulting
and Calcore is currently under any contractual obligation to indemnify any
Person with respect to Taxes or is a party to any tax sharing agreement or any
other agreement providing for payments by Company, Janvo, Mueller Consulting or
Calcore with respect to Taxes; (x) none of Company, Janvo, Mueller Consulting
and Calcore has made an election pursuant to Section 897(i) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), to be treated as
a domestic corporation; (xi) none of Company, Janvo, Mueller Consulting and
Calcore is a party to any joint venture, partnership or other arrangement or
contract which could be treated as a partnership for United States or Canadian
income tax purposes; (xii) none of Company, Janvo, Mueller Consulting and
Calcore has entered into any sale leaseback or any leveraged lease transaction
that fails to satisfy the requirements of U.S. Revenue Procedure 75-21 (or
similar provisions of foreign law); (xiii) none of Company, Janvo, Mueller
Consulting and Calcore, as of the Closing Date, will be required, as a result
of a change in method of accounting for any portion of the Pre-Closing Period,
to include any adjustment under Section 481 of the Code (or any corresponding
provision of foreign law) in taxable income
-13-
<PAGE> 19
for any period after the Closing Date; (xiv) none of Company, Janvo, Mueller
Consulting and Calcore is a party to any agreement, contract, arrangement or
plan that would result after the Closing (taking into account the transactions
contemplated by this Agreement), separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 280G of the
Code; and (xv) the Disclosure Schedule contains a list of all jurisdictions to
which any Tax is properly payable by Company, Janvo, Mueller Consulting and
Calcore.
4.8 Title to Properties; Absence of Encumbrances.
(a) The Disclosure Schedule contains a complete and
accurate list by address of all real property owned, leased or used by Company,
indicating the nature of Company's interest therein. No condemnation,
expropriation, eminent domain or similar proceeding affecting all or any
material portion of any such real property is pending or, to the best knowledge
of Sellers or Company, threatened.
(b) Except as set forth in Section 4.8(b) of the
Disclosure Schedule, Company has good title to all of the material properties
and assets, real and personal, tangible and intangible, it owns or purports to
own, including those reflected on its books and records and on the Interim
Balance Sheet (except for supplies and other consumables utilized in the
ordinary course of business and accounts receivable collected after the date of
the Interim Balance Sheet), free and clear of all Encumbrances, except for
Permitted Encumbrances and liens in favor of the Bank which will be terminated
and released at the Closing. The Company has a valid leasehold, license or
other interest in all of the other material assets, real or personal, tangible
or intangible, which are used in the operation of its business, free and clear
of all Encumbrances, except for Permitted Encumbrances.
(c) "Permitted Encumbrances" means: (i) liens for Taxes
not yet due and payable or which are being diligently contested in good faith
by appropriate proceedings and as to which appropriate reserves (to the extent
required by GAAP) have been established in Company's books and records; (ii)
mechanics', materialmen's, carriers', warehousemen's, landlord's and similar
liens securing obligations not yet delinquent or which are being diligently
contested in good faith by appropriate proceedings and as to which appropriate
reserves (to the extent required by GAAP) have been established in Company's
books and records; (iii) such imperfections of title, easements, encroachments
and Encumbrances as do not detract from the value or interfere with the present
use of the properties or assets subject thereto or affected thereby; (iv)
Encumbrances on personal property taken by or granted to a Person who, by
making advances or incurring an obligation gives value to enable Company to
acquire rights in or the use of such property, provided that the Encumbrance
does not extend to or cover any other property and the total cost to Company
that would be required to discharge such Encumbrance in full does not exceed
the value so given by such Person to Company; (v) Encumbrances, if any, noted
in the Financial Statements. None of such property leased by Company is
subject to any sublease, sublicense or other agreement granting to any other
Person any right to the use, occupancy or enjoyment of such property or any
portion thereof.
-14-
<PAGE> 20
(d) Neither Janvo, Mueller Consulting nor Calcore owns
any properties or assets, real or personal, tangible or intangible, nor does
any of them have any leasehold, license or other interest in any assets, real
or personal, tangible or intangible, except that Janvo owns shares of Company
Class A Stock and Company Class B Stock, Calcore owns the Mueller Consulting
Shares and Mueller Consulting owns shares of Company Class A Stock and Company
Class B Stock.
(e) Neither Company, Janvo, Mueller Consulting nor
Calcore owns or leases any property or assets, conducts any operations, carries
on any business or provides any services in the United States.
4.9 Intellectual Property.
(a) The Disclosure Schedule contains a complete and
accurate list and brief description of all patents and patent applications, all
registrations and applications for registration of trademarks, trade names,
business names, brand names, service marks, copyrights and common-law
trademarks owned or used by Company.
(b) All Intellectual Property used by Company in the
operation of its business is either (i) owned by Company free and clear of all
Encumbrances, other than Permitted Encumbrances, or (ii) subject to a right of
use by Company pursuant to a license or other agreement. No third party has
been granted by Company the right to use any Intellectual Property owned or
used by Company. To the best knowledge of Sellers or Company, no third party
is infringing upon or misappropriating any Intellectual Property used by
Company in the operation of its business and no activity in which Company is
engaged violates or infringes upon any intellectual property or other
proprietary rights of any third party. There is no legal action by any Person
pending or, to the best knowledge of Sellers or Company, threatened against
Company with respect to such matters, and no written claim with respect to such
matters has been received by Company since July 1, 1990.
(c) Neither Janvo, Mueller Consulting nor Calcore owns or
has the right to use any Intellectual Property, except, in each case, its own
corporate name.
4.10 Contracts and Agreements.
(a) Set forth in the Disclosure Schedule is a true and
complete list of each of the following contracts and agreements to which
Company is a party or by which Company or its properties are bound:
(i) each agreement providing for compensation in respect
of services performed by employees of Company;
(ii) each management, service, consulting, retainer or
other similar type of agreement under which services are provided by
any other Person to Company;
-15-
<PAGE> 21
(iii) each agreement that restricts the operation of the
business of Company as presently conducted and each agreement that
restricts the ability of Company to solicit customers or employees;
(iv) each agreement with an Affiliated Person;
(v) each operating lease (as lessor, lessee, sublessor or
sublessee) of any real property;
(vi) each operating lease (as lessor, lessee, sublessor or
sublessee) of any tangible personal property (except for leases
calling for payments of less than $10,000 per year and having a term
of less than two (2) years);
(vii) each license (as licensor, licensee, sublicensor or
sublicensee) of any Intellectual Property (other than customary,
non-negotiated licenses of computer software);
(viii) each agreement under which services are provided by
Company to any customer;
(ix) each written agreement for the purchase of supplies
or products which calls for performance by Company over a period of
more than two (2) months or with respect to which there exists an
aggregate future liability of Company in excess of $20,000;
(x) each agreement under which any money has been or may
be borrowed or loaned or any note, bond, indenture or other evidence
of indebtedness has been issued or assumed (other than those under
which there remain no ongoing obligations of Company), and each
guaranty of any evidence of indebtedness or other obligation, or of
the net worth, of any Person (other than endorsements for the purpose
of collection in the ordinary course of business);
(xi) each mortgage agreement, deed of trust, security
agreement, purchase money agreement, conditional sales contract or
capital lease (other than any purchase money agreement, conditional
sales contract or capital lease evidencing Encumbrances solely on
tangible personal property under which there exists an aggregate
future liability of Company not in excess of $30,000 per agreement,
contract or lease);
(xii) each partnership, joint venture or similar agreement;
(xiii) each agreement containing restrictions with respect
to the payment of dividends or other distributions in respect of
Company's capital stock;
(xiv) each agreement to make unpaid capital expenditures in
excess of $10,000; and
-16-
<PAGE> 22
(xv) each other agreement having an indefinite term or a
term of more than one (1) year (other than those that are terminable
at will or upon not more than thirty (30) days' notice by Company
without penalty) or requiring payments by Company of more than $10,000
per year.
A complete and correct copy of each written agreement, lease, license,
mortgage, deed of trust, instrument, contract or other type of document
required to be disclosed pursuant to this Section 4.10(a) has been delivered to
3-D.
(b) Each material agreement, lease, license, mortgage,
deed of trust, instrument, contract or other type of document required to be
delivered pursuant to Section 4.10(a) to which Company is a party or by which
Company or its properties is bound (collectively, the "Contracts") is legal,
valid, binding and in full force and effect and is enforceable by Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity. Except as set forth in
Section 4.10(b) of the Disclosure Schedule, Company is not (with or without the
lapse of time or the giving of notice, or both) in material breach of or in
material default under any of the Contracts, and, to the best knowledge of
Sellers or Company, no other party to any of the Contracts is (with or without
the lapse of time or the giving of notice, or both) in material breach of or in
material default under any of the Contracts.
(c) Neither Janvo, Mueller Consulting nor Calcore is a
party to or bound by any agreement, lease, license, mortgage, deed of trust,
instrument, contract or other type of document described in Section 4.10(a).
4.11 Insurance. All insurance policies currently
maintained by Company are accurately listed and described in the Disclosure
Schedule. Each such insurance policy is in full force and effect (free from
any presently exercisable right of termination on the part of the insurance
company issuing such policy prior to the expiration of the term of such policy)
and all premiums due and payable in respect thereof have been paid. Company
has not received notice of cancellation or non-renewal of any such policy. The
transactions contemplated by this Agreement will not give rise to a right of
termination of any such policy by the insurance company issuing the same prior
to the expiration of the term of such policy.
4.12 Litigation. Except as set forth in Section 4.12 of
the Disclosure Schedule, no lawsuit, governmental investigation or legal,
administrative or arbitration action or proceeding is pending or, to the best
knowledge of Sellers or Company, threatened against any of Sellers, Company,
Janvo, Mueller Consulting or Calcore, or any director, officer or employee of
Company, Janvo, Mueller Consulting or Calcore, in his or her capacity as such,
(i) which questions the validity of this Agreement or seeks to prohibit, enjoin
or otherwise challenge the consummation of the transactions contemplated
hereby, or (ii) which, if decided adversely to such Person, is reasonably
likely to result in a Material Adverse Effect. Neither Company, Janvo,
Mueller Consulting nor Calcore is specifically identified as a party subject to
any restrictions or limitations under any judgment, order or decree of any
court, administrative agency or other governmental authority.
-17-
<PAGE> 23
4.13 Condition of Assets. The properties and assets,
including the equipment, supplies and other consumables, owned, leased or used
by Company in the operation of its business are in good operating condition and
repair, are suitable for the purposes for which they are used, are adequate and
sufficient for Company's current and reasonably foreseeable operations and are
directly related to the business of Company.
4.14 Compliance with Law. Except with respect to
environmental matters, which are covered by Section 4.17, (a) each of Company,
Janvo, Mueller Consulting and Calcore is in compliance in all material respects
with all applicable laws, statutes, rules, ordinances, regulations, orders and
decrees governing the operation of its business and all of its governmental
licenses, approvals, authorizations, franchises and permits. Neither Company,
Janvo, Mueller Consulting nor Calcore has received since July 1, 1990 any
written notice of any violation of any such law, statute, rule, ordinance,
regulation, order, decree, license, approval, authorization, franchise or
permit. No written claim has been made or legal action commenced against
Company, Janvo, Mueller Consulting or Calcore since July 1, 1990 that alleges
any violation of any laws, regulations or contract provisions relating to the
pricing of contracts with the Canadian or United States federal government or
any provincial, state or local government, or any agency of any thereof.
Neither Company, Janvo, Mueller Consulting nor Calcore has engaged in any
fraudulent practices in connection with any bid or contract for services to be
performed for any governmental entity.
(b) Except with respect to environmental matters, which
are covered by Section 4.17, Company has all governmental licenses, approvals,
authorizations, franchises and permits necessary to conduct its business as
currently conducted; such governmental licenses, approvals, authorizations,
franchises and permits are in full force and effect; and no proceeding is
pending or, to the best knowledge of Sellers or Company, threatened seeking the
revocation or limitation of any such governmental license, approval,
authorization, franchise or permit. All governmental licenses, approvals,
authorizations, franchises and permits necessary for the ownership or operation
of its properties or assets, the provision of its services or the conduct of
its business by Company are listed in Section 4.14(b) of the Disclosure
Schedule.
4.15 Employees.
(a) Company has a total of 15 full-time employees and up
to approximately 150 part-time employees. The Company has satisfactory
relationships with its employees in all material respects.
(b) Company is in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours.
(c) Company is not engaged in any unfair labor practice.
(d) No collective bargaining agreement with respect to
the business of Company is currently in effect or being negotiated. Company
has no obligation to negotiate
-18-
<PAGE> 24
any such collective bargaining agreement, and, to the best knowledge of Sellers
or Company, there is no indication that the employees of Company desire to be
covered by a collective bargaining agreement.
(e) There are no strikes, slowdowns or work stoppages
pending or, to the best knowledge of Sellers or Company, threatened with
respect to the employees of Company, nor has any such strike, slowdown or work
stoppage occurred or, to the best knowledge of Sellers or Company, been
threatened since July 1, 1990.
(f) Since July 1, 1990, Company has received no notice of
the intent of any government, body or agency responsible for the enforcement of
labor or employment laws to conduct an investigation of Company, and, to the
best knowledge of Sellers or Company, no such investigation is in progress.
(g) No notice has been received by Company of any
complaint filed by any of the employees against Company claiming that Company
has violated any applicable employment standards or human rights legislation or
any complaints or proceedings of any kind involving Company or, to the best
knowledge of Sellers or Company, any of the employees of Company before any
labor relations board. There are no outstanding orders or charges against
Company under any occupational health or safety legislation. All levies,
assessments and penalties made against Company pursuant to all applicable
workers compensation legislation have been paid by Company and Company has not
been reassessed under any such legislation during the past five years.
(h) A true and correct copy of a salary review schedule
listing as of September 30, 1996 the annual base salary or annualized wages of
each employee of Company whose annual base compensation is more than $40,000
has been provided to Buyer.
(i) Neither Janvo, Mueller Consulting nor Calcore has
any employees.
4.16 Employee Benefit Plans.
(a) Section 4.16 of the Disclosure Schedule identifies
each retirement, pension, bonus, stock purchase, profit sharing, stock option,
deferred compensation, severance or termination pay, insurance, medical,
hospital, dental, vision care, drug, sick leave, disability, salary
contributions, legal benefits, unemployment benefits, vacation, incentive or
other compensation plan or arrangement or other employee benefit that is
maintained or otherwise contributed to, or required to be contributed to, by
Company for the benefit of employees or former employees of Company (the
"Employee Benefit Plans") and a true and complete copy of each Employee Benefit
Plan has been furnished to Buyer. Each Employee Benefit Plan has been
maintained in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations that are applicable to such
Employee Benefit Plan. Sellers have delivered to Buyer the actuarial
valuations, if any, prepared for each Employee Benefit Plan during the past
five years. Except as described in Section 4.16 of the Disclosure Schedule:
-19-
<PAGE> 25
(i) all contributions to, and payments from, each
Employee Benefit Plan that may have been required to be made in
accordance with the terms of any such Employee Benefit Plan, or with
the recommendation of the actuary for such Employee Benefit Plan, and,
where applicable, the laws of the jurisdictions that govern such
Employee Benefit Plan, have been made in a timely manner;
(ii) all material reports, returns and similar documents
(including applications for approval of contributions) with respect to
any Employee Benefit Plan required to be filed with any governmental
agency or distributed to any Employee Benefit Plan participant have
been duly filed on a timely basis or distributed;
(iii) there are no pending investigations by any
governmental or regulatory agency or authority involving or relating
to an Employee Benefit Plan, no threatened or pending claims (except
for claims for benefits payable in the normal operation of the
Employee Benefit Plans), suits or proceedings against any Employee
Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan that could give rise to a liability nor, to the
best knowledge of Sellers or Company, are there any facts that could
give rise to any liability in the event of such investigation, claim,
suit or proceeding;
(iv) no notice has been received by any Seller or Company
of any complaints or other proceedings of any kind involving Company
or, to the best knowledge of Sellers or Company, any of the employees
of Company before any pension board or committee relating to any
Employee Benefit Plan or to Company; and
(v) the assets of each Employee Benefit Plan are at least
equal to the liabilities of such Employee Benefit Plan based on the
actuarial assumptions utilized in the most recent valuation performed
by the actuary for such Employee Benefit Plan, and neither 3-D, Buyer
nor any of their respective affiliates (other than Company) will incur
any liability with respect to any Employee Benefit Plan as a result of
the transactions contemplated by this Agreement.
(b) The Disclosure Schedule also sets forth a summary, in
reasonable detail, of the Employee Benefit Plans that cover the employees of
Company.
(c) Neither Janvo, Mueller Consulting nor Calcore is a
party to or bound by any Employee Benefit Plan, nor does any of them have or
maintain any plan, arrangement or benefit described with respect to the Company
in the first sentence of Section 4.16(a).
4.17 Environmental Matters.
(a) Company has all Environmental Permits that are
required for the lawful operation of its business, and all Environmental
Permits possessed by Company are listed in Section 4.17(a) of the Disclosure
Schedule. Each such Environmental Permit is valid, subsisting and in good
standing and Company is not in default or in breach of any
-20-
<PAGE> 26
such Environmental Permit and no proceeding is pending or threatened and no
grounds exist to revoke or limit any such Environmental Permit. Company (i) is
in compliance with all terms and conditions of its Environmental Permits and is
in compliance with and not in default under any applicable Environmental Law,
and (ii) has not received since July 1, 1990 written notice of any violation by
or claim under any Environmental Law.
(b) There have been no Releases by Company of any
Hazardous Substances (i) into, on, around, from or under any of the properties
or assets owned or operated (or formerly owned or operated) by Company, or (ii)
into, on, around, from or under any other properties, including landfills, in
which Hazardous Substances have been Released or properties on or under which
Company has performed services, in any case in such a way as to create any
material unpaid liability (including the costs of required remediation) of
Company under any applicable Environmental Law.
(c) No property has been used at any time by Company as a
"landfill" or as a treatment, storage or disposal facility for any Hazardous
Substance.
(d) Company has never received any notice of, or has been
prosecuted for, non-compliance with any Environmental Law nor has Company
settled any allegation of non-compliance prior to prosecution. There are no
notices, orders or directions relating to environmental matters requiring, or
notifying Company that it is or may be responsible for, any containment,
clean-up or remediation or corrective action of any work, repairs, construction
or capital expenditures to be made under any Environmental Law with respect to
the business of Company or any of the properties or assets owned, operated or
occupied (or formerly owned, operated or occupied) by Company.
(e) There are no Hazardous Substances located at, on or
under any of the properties or assets owned, operated or occupied (or formerly
owned, operated or occupied) by Company except those being used, stored and
handled in compliance with Environmental Laws.
(f) Sellers have delivered to Buyer true and complete
copies of all environmental audits, evaluations, assessments, studies and tests
relating to the business or the properties or assets of Company or their use
which are or with reasonable effort could be within the possession or control
of any Seller.
(g) There is no asbestos or asbestos-containing material
or PCBs contained in any of the buildings or structures owned or leased by
Company, except for asbestos or asbestos-containing material the present form,
amount and location of which does not create any unpaid material liability
(including the costs of required remediation) of Company under any applicable
Environmental Law (regardless of whether subsequent occurrences could expose or
change the form or location of, or cause the Release of, such substances). No
written claims have been made, and no suits or proceedings are pending or
threatened, by any employee against Company that are premised on exposure to
asbestos or asbestos-containing material or PCBs.
-21-
<PAGE> 27
(h) No underground storage tanks, abandoned wells or
landfills are or have been located on any real property owned, operated or
occupied by Company.
(i) For purposes of this Agreement, the capitalized terms
defined below shall have the meanings ascribed to them below.
(i) "Environment" means all air, surface water,
groundwater, drinking water or land, including land surface or
subsurface.
(ii) "Environmental Laws" means any and all
federal, provincial, municipal or local laws, statutes, ordinances,
by-laws and regulations, and orders, directives and decisions rendered
by, and policies, instructions, guidelines and similar guidance of,
any ministry, department or administrative or regulatory agency
relating to the protection of the Environment, occupational health and
safety or the manufacture, processing, distribution, use, treatment,
storage, disposal, discharge, packaging, transport, handling,
containment, clean-up or other remediation or corrective action of any
Hazardous Substances.
(iii) "Environmental Permits" means all approvals,
consents, permits, licenses, registrations, certificates and other
authorizations required by any applicable Environmental Law relating
to: (A) pollution or the protection of the Environment, occupational
health or safety, including without limitation those relating to the
emission, Release or discharge of any Hazardous Substances into the
Environment, (B) the manufacture, processing, distribution, use,
treatment, storage, disposal, generation, packaging, transport or
handling of Hazardous Substances, or (C) the containment, cleanup or
other remediation of Hazardous Substances from any real property.
(iv) "Hazardous Substance(s)" means, without
limitation, any flammable explosives, radioactive materials, urea
formaldehyde foam insulation, polychlorinated biphenyls, petroleum and
petroleum products (including but not limited to waste petroleum and
petroleum products), methane, hazardous materials, hazardous wastes,
pollutants, contaminants, chemicals and hazardous, industrial or toxic
substances or wastes.
(v) "Release" means any past or present spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of a Hazardous Substance into
the Environment.
(j) The foregoing provisions of this Section 4.17, if
made with respect to Janvo, Mueller Consulting and Calcore instead of Company,
would also be true, correct and complete.
4.18 Powers of Attorney. There are no outstanding powers
of attorney to act in the place and stead of Company, Janvo, Mueller Consulting
or Calcore.
-22-
<PAGE> 28
4.19 Officers and Directors. Section 4.19 of the
Disclosure Schedule sets forth all of the officers and directors of Company,
Janvo, Mueller Consulting and Calcore and, with respect to each such officer,
all offices held by such Person.
4.20 Bank Accounts. Section 4.20 of the Disclosure
Schedule sets forth the name of each bank in which Company, Janvo, Mueller
Consulting and Calcore has an account, lock box or safe deposit box, the number
of each such account, lock box and safe deposit box, and the names of all
Persons authorized to draw thereon or have access thereto.
4.21 Absence of Certain Changes. Since November 30, 1995,
Company has operated its business in the ordinary course consistent with past
practice. Without limiting the generality of the immediately preceding
sentence, since that date, neither Company, Janvo, Mueller Consulting nor
Calcore has:
(i) amended or otherwise modified its constating
documents or by-laws (or similar organizational documents);
(ii) issued or sold or authorized for issuance or
sale, or granted any options or made other agreements of the type
referred to in Section 4.2(e) with respect to, any shares of its
capital stock or any other of its securities, or altered any term of
any of its outstanding securities or made any change in its
outstanding shares of capital stock or other ownership interests or
its capitalization, whether by reason of a reclassification,
recapitalization, stock split or combination, exchange or readjustment
of shares, stock dividend or otherwise;
(iii) except as disclosed in Section 4.21 of the
Disclosure Schedule, mortgaged, pledged or granted any security
interest in any of its assets, except to the Bank and except for
security interests solely in tangible personal property granted
pursuant to any purchase money agreement, conditional sales contract
or capital lease under which there exists an aggregate future
liability not in excess of $30,000 per agreement, contract or lease
(which amount was not more than the purchase price for such personal
property and which security interest does not extend to any other item
or items of personal property);
(iv) declared, set aside, made or paid any
dividend or other distribution to any shareholder with respect to its
capital stock;
(v) redeemed, purchased or otherwise acquired,
directly or indirectly, any capital stock;
(vi) increased the compensation of any of its
employees who currently earns in excess of $40,000 per year;
(vii) adopted or (except as otherwise required by
law) amended any Employee Benefit Plan or entered into any collective
bargaining agreement;
-23-
<PAGE> 29
(viii) terminated or modified any Contract, or
received any written notice of termination of any Contract, except for
terminations of Contracts upon their expiration during such period in
accordance with their terms and terminations or modifications that
have not had and are not reasonably likely to result in a Material
Adverse Effect;
(ix) incurred or assumed any indebtedness for
borrowed money or guaranteed any obligation or the net worth of any
Person, except for endorsements of negotiable instruments for
collection in the ordinary course of business;
(x) discharged or satisfied any Encumbrance other
than those then required to be discharged or satisfied in accordance
with their original terms;
(xi) paid any material obligation or liability,
absolute, accrued, contingent or otherwise, whether due or to become
due, except for any current liabilities, and the current portion of
any long term liabilities, shown on the Financial Statements or the
Interim Balance Sheet (or not required as of the date thereof to be
shown thereon in accordance with GAAP) or incurred since the date of
the Interim Balance Sheet in the ordinary course of business
consistent with past practice;
(xii) sold, transferred, leased to others or
otherwise disposed of any material asset except in the ordinary course
of business consistent with past practice;
(xiii) cancelled or compromised any material debt or
claim;
(xiv) suffered any damage or destruction to or loss
of any of its tangible assets (whether or not covered by insurance)
which has had or is reasonably likely to result in a Material Adverse
Effect;
(xv) lost the employment services of any key
employee;
(xvi) made any loan or advance to any Person other
than travel and other similar routine advances in the ordinary course
of business consistent with past practice, or acquired any capital
stock or other securities of any other corporation or any ownership
interest in any other business enterprise;
(xvii) made any capital expenditures or capital
additions or betterments in amounts which exceeded $50,000 in the
aggregate, except as contemplated in capital budgets in effect on the
date of this Agreement and except for the purchase of capital
equipment from CMJ Holdings, Inc. for a purchase price equal to the
net book value thereof, but not in excess of $40,000;
(xviii) changed its method of accounting or the
accounting principles or practices utilized in the preparation of the
Financial Statements, other than as required by GAAP;
-24-
<PAGE> 30
(xix) instituted or settled any litigation or any
legal, administrative or arbitration action or proceeding before any
court or governmental body relating to it or its property;
(xx) suffered any incident or event which,
individually or in the aggregate, has had or is reasonably likely to
result in a Material Adverse Effect;
(xxi) committed to provide services for an
indefinite period or a period of more than two (2) months; or
(xxii) entered into any commitment to do any of the
foregoing.
4.22 Books and Records. All accounts, books, ledgers and
official and other records prepared and kept by Company, Janvo, Mueller
Consulting and Calcore have been truthfully and properly kept and completed in
all respects, and there are no material inaccuracies or discrepancies of any
kind contained or reflected therein.
4.23 Absence of Certain Business Practices. None of
Company, Janvo, Mueller Consulting or Calcore, nor any of their respective
officers, employees or authorized agents, or any other Person acting on behalf
of any of them has, directly or indirectly, since July 1, 1990, given or agreed
to give any gift or similar benefit to any governmental employee, domestic or
foreign, who is or may be in a position to help or hinder the business of
Company (or assist it in connection with any actual or proposed transaction)
which could (i) subject Company, Janvo, Mueller Consulting or Calcore to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, domestic or foreign, or (ii) if not continued in the future, result
in a Material Adverse Effect.
4.24 Customer Relationships. Company's major customers in
the first nine months of 1996 and in 1995, 1994 and 1993 are listed on Exhibit
G (collectively, the "Major Customers"). Company has no reason to believe that
its relations with the Major Customers will be reduced in the future.
4.25 No Broker or Finder. No broker or finder has been
engaged by any Seller or Company, Janvo, Mueller Consulting or Calcore in
connection with the transactions contemplated by this Agreement, and no
commission, finder's fees or other similar compensation or remuneration is
payable to any Person as a result of any Seller's or Company's actions in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
4.26 Securities Laws.
(a) Each Seller understands that (i) the Buyer's Shares
he or she may acquire pursuant to this Agreement and the Parent Common Stock he
or she may acquire in accordance with the share provisions attaching to the
Buyer's Shares or in accordance with the provisions of the Share Exchange
Agreement will not be registered under the Act and may not be sold or otherwise
disposed of in the United States or to a U.S. Person (as defined in
-25-
<PAGE> 31
Regulation S of the SEC under the Act) unless they are so registered or are
sold or otherwise disposed of in a transaction that is exempt from such
registration, (ii) such securities must be held for at least 40 days after the
Closing Date and may have to be held for at least two years before any of them
may be sold and at least three years before they may be sold without
significant restrictions, and (iii) the certificates representing such Buyer's
Shares and such shares of Parent Common Stock will bear legends identical with
or similar to the following:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THEY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR
TO A U.S. PERSON (AS DEFINED IN REGULATION S OF THE SEC UNDER SUCH ACT) IN THE
ABSENCE OF REGISTRATION (OR IN COMPLIANCE WITH AN EXEMPTION FROM SUCH
REGISTRATION) UNDER SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS."
(b) Each Seller acknowledges that (i) he or she has
received and read carefully the Registration Statement, including 3-D's
preliminary prospectus dated October 8, 1996 forming a part thereof, that
describes 3-D, the Parent Common Stock and containing certain other relevant
information (the "Prospectus"); (ii) he or she has been given the opportunity
to ask questions of and obtain relevant documents from 3-D concerning 3-D and
Buyer; and (iii) all of their questions and requests for information and
documents have been answered to such Seller's complete satisfaction. The
information contained in the Prospectus under the heading "Business--Proposed
Acquisition of IRS" is complete and correct in all material respects and does
not omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) Each Seller has evaluated the merits and risks of an
investment in the Buyer's Shares to be issued at the Closing hereunder and the
shares of Parent Common Stock issuable in accordance with the share provisions
attaching to the Buyer's Shares or in accordance with the provisions of the
Share Exchange Agreement, and has affirmatively decided to make such investment
based solely on such evaluation, the representations, warranties and covenants
of 3-D and Buyer contained in this Agreement (or in any schedule, certificate
or other document delivered by 3-D or Buyer pursuant hereto) and the
information contained in the Prospectus and Registration Statement.
(d) Sellers are not affiliated, directly or indirectly,
with a member broker-dealer firm of the National Association of Securities
Dealers, Inc. ("NASD") as employees, officers, directors, partners or
shareholders or as relatives or members of the same household of an employee,
director, partner or shareholder of an NASD member broker-dealer firm.
(e) Any Buyer's Shares a Seller acquires pursuant to this
Agreement and any shares of Parent Common Stock a Seller acquires in accordance
with the share provisions attaching to the Buyer's Shares or in accordance with
the provisions of the Share Exchange Agreement will be for his or her own
account for investment and not with any view to the
-26-
<PAGE> 32
distribution thereof, and no Seller will sell, assign, transfer or otherwise
dispose of any of such securities, or any interest therein, in violation of the
registration requirements of the Act, or the state securities or blue sky law
of any State of the United States, or in violation of the prospectus or
registration requirements of the securities legislation of any province or
territory of Canada, and no Seller has any present plan or intention to sell,
exchange or otherwise dispose of any of such securities, or any interest
therein, in violation of such registration requirements.
(f) Each Seller is an "accredited investor" within the
meaning of Rule 501 under the Act and can hold the Buyer's Shares and any
shares of Parent Common Stock a Seller acquires in accordance with the share
provisions attaching to the Buyer's Shares or in accordance with the provisions
of the Share Exchange Agreement indefinitely and bear to lose entirely the
value of his or her investment therein.
4.27 Disclosure Schedule. Each of the statements
contained in the Disclosure Schedule is true and complete.
4.28 Residency. Each Seller is a resident of Canada for
purposes of the Income Tax Act (Canada). No Seller is a citizen of the United
States.
ARTICLE V
Representations and Warranties of 3-D and Buyer
3-D and Buyer each represents and warrants to Sellers as
follows:
5.1 Organization and Good Standing. 3-D is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to enter into and
carry out its obligations under this Agreement, the Escrow Agreement, the
Support Agreement and the Share Exchange Agreement. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of Canada
and has full corporate power and authority to enter into and carry out its
obligations under this Agreement, the Escrow Agreement, the Support Agreement
and the Share Exchange Agreement.
5.2 Capitalization. As of the date of this Agreement,
3-D's authorized capital stock consists solely of 25,000,000 shares of Common
Stock, par value $.01 per share ("Common Stock"), of which 7,600,000 shares are
issued and outstanding, and 1,000,000 shares of preferred stock, par value $.01
per share, issuable in series, of which none is issued and outstanding.
Buyer's authorized capital stock consists solely of an unlimited number of
common shares, of which 100 shares are issued and outstanding and owned by 3-D.
All of the issued and outstanding common shares of Buyer and all of the issued
and outstanding shares of Parent Common Stock have been duly authorized and are
validly issued and outstanding, fully paid and non-assessable. At or prior to
the Closing, Buyer shall amend its share capital to create a new class of
exchangeable non-voting shares
-27-
<PAGE> 33
having substantially the rights, privileges, restrictions and conditions set
forth on Exhibit A attached hereto so that Buyer's authorized capital stock at
the Closing shall be an unlimited number of common shares and an unlimited
number of exchangeable non-voting shares. At the Closing, Buyer shall issue
the Buyer's Shares to Sellers pursuant to Section 2.1.
5.3 Ownership of Shares. All of the Buyer's Shares
issuable by Buyer pursuant to Section 2.1 shall be, upon issuance, (a) duly
authorized, validly issued, fully paid and non-assessable, and (b) free and
clear of all Encumbrances placed thereon by Buyer (other than any Encumbrances
arising under this Agreement or the Escrow Agreement), and shall have
substantially the rights, privileges, restrictions and conditions described in
Exhibit A attached hereto. All shares of Parent Common Stock issuable in
accordance with the share provisions of Buyer's Shares shall be, upon issuance
in accordance with the share provisions of Buyer's Shares, (a) duly authorized,
validly issued, fully paid and non-assessable, and (b) free and clear of all
Encumbrances placed thereon by 3-D or Buyer (other than any Encumbrances
arising under this Agreement or the Escrow Agreement).
5.4 Authorization. The execution and delivery of this
Agreement, the Escrow Agreement, the Support Agreement and the Share Exchange
Agreement by 3-D and by Buyer have been duly authorized by all necessary
corporate action required on the part of 3-D and Buyer. This Agreement has
been duly executed and delivered by 3-D and Buyer and constitutes a legal,
valid and binding obligation of 3-D and Buyer, enforceable against 3-D and
Buyer in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other laws
affecting the rights of creditors generally and by general principles of
equity. At the Closing, 3-D and Buyer will duly execute and deliver the Escrow
Agreement, the Support Agreement and the Share Exchange Agreement and each such
agreement will constitute a legal, valid and binding obligation of 3-D and
Buyer, enforceable against 3-D and Buyer in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other laws affecting the rights of creditors generally and by
general principles of equity. At the Closing, the Employment Agreements shall
be duly executed and delivered by Company and each will constitute a legal,
valid and binding obligation of Company, enforceable against Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other laws affecting the
rights of creditors generally and by general principles of equity.
5.5 No Conflicts. Neither the execution and delivery by
3-D or Buyer of this Agreement, the Support Agreement, the Escrow Agreement or
the Share Exchange Agreement nor the consummation by 3-D or Buyer of the
transactions contemplated hereby or thereby will (i) conflict with or violate
the certificate of incorporation or by-laws (or other organizational document)
of 3-D or Buyer, or (ii) conflict with, violate, result in the breach of any
term of, constitute a default under or require the consent of or any notice to
or filing with any Person under, any note, mortgage, deed of trust or other
agreement or instrument to which 3-D or Buyer is a party or by which 3-D or
Buyer is bound, or any law, order, rule, regulation, decree, writ or injunction
of any governmental body having jurisdiction over 3-D or Buyer or their
respective properties (except where such conflict, violation, breach or
default, or the failure to obtain such consent, give such notice or make such
filing, would not
-28-
<PAGE> 34
impair the ability of 3-D or Buyer to consummate the transactions contemplated
hereby), except for any filings with, and exemption orders required to be
obtained from, the applicable provincial securities regulatory authorities in
connection with the issuance of either Buyer's Shares or Parent Common Stock to
any Seller.
5.6 Financial Condition; Etc. 3-D has delivered to each
Seller true, correct and complete copies of the Registration Statement,
including the Prospectus. The financial statements of 3-D contained in the
Prospectus, as described therein, fairly present the financial condition of 3-D
as of their respective dates and the results of operations and cash flows of
3-D for the periods covered thereby. Such financial statements have been
prepared from the books and records of 3-D and its subsidiaries in accordance
with United States generally accepted accounting principles applied on a
consistent basis throughout the periods covered thereby. Since June 30, 1996,
there has been no material adverse change in the business or financial
condition of 3-D and its subsidiaries, taken as a whole. As of its date, the
Registration Statement, including the Prospectus, complied as to form in all
material respects with all applicable requirements of the Act and the rules and
regulations of the SEC thereunder, and the Prospectus did not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Buyer was incorporated on November 27, 1996,
has conducted no business or operations and has no material assets or
liabilities. Each amendment or supplement to the Registration Statement and
Prospectus delivered to Sellers pursuant to Section 7.3 will, as of its
respective date, comply as to form in all material respects with all applicable
requirements of the Act and the rules and regulations of the SEC thereunder,
and no amended or supplemented prospectus included therein will include an
untrue statement of a material fact or will omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.7 Litigation. No lawsuit, governmental investigation
or legal, administrative or arbitration action or proceeding is pending or, to
the best knowledge of 3-D or Buyer, threatened against 3-D or Buyer, or any
director, officer or employee of 3-D or Buyer in his or her capacity as such,
which questions the validity of this Agreement or seeks to prohibit, enjoin or
otherwise challenge the consummation of the transactions contemplated hereby.
5.8 No Broker or Finder. No broker or finder has been
engaged by 3-D or Buyer in connection with the transactions contemplated by
this Agreement, and no commission, finder's fees or other similar compensation
or remuneration is payable to any Person as a result of 3-D's or Buyer's
actions in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for remuneration
that will be paid by 3-D.
-29-
<PAGE> 35
ARTICLE VI
Covenants of Sellers
Sellers, jointly and severally, hereby covenant and agree as
follows:
6.1 Normal Course. From the date hereof until the
Closing, Company will: (i) maintain its corporate existence in good standing;
(ii) maintain the general character of its business; (iii) use all reasonable
efforts to maintain in effect all of its presently existing insurance coverage
(or substantially equivalent insurance coverage), preserve its business
organization substantially intact, keep the services of its present principal
employees and preserve its present business relationships with its material
suppliers and customers; (iv) permit 3-D, its accountants, its legal counsel
and its other representatives full access to its management, minute books,
share certificate book and stock transfer records, books of account, accounting
records and other books and records, contracts, agreements, properties and
operations at all reasonable times and upon reasonable notice; and (v) in all
respects conduct its business in the usual and ordinary manner consistent with
past practice and perform in all material respects all agreements or other
obligations with banks, customers, suppliers, employees and others.
6.2 Negative Covenants. From the date of this Agreement
until the Closing, neither Company, Janvo, Mueller Consulting nor Calcore will
(without the prior written consent of 3-D) (i) take any action or suffer any
situation to exist that would be required to be disclosed pursuant to Section
4.21 had such action been taken or such situation existed between November 30,
1995 and the date of this Agreement, except that Company may purchase, at the
net book value thereof, but not in excess of $40,000, the equipment owned by
CMJ Holdings, Limited and presently leased to Company, or (ii) make any
election with respect to Taxes.
6.3 Certain Filings. Each Seller agrees to make or cause
to be made all filings with regulatory authorities that are required to be
made, respectively, by any Seller or by Company, Janvo, Mueller Consulting or
Calcore to carry out the transactions contemplated by this Agreement. Each
Seller agrees to assist and to cause each of Company, Janvo, Mueller Consulting
and Calcore to assist 3-D and Buyer in making all such filings, applications
and notices as may be necessary or desirable in order to obtain the
authorization, approval or consent of any governmental entity which may be
reasonably required or which 3-D or Buyer may reasonably request in connection
with the consummation of the transactions contemplated hereby including,
without limitation, as may be required under the Investment Canada Act, the
Competition Act (Canada) and any applicable Canadian securities legislation.
6.4 Best Efforts to Satisfy Conditions. Each Seller
agrees to use his best efforts to satisfy the conditions set forth in Articles
VIII and IX that are within the control of such Seller. The Employees agree to
enter into the Employment Agreements at or prior to the Closing.
-30-
<PAGE> 36
6.5 Delivery of Financial Statements. Sellers shall
cause Janvo, Mueller Consulting and Calcore to deliver to Buyer at least five
(5) days prior to the Closing financial statements for the three fiscal years
ended November 30, 1995, certified by independent accountants reasonably
acceptable to 3-D.
6.6 Intercompany Payments. All loans, payables and other
amounts due to or from Company, Janvo, Mueller Consulting or Calcore and their
respective Affiliated Persons shall be paid in full at or prior to the Closing.
At or prior to the Closing, Company shall purchase from CMJ Holdings, Limited
at the net book value thereof, but not in excess of $40,000, the equipment
owned by CMJ Holdings, Limited and presently leased to Company.
6.7 Resignation of Officers and Directors. At the
Closing, Sellers shall (a) cause each of the officers and directors of Company,
Janvo, Mueller Consulting and Calcore to deliver written resignations and
general releases, (b) cause to be duly elected as officers and directors of
Company, Janvo, Mueller Consulting and Calcore the individuals listed in Part I
of Exhibit H attached hereto, and (c) cause to be designated as authorized
signatories of Company's bank accounts the individuals listed in Part II of
said Exhibit H.
6.8 Amendment to the Lease. On or before the Closing,
Sellers shall have caused the Lease to be amended, in form and content
reasonably satisfactory to 3-D and Buyer, to the effect that the Company shall
have been granted by the lessor (a) an option to renew the lease for an
additional five years, and (b) an option to purchase the demised premises at
the appraised fair market value thereof at the end of the lease term or any
renewal term thereof.
6.9 Further Assurances. Each Seller agrees to execute
and deliver, and to cause Company, Janvo, Mueller Consulting and Calcore to
execute and deliver, such additional documents and instruments, and to perform
such additional acts, as 3-D or Buyer may reasonably request to effectuate or
carry out and perform all the terms, provisions and conditions of this
Agreement and the transactions contemplated hereby and to effectuate the intent
and purposes hereof and to put Buyer and 3-D in full operating control of
Company.
ARTICLE VII
Covenants of 3-D and Buyer
3-D and Buyer hereby covenant and agree as follows:
7.1 Certain Filings. 3-D and Buyer agree to make or
cause to be made all filings with regulatory authorities that are required to
be made by 3-D and Buyer or their respective affiliates to carry out the
transactions contemplated by this Agreement, the Escrow Agreement, the Support
Agreement and the Share Exchange Agreement.
-31-
<PAGE> 37
7.2 Best Efforts to Satisfy Conditions. 3-D and Buyer
agree to use their respective best efforts to satisfy the conditions set forth
in Articles VIII and IX hereof that are within their control. Buyer shall
cause Company to enter into the Employment Agreements at the Closing.
7.3 Amendments to Registration Statement. 3-D will as
promptly as practicable after the filing thereof with the SEC provide to each
Seller each amendment or supplement to the Registration Statement and
Prospectus filed by 3-D with the SEC.
7.4 Further Assurances. 3-D and Buyer agree to execute
and deliver such additional documents and instruments, and to perform such
additional acts, as Sellers may reasonably request to effectuate or carry out
and perform all the terms, provisions and conditions of this Agreement, the
Escrow Agreement, the Support Agreement and the Share Exchange Agreement and
the transactions contemplated hereby and thereby, and to effectuate the intent
and purposes hereof and thereof.
ARTICLE VIII
Conditions Precedent to Obligations of 3-D and Buyer
The obligations of 3-D and Buyer under Articles II and III
shall be subject to the consummation of the Public Offering and to the
satisfaction at or prior to the Closing of the following additional conditions,
any one or more of which may be waived by 3-D and Buyer:
8.1 Representations and Warranties. Each and every
representation and warranty of Sellers contained in this Agreement, any
Schedule or any certificate delivered pursuant hereto shall be true and
accurate as of the date when made, shall be deemed repeated at the time of the
Closing and shall then be true and accurate in all material respects.
8.2 Compliance with Covenants. Sellers shall have
performed and observed in all material respects all covenants and agreements to
be performed or observed by Sellers under this Agreement at or before the
Closing.
8.3 Certain Financial Tests. Sellers shall have
delivered to Buyer unaudited financial statements of Company as of August 31,
1996 and for the nine months then ended, which financial statements shall be
prepared in accordance with Canadian generally accepted accounting principles
and shall show (a) net earnings for such period to be no less than $350,000,
and (b) operating income after depreciation but before interest and taxes to be
no less than $500,000.
8.4 Lack of Adverse Change. Since the date of the
Interim Balance Sheet, there shall not have occurred any incident or event
which, individually or in the aggregate, has had or is reasonably likely to
result in a Material Adverse Effect.
-32-
<PAGE> 38
8.5 Update Certificate. Buyer shall have received a
favorable certificate, dated the Closing Date, signed by Sellers as to the
matters set forth in Sections 8.1, 8.2, 8.3 and 8.4.
8.6 Legal Opinion. Buyer shall have received the opinion
of Beaumont Church, counsel to Sellers, dated the Closing Date, substantially
in the form attached hereto as Exhibit I.
8.7 Regulatory Approvals. All material approvals and
consents of regulatory authorities required to carry out the transactions
contemplated by this Agreement shall have been received. Without limiting the
generality of the foregoing,
(a) all necessary orders shall have been obtained from
all Canadian securities regulatory authorities in connection with the issuance
by Buyer of the Buyer's Shares and all shares of Parent Common Stock issuable
in accordance with the share provisions of the Buyer's Shares or in accordance
with the Share Exchange Agreement,
(b) all parties hereto shall have filed all such notices
and information (if any) required under the Competition Act (Canada) and the
applicable waiting periods and any extensions thereof shall have expired or the
parties shall have received an Advance Ruling Certificate pursuant thereto
setting out that the Director is satisfied he would not have sufficient grounds
on which to apply for an order under section 92 of such Act in respect of the
transactions contemplated hereby, or the Director or his representative shall
have advised the Buyer (on terms and in a form satisfactory to Buyer and 3-D)
that the Director does not currently intend to make an application under
section 92 of such Act in respect of the transactions contemplated hereby and
neither the Director nor any of his representatives shall have rescinded or
amended such advice, and
(c) the transactions contemplated hereby shall have
received the allowance or approval or deemed allowance or approval by the
responsible Minister under the Investment Canada Act in respect of the
transactions contemplated hereby, to the extent such allowance or approval is
required, on terms and conditions satisfactory to Buyer and 3-D.
8.8 Consents of Third Parties to Contracts. All consents
from third parties to any Contracts or from any governmental authority with
respect to any license, approval, authorization, franchise or permit that are
required to be listed in the Disclosure Schedule in order to avoid a
misrepresentation under Section 4.5(a) shall have been obtained in writing.
8.9 No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or governmental or regulatory
authority, nor any statute, rule, regulation, decree or executive order
promulgated or enacted by any governmental or regulatory authority that
declares this Agreement invalid or unenforceable in any material respect or
that prevents the consummation of the transactions contemplated hereby or which
imposes restrictions on 3-D's or Buyer's right or ability to operate the
business of Company shall be in effect; and no action or proceeding before any
court or regulatory authority shall have been instituted or threatened in
writing by any governmental or regulatory authority, or
-33-
<PAGE> 39
by any other Person (other than 3-D, Buyer or any of their respective
affiliates), which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement or which seeks to impose restrictions on 3-D's
or Buyer's right or ability to operate the business of Company, and which in
any such case has a reasonable likelihood of success in the reasonable opinion
of counsel to 3-D.
8.10 Escrow Agreement; Employment Agreements; Lease
Amendment. Sellers shall have entered into the Escrow Agreement and shall have
deposited with the Escrow Agent thereunder the number of Buyer's Shares
provided for in Section 3.2(a)(viii). The Employees shall have entered into
the Employment Agreements. The Lease shall have been amended as provided in
Section 6.8.
8.11 Release of Liens. The Bank shall have terminated and
released its liens on the assets of the Company.
8.12 Other Closing Matters. 3-D and Buyer shall have
received such other supporting information in confirmation of the
representations, warranties, covenants and agreements of Sellers and the
satisfaction of the conditions to 3-D's and Buyer's obligation to close
hereunder as 3-D or Buyer or their counsel may reasonably request.
ARTICLE IX
Conditions Precedent to Obligations of Sellers
The obligations of Sellers under Articles II and III shall be
subject to the satisfaction at or prior to the Closing of the following
conditions, any one or more of which may be waived by a majority in interest of
the Sellers:
9.1 Representations and Warranties. Each and every
representation and warranty of 3-D and Buyer contained in this Agreement, any
Schedule or any certificate delivered pursuant hereto shall be true and
accurate as of the date when made, shall be deemed repeated at the time of the
Closing and shall then be true and accurate in all material respects.
9.2 Compliance with Covenants. 3-D and Buyer shall have
performed and observed in all material respects all covenants and agreements to
be performed or observed by them under this Agreement at or before the Closing.
9.3 Update Certificate. Sellers shall have received a
favorable certificate, dated the Closing Date, signed by Buyer as to the
matters set forth in Sections 9.1 and 9.2.
9.4 Legal Opinion. Sellers shall have received the
favorable opinion of Kramer, Levin, Naftalis & Frankel, United States counsel
to 3-D and Buyer, dated the Closing Date, substantially in the form attached
hereto as Exhibit J-1, and of Davies, Ward
-34-
<PAGE> 40
& Beck, Canadian counsel to 3-D and Buyer, dated the Closing Date,
substantially in the form attached hereto as Exhibit J-2.
9.5 Regulatory Approvals. All material approvals and
consents of regulatory authorities required to carry out the transactions
contemplated by this Agreement, the Escrow Agreement, the Support Agreement and
the Share Exchange Agreement shall have been received.
9.6 No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or governmental or regulatory
authority, nor any statute, rule, regulation, decree or executive order
promulgated or enacted by any governmental or regulatory authority, that
declares this Agreement invalid or unenforceable in any material respect or
that prevents the consummation of the transactions contemplated hereby shall be
in effect.
9.7 Employment Agreements. 3-D and Buyer shall have
entered into the Escrow Agreement, the Support Agreement and the Share Exchange
Agreement. Buyer shall have amended its share capital to create a new class of
exchangeable non-voting shares having substantially the rights, privileges,
restrictions and conditions set forth on Exhibit A attached hereto, and Buyer
shall have issued the Buyer's Shares to Sellers pursuant to Section 2.1.
Company shall have entered into the Employment Agreements.
9.8 Release of Personal Guarantees. The Bank shall have
terminated and released the personal guarantees of DJ and WGM with respect to
the debt of Company to the Bank.
ARTICLE X
Termination of Agreement
This Agreement may be terminated:
10.1 Mutual Consent. At any time prior to the Closing, by
mutual consent of 3-D, Buyer and Sellers.
10.2 Transaction Date. By 3-D, Buyer or Sellers if the
Closing shall not have been consummated by January 31, 1997, unless such
failure of consummation shall be due to a material breach of any representation
or warranty, or the nonfulfillment in a material respect, and failure to cure
such nonfulfillment, of any covenant or agreement contained herein on the part
of the party or parties seeking to terminate.
-35-
<PAGE> 41
ARTICLE XI
Indemnification
11.1 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants of the parties
contained in this Agreement, any Schedule or any certificate delivered pursuant
hereto shall survive the Closing. Each party hereto shall be entitled to rely
on any such representation or warranty regardless of any inquiry or
investigation made by on behalf of such party.
11.2 Indemnification by Sellers. Sellers shall jointly
and severally indemnify and hold harmless 3-D, Buyer, Company and their
respective directors, officers and employees from and against any Loss incurred
or suffered by such Person as a result of, arising from or in connection with:
(i) a breach by a Seller of any representation or
warranty made by such Seller in this Agreement or in any Schedule or
certificate delivered pursuant hereto; and
(ii) a failure by a Seller to perform or comply with any
covenant or agreement on the part of such Seller contained herein,
including any covenant contained in Article VI.
The amount paid pursuant to the preceding sentence shall be paid to Buyer or,
at Buyer's election, to Company and shall be the amount required to put Buyer
or Company, as the case may be, in the after tax position it would have been in
had such representation, warranty, covenant or agreement not been breached.
Any payment made by a Seller to Buyer under this Section 11.2 shall be treated
as a reduction in the aggregate consideration received by such Seller from
Buyer pursuant to this Agreement. Any such payment made by a Seller to Company
shall be treated as a capital contribution to Company.
11.3 Indemnification by 3-D and Buyer. 3-D and Buyer
shall jointly and severally indemnify and hold harmless each Seller from and
against any Loss incurred or suffered by such Seller as a result of, arising
from or in connection with:
(i) a breach by 3-D or Buyer of any representation or
warranty made by 3-D or Buyer in this Agreement or in any Schedule or
certificate delivered pursuant hereto or in the Support Agreement or
the Share Exchange Agreement; and
(ii) a failure by 3-D or Buyer to perform or comply with
any covenant or agreement on the part of 3-D or Buyer contained
herein, including any covenant contained in Article VII, or in the
Support Agreement or the Share Exchange Agreement.
11.4 Assumption of Defense. An indemnified party shall
promptly give notice to each indemnifying party after obtaining knowledge of
any matter as to which
-36-
<PAGE> 42
recovery may be sought against such indemnifying party because of the indemnity
set forth above, and, if such indemnity shall arise from the claim of a third
party, shall permit such indemnifying party to assume the defense of any such
claim or any litigation resulting from such claim; provided, however, that
failure promptly to give any such notice shall not affect the indemnification
provided under this Article XI except to the extent such indemnifying party
shall have been prejudiced as a result of such failure. Notwithstanding the
foregoing, an indemnifying party may not assume the defense of any such
third-party claim if it does not demonstrate to the reasonable satisfaction of
the indemnified party that it has adequate financial resources to defend such
claim and pay any and all Losses that may result therefrom, or if the claim (i)
is reasonably likely to result in imprisonment of the indemnified party, (ii)
is reasonably likely to result in a criminal penalty or fine against the
indemnified party the consequences of which would be reasonably likely to have
a material adverse effect on the indemnified party unrelated to the size of
such penalty or fine, or (iii) is reasonably likely to result in an equitable
remedy which would materially impair the indemnified party's ability to
exercise its rights under this Agreement, or impair 3-D's or Buyer's right or
ability to operate Company. If an indemnifying party assumes the defense of
such third party claim, such indemnifying party shall agree prior thereto in
writing that it is liable under this Article XI to indemnify the indemnified
party in accordance with the terms contained herein in respect of such claim,
shall conduct such defense diligently, shall have full and complete control
over the conduct of such proceeding on behalf of the indemnified party and
shall, in his or her or its sole discretion, have the right to decide all
matters of procedure, strategy, substance and settlement relating to such
proceeding; provided, however, that any counsel chosen by such indemnifying
party to conduct such defense shall be reasonably satisfactory to the
indemnified party. The indemnified party may participate in such proceeding
and retain separate co-counsel at its sole cost and expense, and the
indemnifying party will not without the written consent of the indemnified
party consent to the entry of any judgment or enter into any settlement with
respect to the matter which does not include a provision whereby the plaintiff
or the claimant in the matter releases the indemnified party from all liability
with respect thereto. Failure by an indemnifying party to notify the
indemnified party of its election to defend any such claim or action by a third
party within thirty (30) days after notice thereof shall have been given to
such indemnifying party by the indemnified party shall be deemed a waiver by
such indemnifying party of its right to defend such claim or action.
11.5 Non-Assumption of Defense. If no indemnifying party
is permitted or elects to assume the defense of any such claim by a third party
or litigation resulting therefrom, the indemnified party shall diligently
defend against such claim or litigation in such manner as it may deem
appropriate and, in such event, the indemnifying party or parties shall
promptly reimburse the indemnified party for all reasonable out-of-pocket costs
and expenses, legal or otherwise, incurred by the indemnified party and its
affiliates in connection with the defense against such claim or litigation, as
such costs and expenses are incurred. Any counsel chosen by such indemnified
party to conduct such defense must be reasonably satisfactory to the
indemnifying party or parties, and only one counsel shall be retained to
represent all indemnified parties in an action (except that if litigation is
pending in more than one jurisdiction with respect to an action, one such
counsel may be retained in each jurisdiction in which such litigation is
pending).
-37-
<PAGE> 43
11.6 Indemnified Party's Cooperation as to Proceedings.
The indemnified party will cooperate in all reasonable respects with any
indemnifying party in the conduct of any proceeding as to which such
indemnifying party assumes the defense. For the cooperation of the indemnified
party pursuant to this Section 11.6, the indemnifying party or parties shall
promptly reimburse the indemnified party for all reasonable out-of-pocket costs
and expenses, legal or otherwise, incurred by the indemnified party or its
affiliates in connection therewith, as such costs and expenses are incurred.
11.7 General Limitations on Indemnification.
(a) An indemnifying party shall not be liable to nor required
to indemnify or hold an indemnified party harmless with respect to any Loss to
the extent such Loss is recoverable under insurance policies maintained by the
indemnified party or its affiliates.
(b) If any Loss indemnified against under this Article XI
shall result (after giving effect to any differences in the timing of
recognition, payment and deductibility) in a direct or indirect Tax savings to
the indemnified party or its affiliates, then the Indemnification Obligations
to which such indemnified party shall be entitled hereunder shall be reduced by
the amount of such Tax savings.
ARTICLE XII
Miscellaneous
12.1 Expenses. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall pay all costs and
expenses incurred by such party in respect of the transactions contemplated
hereby.
12.2 Entirety of Agreement. This Agreement (including the
Disclosure Schedule and all other Schedules and Exhibits hereto), together with
the other documents and certificates delivered hereunder, state the entire
agreement of the parties, merge all prior negotiations, agreements and
understandings, if any, and state in full all representations, warranties,
covenants and agreements which have induced this Agreement. Each party agrees
that in dealing with third parties no contrary representations will be made.
12.3 Notices. All notices and demands of any kind which
any party hereto may be required or desire to serve upon another party under
the terms of this Agreement shall be in writing and shall be served upon such
other party: (a) by personal service upon such other party at such other
party's address set forth on the signature pages of this Agreement; or (b) by
mailing a copy thereof by certified or registered mail, postage prepaid, with
return receipt requested, addressed to such other party at the address of such
other party set forth on the signature pages of this Agreement; or (c) by
sending a copy
-38-
<PAGE> 44
thereof by Federal Express or equivalent courier service, addressed to such
other party at the address of such other party set forth on the signature pages
of this Agreement; or (d) by sending a copy thereof by facsimile to such other
party at the facsimile number, if any, of such other party set forth on the
signature pages of this Agreement.
In case of service by Federal Express or equivalent courier
service or by facsimile or by personal service, such service shall be deemed
complete upon receipt. In the case of service by mail, such service shall be
deemed complete on the fifth Business Day after mailing. The addresses and
facsimile numbers to which, and persons to whose attention, notices and demands
shall be delivered or sent may be changed from time to time by notice served,
as hereinabove provided, by any party upon the other party.
12.4 Amendment. This Agreement may be modified or amended
only by an instrument in writing, duly executed by all of the parties hereto.
12.5 Nonwaiver. No waiver by any party of any term,
provision, covenant, representation or warranty contained in this Agreement (or
any breach thereof) shall be effective unless it is in writing executed by the
party against which such waiver is to be enforced; no waiver shall be deemed or
construed as a further or continuing waiver of any such term, provision,
covenant, representation or warranty (or breach) on any other occasion or as a
waiver of any other term, provision, covenant, representation or warranty (or
of the breach of any other term, provision, covenant, representation or
warranty) contained in this Agreement on the same or any other occasion.
12.6 Counterparts. For the convenience of the parties,
any number of counterparts hereof may be executed, each such executed
counterpart shall be deemed an original and all such counterparts together
shall constitute one and the same instrument.
12.7 Assignment; Binding Nature; No Beneficiaries. This
Agreement may not be assigned by any party hereto without the written consent
of the other parties; provided, however, that Buyer may assign its rights
hereunder to any affiliate of 3-D which assumes the obligations of Buyer
hereunder, but no such assignment shall relieve Buyer or 3-D of any such
obligations. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the parties hereto
and their respective heirs, personal representatives, legatees, successors and
permitted assigns. Except as otherwise expressly provided in Article XI, this
Agreement shall not confer any rights or remedies upon any Person other than
the parties hereto and their respective heirs, personal representatives,
legatees, successors and permitted assigns.
12.8 Headings. The headings in this Agreement are
inserted for convenience only and shall not constitute a part hereof.
12.9 Governing Law; Consent to Jurisdiction.
(a) This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York applicable
to contracts made and to be entirely performed therein. In the event of any
controversy or claim arising out of or relating to this Agreement or the breach
or alleged breach hereof, each of the parties hereto irrevocably (i) submits to
the non-exclusive jurisdiction of the U.S. District Court for the
-39-
<PAGE> 45
Southern District of New York (or, if such court does not have jurisdiction,
the courts of the State of New York), (ii) waives any objection which it may
have at any time to the laying of venue of any action or proceeding brought in
any such court, (iii) waives any claim that such action or proceeding has been
brought in an inconvenient forum, and (iv) agrees that service of process or of
any other papers upon such party by registered mail at the address to which
notices are required to be sent to such party under Section 12.3 shall be
deemed good, proper and effective service upon such party.
(b) Each Seller hereby irrevocably appoints and designates
the law firm of Beaumont Church as his or her true and lawful agent and attorney
for receipt of service of process in any action or proceeding brought by 3-D or
Buyer arising out of or relating to this Agreement, or the breach or alleged
breach hereof. Such service may be effected in person on such firm or by
registered or certified mail addressed to Beaumont Church, 2200 AGT Tower 411
1st Street S.E. Calgary, Alberta T2G 5E7, Attention: James M.B. Clark, Esq.
12.10 Specific Performance. Each of the parties hereto
acknowledges and agrees that the others would be damaged irreparably in the
event any of the covenants contained in this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Accordingly,
each of the parties hereto agrees that the other parties shall be entitled to
an injunction or injunctions to prevent breaches of the covenants contained in
this Agreement and to enforce specifically this Agreement and the covenants
contained herein, in addition to any other remedy to which such other parties
may be entitled at law or in equity.
12.11 Construction. In this Agreement (i) words denoting
the singular include the plural and vice versa, (ii) "it" or "its" or words
denoting any gender include all genders, (iii) the word "including" shall mean
"including without limitation", whether or not expressed, (iv) any reference to
a statute shall mean the statute and any regulations thereunder in force as of
the date of this Agreement or the Closing Date, as applicable, unless otherwise
expressly provided, (v) any reference herein to a Section, Article, Schedule or
Exhibit refers to a Section or Article of or a Schedule or Exhibit to this
Agreement, unless otherwise stated, (vi) when calculating the period of time
within or following which any act is to be done or steps taken, the date which
is the reference day in calculating such period shall be excluded and if the
last day of such period is not a Business Day, then the period shall end on the
next day which is a Business Day, (vii) any reference to a party's "best
efforts" or "reasonable efforts" shall not include any obligation of such party
to pay, or guarantee the payment of, money or other consideration to any third
party or to agree to the imposition on such party or its affiliates of any
conditions reasonably considered by such party to be materially burdensome to
such party or its affiliates, and (viii) except as otherwise expressly provided
herein, all dollar amounts are expressed in Canadian funds.
12.12 Public Announcements. Each of the parties agrees
that after the signing of this Agreement such party shall not make any press
release or public announcement concerning this Agreement or the transactions
contemplated
-40-
<PAGE> 46
hereby without the prior written approval of 3-D and DJ, which approval will
not be unreasonably withheld; provided, however, that 3-D may describe this
Agreement and the transactions contemplated hereby and the business and
financial condition of Company in the Registration Statement and Prospectus and
any press release it is required to make under applicable United States
securities laws.
12.13 Remedies Cumulative. The remedies provided for or
permitted by this Agreement shall be cumulative and the exercise by any party
of any remedy provided for herein shall not preclude the assertion or exercise
by such party of any other right or remedy provided for herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
-41-
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
Address: 3-D GEOPHYSICAL, INC.
7076 South Alton Way
Building H
Englewood, Colorado 80112 By /s/ RONALD L. KOONS
Attention: Ronald L. Koons, -------------------------------------
Chief Financial Officer Name: Ronald L. Koons
Facsimile No.: (303) 290-0447 Title: Vice President
with a copy to:
Peter S. Kolevzon, Esq. 3-D GEOPHYSICAL OF
Kramer, Levin, Naftalis CANADA, INC.
& Frankel
919 Third Avenue By /s/ RONALD L. KOONS
New York, New York 10022 ------------------------------------
Facsimile No.: (212) 715-8000 Name: Ronald L. Koons
---------------------------------
Title: Vice President
------------------------------
Address: /s/ D. E. JANVEAU
---------------------------------------
D. E. Janveau
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B 271 CANADA
with a copy to:
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
Address: /s/ W. G. MUELLER
---------------------------------------
W. G. Mueller
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B 271 CANADA
-42-
<PAGE> 48
with a copy to:
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
Address: /s/ GLADYS MUELLER
---------------------------------------
Gladys Mueller
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B 271 CANADA
with a copy to:
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
-43-
<PAGE> 49
EXHIBIT A
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of the Buyer shall have
the following rights, privileges, restrictions and conditions.
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
(a) "3-D" means 3-D Geophysical Inc., a corporation organized and
existing under the laws of the State of Delaware, and any
successor corporation.
(b) "3-D CALL NOTICE" has the meaning ascribed thereto in section
7.2 of these share provisions.
(c) "3-D COMMON SHARE REORGANIZATION" has the meaning ascribed
thereto in subsection 1.11 (o) of these share provisions.
(d) "3-D COMMON SHARES" mean the shares of common stock of 3-D,
with a par value of U.S.$0.01 per share and having one vote
per share, and any other securities into which such shares may
be changed.
(e) "3-D DIVIDEND DECLARATION DATE" means the date on which the
board of directors of 3-D declares any dividend on the 3-D
Common Shares.
(f) "AFFILIATE" of any person means any other person directly or
indirectly controlling controlled by, or under common control
with that person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control
with"), as applied to any person, means the possession by
another person, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that
first mentioned person, whether through the ownership of
voting securities, by contract or otherwise.
<PAGE> 50
(g) "AUTOMATIC REDEMPTION DATE" means September 20, 2006 unless
such date shall be accelerated at any time to a specified
earlier date by the Board of Directors upon at least 30 days'
prior written notice to the registered holders of Exchangeable
Shares, in which case the Automatic Redemption Date shall be
such earlier date; provided, however, that the Board of
Directors may so accelerate the Automatic Redemption Date only
at such time as there are outstanding fewer than 100,000
Exchangeable Shares held by holders other than 3-D and its
Affiliates.
(h) "BOARD OF DIRECTORS" means the board of directors of the
Corporation.
(i) "BUSINESS DAY" means any day other than a Saturday, a Sunday
or a legal holiday on which banks are not open for business in
Calgary, Alberta or New York, New York.
(j) "CANADIAN DOLLAR EQUIVALENT" means, in respect of an amount
expressed in a foreign currency (the "Foreign Currency
Amount") at any date, the product obtained by multiplying (a)
the Foreign Currency Amount by (b) the noon spot exchange rate
on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event
such spot exchange rate is not available, such exchange rate
on such date for such foreign currency expressed in Canadian
dollars as may be deemed by the Board of Directors to be
appropriate for such purpose.
(k) "CAPITAL REORGANIZATION" has the meaning ascribed thereto in
section 10.2 of these share provisions.
(l) "CBCA" means the Canada Business Corporations Act, as amended
from time to time.
(m) "CORPORATION" means 3-D Geophysical of Canada, Inc., a
corporation incorporated under the CBCA.
(n) "CURRENT MARKET PRICE" means, in respect of a 3-D Common Share
on any date, the Canadian Dollar Equivalent of the closing
sale price of 3-D Common Shares on such day (or, if no trades
of 3-D Common Shares occurred on such day, on the last trading
day prior thereto on which such trades occurred) reported on
NASDAQ, or, if the 3-D Common Shares are not then quoted on
NASDAQ, on such stock exchange or other automated quotation
system on which the 3-D Common Shares are listed or quoted, as
the case may be, as may be selected by the Board of Directors
for such purpose.
(o) "CURRENT 3-D COMMON SHARE EQUIVALENT" means, on any date, the
equivalent as at such date of one 3-D Common Share as at the
Effective Date, expressed to four decimal places, determined
by applying on a cumulative basis the following adjustments,
to the extent applicable by reason of any transactions
occurring in
- 2 -
<PAGE> 51
respect of 3-D Common Shares between the Effective Date and
such date, the Current 3-D Common Share Equivalent as at the
Effective Date being 1.0000:
(i) if 3-D shall (A) subdivide, redivide or change its
then outstanding 3-D Common Shares into a greater
number of 3-D Common Shares, unless the Corporation
is permitted under applicable law without a vote of
its shareholders to make, and shall simultaneously
make, the same or an economically equivalent change
to the rights of the holders of Exchangeable Shares,
(B) reduce, combine, consolidate or change its then
outstanding 3-D Common Shares into a lesser number of
3-D Common Shares, unless the Corporation is
permitted under applicable law without a vote of its
shareholders to make, and shall simultaneously make,
the same or an economically equivalent change to the
rights of the holders of Exchangeable Shares, or (C)
issue 3-D Common Shares (or securities exchangeable
or convertible into 3-D Common Shares) to the holders
of all or substantially all of its then outstanding
3-D Common Shares by way of stock dividend or other
distribution (other than to holders of 3-D Common
Shares who exercise an option to receive stock
dividends in lieu of receiving cash dividends),
unless the Corporation is permitted under applicable
law without a vote of its shareholders to issue or
distribute, and shall simultaneously issue and
distribute, equivalent numbers of 3-D Common Shares
or other securities (adjusted if necessary in
accordance with the Current 3-D Common Share
Equivalent), or the economic equivalent on a per
share basis, to the holders of the Exchangeable
Shares (any of such events being herein called a "3-D
Common Share Reorganization"), the Current 3-D Common
Share Equivalent shall be adjusted effective
immediately after the record date at which the
holders of 3-D Common Shares are determined for the
purpose of the 3-D Common Share Reorganization by
multiplying the Current 3-D Common Share Equivalent
in effect on such record date by the quotient
obtained when:
(A) the number of 3-D Common Shares outstanding
after the completion of such 3-D Common Share
Reorganization (but before giving effect to
the issue of any 3-D Common Shares issued
after such record date otherwise than as part
of such 3-D Common Share Reorganization)
including, in the case where securities
exchangeable or convertible into 3-D Common
Shares are distributed. the number of 3-D
Common Shares that would have been
outstanding had such securities been
exchanged for or converted into 3-D Common
Shares on such record date, is divided by
(B) the number of 3-D Common Shares outstanding
on such record date before giving effect to
the 3-D Common Share Reorganization;
- 3 -
<PAGE> 52
(ii) If at any time 3-D shall fix a record date for the
issuance of rights, options or warrants to the
holders of all or substantially all of the 3-D Common
Shares entitling them to subscribe for or to purchase
3-D Common Shares (or securities of 3-D convertible
into 3-D Common Shares) at a price per 3-D Common
Share (or having a conversion price per 3-D Common
Share) of less than the Pre-Dilution Market Price on
such record date, unless the Corporation is permitted
under applicable law without a vote of its
shareholders to issue, and shall simultaneously
issue, equivalent numbers of such rights, options or
warrants, adjusted if necessary in accordance with
the Current 3-D Common Share Equivalent at such
record date, or the economic equivalent thereof on a
per share basis, to the holders of Exchangeable
Shares (any such event being herein referred to as a
"Rights Offering"), then the Current 3-D Common Share
Equivalent then in effect shall be adjusted
immediately after such record date by multiplying the
Current 3-D Common Share Equivalent in effect on such
record date by the quotient obtained when:
(A) the sum of the number of 3-D Common Shares
outstanding on such record date and the
number of additional 3-D Common Shares
offered for subscription or purchase under
the Rights Offering (or the number of 3-D
Common Shares into which the securities so
offered are convertible)
is divided by
(B) the sum of the number of 3-D Common Shares
outstanding on such record date and the
number determined by dividing the aggregate
price of the total number of additional 3-D
Common Shares offered for subscription or
purchase under the Rights Offering (or the
aggregate conversion price of the convertible
securities so offered) by the Pre-Dilution
Market Price on such record date.
Any 3-D Common Share owned by or held for the account
of 3-D shall be deemed not to be outstanding for the
purpose of any such computation. If such rights,
options or warrants are not so issued or if, at the
date of expiry of the rights, options or warrants
subject to the Rights Offering, less than all the
rights, options or warrants have been exercised, then
the Current 3-D Common Share Equivalent shall be
readjusted effective immediately to the Current 3-D
Common Share Equivalent which would have been in
effect if such record date had not been fixed or to
the Current 3-D Common Share Equivalent which would
then be in effect on the date of expiry if the only
rights, options or warrants issued had been those
that were exercised, as the case may be;
- 4 -
<PAGE> 53
(iii) if 3-D shall fix a record date for the making of a
distribution (including a distribution by way of
stock dividend) to the holders of all or
substantially all its outstanding 3-D Common Shares
of
(A) shares of 3-D of any class other than 3-D
Common Shares (or shares convertible into 3-D
Common Shares referred to in (i) (C) above),
(B) rights, options or warrants (excluding a
Rights Offering),
(C) evidences of its indebtedness (excluding
indebtedness convertible into 3-D Common
Shares referred to in (i) (C) above) or
(D) any other assets (other than any of the
distributions referred to in (A), (B) or (C)
of this paragraph (iii), dividends paid in
the ordinary course or a 3-D Common Share
Reorganization)
unless the Corporation is permitted under applicable
law without a vote of its shareholders to distribute,
and shall simultaneously distribute, the same number
of shares, rights, options or warrants, evidences of
indebtedness or other assets, as the case may be,
adjusted if necessary in accordance with the Current
3-D Common Share Equivalent as at such record date,
or the economic equivalent thereof on a per share
basis, to the holders of Exchangeable Shares (any
such event being herein referred to as a "Special
Distribution") then, in each such case, the Current
3-D Common Share Equivalent shall be adjusted
effective immediately after the record date at which
the holders of 3-D Common Shares are determined for
the purposes of the Special Distribution by
multiplying the Current 3-D Common Share Equivalent
in effect on such record date by the quotient
obtained when:
(I) the product obtained when the number of 3-D
Common Shares outstanding on the record date
is multiplied by the Pre-Dilution Market
Price on such date,
is divided by
(II) the difference obtained when the amount by
which the aggregate fair market value (as
determined by the Board of Directors, which
determination shall be conclusive) of the
shares, rights, options, warrants, evidences
of indebtedness or assets, as the case may
be, distributed in the Special Distribution
exceeds the fair market value (as determined
by the Board of Directors, which
determination shall be conclusive) of the
consideration, if any, received therefor by
3-D, is subtracted from the product obtained
when the number of 3-D Common Shares
outstanding on the
- 5 -
<PAGE> 54
record date is multiplied by the Pre-Dilution
Market Price on such date,
provided that no such adjustment shall be made if the
result of such adjustment would be to decrease the
Current 3-D Common Share Equivalent in effect
immediately before such record date. Any 3-D Common
Share owned by or held for the account of 3-D shall
be deemed not to be outstanding for the purpose of
any such computation. Such adjustment shall be made
successively whenever such a record date is fixed.
To the extent that such distribution is not so made,
the Current 3-D Common Share Equivalent shall be
readjusted effective immediately to the Current 3-D
Common Share Equivalent which would then be in effect
based upon such shares or rights, options or warrants
or evidences of indebtedness or assets actually
distributed.
(p) "EFFECTIVE DATE" means January __, 1997. [NOTE TO
DRAFT: INSERT THE CLOSING DATE]
(q) "EXCHANGEABLE SHARES" mean the Exchangeable
Non-Voting Shares of the Corporation having the
rights, privileges, restrictions and conditions set
forth herein.
(r) "LIEN" means any lien, pledge, adverse claim,
security interest, mortgage, restriction, claim,
charge or other encumbrance of any kind or nature
whatsoever.
(s) "LIQUIDATION AMOUNT" has the meaning ascribed thereto
in section 4.1 of these share provisions.
(t) "LIQUIDATION CALL PURCHASE PRICE" has the meaning
ascribed thereto in section 7.4 of these share
provisions.
(u) "LIQUIDATION CALL RIGHT" has the meaning ascribed
thereto in section 7.4 of these share provisions.
(v) "NASDAQ" means the NASDAQ National Market System.
(w) "LIQUIDATION DATE" has the meaning ascribed thereto
in section 4.1 of these share provisions.
(x) "PRE-DILUTION MARKET PRICE" means, in respect of a
3-D Common Share on any date, the Canadian Dollar
Equivalent of the average of the closing sale prices
as reported on NASDAQ of such shares during a period
of 20 consecutive trading days ending on the second
trading day prior to such date, or, if the 3-D
Common Shares are not then quoted on NASDAQ, on such
stock exchange or other automated quotation system on
which the 3-
- 6 -
<PAGE> 55
D Common Shares are listed or quoted as may be
selected by the Board of Directors for such purpose.
(y) "REDEMPTION CALL PURCHASE PRICE" has the meaning
ascribed thereto in section 7.7 of these share
provisions.
(z) "REDEMPTION CALL RIGHT" has the meaning ascribed
thereto in section 7.7 of these share provisions.
(aa) "REDEMPTION PRICE" has the meaning ascribed thereto
in section 6.1 of these share provisions.
(bb) "RETRACTED SHARES" has the meaning ascribed thereto
in section 5.1 of these share provisions.
(cc) "RETRACTION CALL PURCHASE PRICE" has the meaning
ascribed thereto in section 7.1 of these share
provisions.
(dd) "RETRACTION CALL RIGHT" has the meaning ascribed
thereto in section 7.1 of these share provisions.
(ee) "RETRACTION DATE" has the meaning ascribed thereto in
section 5.2 of these share provisions.
(ff) "RETRACTION PRICE" has the meaning ascribed thereto
in section 5.1 of these share provisions.
(gg) "RETRACTION REQUEST" has the meaning ascribed thereto
in section 5.1 of these share provisions.
(hh) "RIGHTS OFFERING" has the meaning ascribed thereto in
subsection 1.1(o) of these share provisions.
(ii) "SHARE EXCHANGE AGREEMENT" means the Share Exchange
Agreement made as of the Effective Date between the
Corporation, 3-D, D.E. Janveau, Gladys Mueller, W.G.
Mueller, C. David Siegfried and Peggy J. Siegfried,
as the same may be amended or restated from time to
time in accordance with its terms.
(jj) "SPECIAL DISTRIBUTION" has the meaning ascribed
thereto in subsection 1.1(o) of these share
provisions.
(kk) "SUPPORT AGREEMENT" means the Support Agreement made
as of the Effective Date between 3-D and the
Corporation, as the same may be amended or restated
from time to time in accordance with these share
provisions.
- 7 -
<PAGE> 56
1.2 All amounts required to be paid, deposited or delivered
hereunder shall be paid, deposited or delivered after deduction of any amount
required by applicable law to be deducted or withheld on account of tax and the
deduction of such amounts and remittance to the applicable tax authorities
shall, to the extent thereof, satisfy such requirement to pay, deposit or
deliver hereunder.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall rank senior to the
Common Shares and any other shares ranking junior to the Exchangeable
Shares, with respect to the payment of dividends and the distribution of assets
in the event of the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or any other distribution of the assets of
the Corporation among its shareholders for the purpose of winding up its
affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive
and the Board of Directors shall, subject to applicable law, declare a dividend
on each Exchangeable Share (a) in the case of a cash dividend declared on the
3-D Common Shares, in an amount in cash for each Exchangeable Share equal to
the Canadian Dollar Equivalent on the 3-D Dividend Declaration Date of the cash
dividend declared on such number of 3-D Common Shares as is equal to the
Current 3-D Common Share Equivalent on the 3-D Dividend Declaration Date or (b)
in the case of a stock dividend declared on the 3-D Common Shares to be paid in
3-D Common Shares, in such whole number of Exchangeable Shares for the
Exchangeable Shares held by each holder as is equal to the number of 3-D Common
Shares to be paid as a dividend per 3-D Common Shares (if such calculation
results in a fraction of an Exchangeable Share, the holder shall receive in
lieu of such fraction an amount in cash equal to the product obtained by
multiplying the amount that would be payable in respect of an equal fraction of
a 3-D Common Share as at the 3-D Dividend Declaration Date, calculated in
accordance with section 10.4, by the Current 3-D Common Share Equivalent as at
such date) or (c) in the case of a dividend declared on the 3-D Common Shares
to be paid in property other than cash or 3-D Common Shares (including without
limitation other securities of 3D), in such type and amount of property for
each Exchangeable Share as is the same as or economically equivalent (as
determined by the Board of Directors in accordance with section 10.1) to the
type and amount of property to be paid as a dividend on such number of 3-D
Common Shares as is equal to the Current 3-D Common Share Equivalent on the 3-D
Dividend Declaration Date. Such dividends shall be paid out of money, assets
or property of the Corporation properly applicable to the payment of dividends,
or out of authorized but unissued Exchangeable Shares.
- 8 -
<PAGE> 57
3.2 Cheques of the Corporation payable at par at any branch of the
bankers of the Corporation shall be issued in respect of any cash dividend
contemplated by subsection 3.1 (a) hereof or in respect of any cash amount
payable in lieu of a fractional Exchangeable Share in connection with any stock
dividend contemplated by subsection 3.1(b) hereof and the sending of such a
cheque to each holder of an Exchangeable Share shall satisfy the cash dividend
represented thereby unless the cheque is not paid on presentation.
Certificates registered in the name of the registered holder of Exchangeable
Shares shall be issued or transferred in respect of any stock dividend
contemplated by subsection 3.1(b) hereof and the sending of such a certificate
to each holder of an Exchangeable Share shall satisfy the stock dividend
represented thereby. Such other type and amount of property in respect of any
dividend contemplated by subsection 3.1(c) hereof shall be issued, distributed
or transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
an Exchangeable Share shall satisfy the dividend represented thereby. No
holder of an Exchangeable Share shall be entitled to recover by action or other
legal process against the Corporation any dividend that is represented by a
cheque that has not been duly presented to the Corporation's bankers for
payment or that otherwise remains unclaimed for a period of six years from the
date on which such dividend was payable.
3.3 The record date for the determination of the holders of
Exchangeable Shares entitled to receive payment of, and the payment date for
any dividend declared on the Exchangeable Shares under section 3.1 hereof shall
be the same dates as the record date and payment date, respectively, for the
corresponding dividend declared on the 3-D Common Shares.
3.4 If on any payment date for any dividends declared on the
Exchangeable Shares under section 3.1 hereof the dividends are not paid in full
on all of the Exchangeable Shares then outstanding, any such dividends that
remain unpaid shall be paid on a subsequent date or dates determined by the
Board of Directors on which the Corporation shall have sufficient moneys,
assets or property properly applicable to the payment of such dividends.
3.5 So long as any of the Exchangeable Shares are outstanding,
the Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Exchangeable Shares given as specified in
section 9.2 of these share provisions:
(a) pay any dividends on the Common Shares, or any other shares
ranking junior to the Exchangeable Shares, other than stock
dividends payable in Common Shares or any such other shares
ranking junior to the Exchangeable Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect
of Common Shares or any other shares ranking junior to the
Exchangeable Shares;
(c) redeem or purchase any other shares of the Corporation ranking
equally with the Exchangeable Shares with respect to the
payment of dividends or on any liquidation distribution;
- 9 -
<PAGE> 58
(d) issue any Exchangeable Shares other than (i) by way of stock
dividends to the holders of such Exchangeable Shares, (ii)
otherwise pro rata to holders of Exchangeable Shares, (iii) as
contemplated by the Support Agreement or (iv) pursuant to any
agreements or rights in existence at the Effective Date; or
(e) issue any other shares of the Corporation ranking equally with
or senior to the Exchangeable Shares;
provided that the restrictions in subsections 3.5(a), 3.5(b) and 3.5(c) shall
not apply if all dividends on the outstanding Exchangeable Shares corresponding
to dividends declared to date on the 3-D Common Shares shall have been declared
on the Exchangeable Shares and paid in full.
ARTICLE 4
DISTRIBUTION ON LIQUIDATION
4.1 In the event of the liquidation, dissolution or winding-up of
the Corporation or any other distribution of the assets of the Corporation
among its shareholders for the purpose of winding up its affairs, a holder of
Exchangeable Shares shall be entitled, subject to applicable law, to receive
from the assets of the Corporation in respect of each Exchangeable Share held
by such holder on the effective date (the "Liquidation Date") of such
liquidation, dissolution or winding-up, before any distribution of any part of
the assets of the Corporation among the holders of the Common Shares or any
other shares ranking junior to the Exchangeable Shares, an amount per share
equal to (a) the Current Market Price multiplied by the Current 3-D Common
Share Equivalent, in each case determined on the Liquidation Date, which shall
be satisfied in full in respect of all of the Exchangeable Shares held by such
holder by the Corporation causing to be delivered to such holder such whole
number of 3-D Common Shares as is equal to the product obtained by multiplying
the number of such Exchangeable Shares by the Current 3-D Common Share
Equivalent (together with an amount in lieu of any fractional 3-D Common Share
resulting from such calculation payable in accordance with section 10.4), plus
(b) the aggregate of all declared and unpaid dividends on each such
Exchangeable Share up to the Liquidation Date (collectively the "Liquidation
Amount").
4.2 On or promptly after the Liquidation Date, and subject to the
exercise by 3-D of the Liquidation Call Right, the Corporation shall cause to
be delivered to the holders of the Exchangeable Shares the Liquidation Amount
for each such Exchangeable Share upon presentation and surrender of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the CBCA and the by-laws of the Corporation and such
additional documents and instruments as the Corporation may reasonably require,
at the registered office of the Corporation or at such other place that may be
specified by the Corporation in a notice to the holders of the Exchangeable
Shares. Payment of the total Liquidation Amount for such Exchangeable Shares
shall be made by delivery to each holder, at the address of the holder recorded
in the securities register of the Corporation for the Exchangeable Shares or by
holding
- 10 -
<PAGE> 59
for pick-up by the holder at the registered office of the Corporation or at
such other place that may be specified by the Corporation by notice to the
holders of Exchangeable Shares, of certificates representing the 3-D Common
Shares to be delivered in payment thereof (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any Liens placed
thereon by the Corporation or 3-D) and a cheque of the Corporation payable at
par at any branch of the bankers of the Corporation in respect of any
fractional 3-D Common Share and all declared and unpaid dividends comprising
part of the total Liquidation Amount (or, if any of such dividends were payable
in property, such property or property that is the same as or economically
equivalent to such property). On and after the Liquidation Date, the holders
of the Exchangeable Shares shall cease to be holders of such Exchangeable
Shares and shall not be entitled to exercise any of the rights of holders in
respect thereof. other than the right to receive the total Liquidation Amount
in respect of their Exchangeable Shares, unless payment of the total
Liquidation Amount for such Exchangeable Shares shall not be made upon
presentation and surrender of share certificates in accordance with the
foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time on or
after the Liquidation Date to deposit or cause to be deposited the total
Liquidation Amount in respect of the Exchangeable Shares represented by
certificates that have not at the Liquidation Date been surrendered by the
holders thereof in a custodial account with any chartered bank or trust company
in Canada. Upon such deposit being made, the rights of the holders of
Exchangeable Shares after such deposit shall be limited to receiving the total
Liquidation Amount (without interest) for such Exchangeable Shares so
deposited, against presentation and surrender of the said certificates held by
them, respectively, in accordance with the foregoing provisions. Upon such
payment or deposit of the total Liquidation Amount, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all purposes
to be the holders of the 3-D Common Shares delivered to them.
4.3 After the Corporation has satisfied its obligations to pay the
holders of the Exchangeable Shares the Liquidation Amount per Exchangeable
Share pursuant to section 4.1 of these share provisions, such holders shall not
be entitled to share in any further distribution of the assets of the
Corporation.
ARTICLE 5
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
5.1 A holder of Exchangeable Shares shall be entitled at any time,
subject to the exercise by 3-D of the Retraction Call Right and otherwise upon
compliance with the provisions of this Article 5, to require the Corporation to
redeem any or all of the Exchangeable Shares registered in the name of such
holder (the "Retracted Shares") for an amount for each Retracted Share equal to
(a) the Current Market Price multiplied by the Current 3-D Common Share
Equivalent, in each case determined on the Retraction Date, which shall be
satisfied in full in respect of the Retracted Shares by the Corporation causing
to be delivered to such holder such whole number of 3-D Common Shares as is
equal to the product obtained by multiplying the number of Retracted Shares by
the Current 3-D Common Share Equivalent (together with an
- 11 -
<PAGE> 60
amount in lieu of any fractional 3-D Common Share resulting from such
calculation payable in accordance with section 10.4), plus (b) the aggregate of
all dividends declared and unpaid on each Retracted Share up to the Retraction
Date (collectively the "Retraction Price"), provided that if the record date
for any such declared and unpaid dividend occurs on or after the Retraction
Date the Retraction Price shall not include such declared and unpaid
dividends). To effect such redemption, the holder shall present and surrender
at the registered office of the Corporation the certificate or certificates
representing the Exchangeable Shares which the holder desires to have the
Corporation redeem, together with such other documents and instruments as may
be required to effect a transfer of Exchangeable Shares under the CBCA and the
by-laws of the Corporation and such additional documents and instruments as the
Corporation may reasonably require, and together with a duly executed statement
(the "Retraction Request") in the form of Schedule A hereto or in such other
form as may be acceptable to the Corporation:
(a) specifying that the holder desires to have the Retracted
Shares represented by such certificate or certificates
redeemed by the Corporation; and
(b) acknowledging the Retraction Call Right of 3-D to purchase all
but not less than all the Retracted Shares directly from the
holder and that the Retraction Request shall be deemed to be
an irrevocable offer by the holder to sell the Retracted
Shares to 3-D in accordance with the Retraction Call Right.
5.2 Subject to the exercise by 3-D of the Retraction Call Right,
upon receipt by the Corporation in the manner specified in section 5.1 hereof
of a certificate or certificates representing the number of Exchangeable Shares
which the holder desires to have the Corporation redeem, together with such
other documents and instruments as may be required pursuant to section 5.1 and
a Retraction Request, the Corporation shall redeem the Retracted Shares
effective at the close of business on the sixth Business Day after the
Retraction Request is received (the "Retraction Date") and shall cause to be
delivered to such holder the total Retraction Price with respect to such
shares. If only a part of the Exchangeable Shares represented by any
certificate are redeemed (or purchased by 3-D pursuant to the Retraction Call
Right), a new certificate for the balance of such Exchangeable Shares shall be
issued to the holder at the expense of the Corporation.
5.3 Upon receipt by the Corporation of a Retraction Request, the
Corporation shall forthwith notify 3-D thereof. In order to exercise the
Retraction Call Right, 3-D must deliver a 3-D Call Notice to the Corporation
prior to the expiry of the third Business Day after the receipt by the
Corporation of the Retraction Request in accordance with the provisions of
section 7.2 hereof. If 3-D does not so notify the Corporation, the Corporation
will notify the holder as soon as possible thereafter that 3-D will not
exercise the Retraction Call Right. If 3-D delivers the 3-D Call Notice before
the end of such three Business Day period, the Retraction Request shall
thereupon be considered only to be an offer by the holder to sell the Retracted
Shares to 3-D in accordance with the Retraction Call Right.
5.4 If a Retraction Request is received by the Corporation
pursuant to section 5.1 and 3-D has not exercised the Retraction Call Right,
the Corporation shall deliver to the holder of the Retracted Shares, at the
address of the holder recorded in the securities register of the
- 12 -
<PAGE> 61
Corporation for the Exchangeable Shares or at the address specified in the
holder's Retraction Request or by holding for pick-up by the holder at the
registered office of the Corporation, certificates representing the 3-D Common
Shares to be delivered to the holder in payment of the total Retraction Price
for the Retracted Shares (or the portion thereof payable in 3-D Common Shares,
as the case may be) (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any Liens placed thereon by the
Corporation or 3-D) registered in the name of the holder or in such other name
as the holder may request and a cheque of the Corporation payable at par at any
branch of the bankers of the Corporation in payment of the remaining portion,
if any, of the total Retraction Price (or, if any part of the Retraction Price
consists of dividends payable in property, such property or property that is
the same as or economically equivalent to such property), and such delivery of
such certificates and cheque (and property, if any) by the Corporation shall be
deemed to be payment of and shall satisfy and discharge all liability for the
total Retraction Price, to the extent that the same is represented by such
share certificates and cheque (and property, if any), unless such cheque is not
paid on due presentation.
5.5 On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall cease to be a holder of such Retracted
Shares and shall not be entitled to exercise any of the rights of a holder in
respect thereof, other than the right to receive his proportionate part of the
total Retraction Price, unless upon presentation and surrender of certificates
in accordance with the foregoing provisions payment of the total Retraction
Price shall not be made, in which case the rights of such holder shall remain
unaffected until the total Retraction Price has been paid in the manner
hereinbefore provided. On and after the close of business on the Retraction
Date, provided that presentation and surrender of certificates and payment of
the total Retraction Price has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so redeemed by the Corporation
shall thereafter be considered and deemed for all purposes to be a holder of
the 3-D Common Shares delivered to it.
5.6 Notwithstanding any other provision of this Article 5, the
Corporation shall not be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent that such redemption of Retracted
Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it
would not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that 3-D shall not have
exercised the Retraction Call Right with respect to the Retracted Shares, the
Corporation shall be obligated to redeem Retracted Shares specified by a holder
in a Retraction Request only to the extent of the maximum number that may be so
redeemed (rounded down to a whole number of shares) as would not be contrary to
such provisions on a pro rata basis and shall notify the holder at least two
Business Days prior to the Retraction Date as to the number of Retracted Shares
which will not be redeemed by the Corporation and the Corporation shall issue
to each holder of Retracted Shares a new certificate, at the expense of the
Corporation, representing the Retracted Shares not redeemed by the Corporation
pursuant to section 5.2 hereof. The holder of any such Retracted Shares not
redeemed by the Corporation pursuant to section 5.2 of these share provisions
as a result of solvency requirements of applicable law shall be deemed by
giving the Retraction Request to require 3-D to purchase such Retracted Shares
from such holder pursuant to the Exchange Right (as defined in the Share
Exchange Agreement).
- 13 -
<PAGE> 62
ARTICLE 6
REDEMPTION OF EXCHANGEABLE SHARES
6.1 Subject to applicable law and if 3-D does not exercise the
Redemption Call Right, the Corporation shall on the Automatic Redemption Date
redeem the whole of the then outstanding Exchangeable Shares for an amount per
share equal to (a) the Current Market Price multiplied by the Current 3-D
Common Share Equivalent, in each case determined on the Automatic Redemption
Date, which shall be satisfied in full in respect of all of the Exchangeable
Shares held by each holder of Exchangeable Shares by the Corporation causing to
be delivered to such holder such whole number of 3-D Common Shares as is equal
to the product obtained by multiplying the number of such Exchangeable Shares
by the Current 3-D Common Share Equivalent (together with an amount in lieu of
any fractional 3-D Common Share resulting from such calculation payable in
accordance with section 10.4), plus (b) the aggregate of all declared and
unpaid dividends thereon up to the Automatic Redemption Date (collectively the
"Redemption Price").
6.2 On or after the Automatic Redemption Date and subject to the
exercise by 3-D of the Redemption Call Right, the Corporation shall cause to be
delivered to the holders of the Exchangeable Shares the Redemption Price for
each such Exchangeable Share upon presentation and surrender at the registered
office of the Corporation (or at such other place that may be specified by the
Corporation in a notice to the holders of Exchangeable Shares) of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the CBCA and the by-laws of the Corporation and such
additional documents and instruments as the Corporation may reasonably require.
Payment of the total Redemption Price for such Exchangeable Shares shall be
made by delivery to each holder, at the address of the holder recorded in the
securities register of the Corporation or by holding for pick up by the holder
at the registered office of the Corporation (or at such other place that may be
specified by the Corporation in a notice to the holders of Exchangeable
Shares), of certificates representing the 3-D Common Shares to be delivered to
the holder in payment of the Redemption Price (or the portion thereof payable
in 3-D Common Shares, as the case may be) (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any Liens placed
thereon by the Corporation or 3-D) and a cheque of the Corporation payable at
par at any branch of the bankers of the Corporation in respect of any
fractional 3-D Common Share and all declared and unpaid dividends comprising
part of the total Redemption Price (or, if any of such dividends are payable in
property, such property). On and after the Automatic Redemption Date, the
holders of the Exchangeable Shares called for redemption shall cease to be
holders of such Exchangeable Shares and shall not be entitled to exercise any
of the rights of holders in respect thereof, other than the right to receive
the total Redemption Price for their Exchangeable Shares, unless payment of the
total Redemption Price for such Exchangeable Shares shall not be made upon
presentation and surrender of certificates in accordance with the foregoing
provisions, in which case the rights of the holders shall remain unaffected
until the total Redemption Price has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time to deposit or cause
to be deposited the total Redemption Price of the Exchangeable Shares so called
for redemption, or of such of the said Exchangeable Shares represented by
certificates that have
- 14 -
<PAGE> 63
not at the date of such deposit been surrendered by the holders thereof in
connection with such redemption, in a custodial account with any chartered bank
or trust company in Canada named in such notice. Upon the later of such
deposit being made and the Automatic Redemption Date, the Exchangeable Shares
in respect whereof such deposit shall have been made shall be redeemed and the
rights of the holders thereof after such deposit or Automatic Redemption Date,
as the case may be, shall be limited to receiving the total Redemption Price
for such Exchangeable Shares so deposited, against presentation and surrender
of the said certificates held by them, respectively, in accordance with the
foregoing provisions. Upon such payment or deposit of the total Redemption
Price, the holders of the Exchangeable Shares shall thereafter be considered
and deemed for all purposes to be holders of the 3-D Common Shares delivered to
them.
ARTICLE 7
CERTAIN CALL RIGHTS OF 3-D TO ACQUIRE EXCHANGEABLE SHARES
7.1 3-D shall have the overriding right (the "Retraction Call
Right"), notwithstanding the proposed redemption of Retracted Shares by the
Corporation on a Retraction Date, to purchase from the holder of the Retracted
Shares on the Retraction Date the Retracted Shares upon payment by 3-D to the
holder of an amount per share equal to (a) the Current Market Price multiplied
by the Current 3-D Common Share Equivalent, in each case determined on the
Retraction Date, which shall be satisfied in full in respect of the Retracted
Shares by causing to be delivered to such holder such whole number of 3-D
Common Shares as is equal to the product obtained by multiplying the number of
Retracted Shares by the Current 3-D Common Share Equivalent (together with an
amount in lieu of any fractional 3-D Common Share resulting from such
calculation payable in accordance with section 10.4), plus (b) the aggregate of
all dividends declared and unpaid on such Retracted Share (collectively the
"Retraction Call Purchase Price"). In the event of the exercise of the
Retraction Call Right by 3-D, the holder of the Retracted Shares shall be
obligated to sell to 3-D, and 3-D shall be obligated to purchase, the Retracted
Shares on the Retraction Date upon payment by 3-D to such holder of the
Retraction Call Purchase Price for each Retracted Share.
7.2 In order to exercise the Retraction Call Right, 3-D must
notify the Corporation in writing of its determination to do so (the "3-D
Call Notice") prior to the expiry of the third Business Day after the receipt
by the Corporation of the Retraction Request. If 3-D delivers the 3-D Call
Notice before the end of such three Business Day period, the Retraction Request
shall thereupon be considered only to be an offer by the holder to sell the
Retracted Shares to 3-D in accordance with the Retraction Call Right. In such
event, the Corporation shall not redeem the Retracted Shares and 3-D shall
purchase from such holder and such holder shall sell to 3-D on the Retraction
Date the Retracted Shares for the Retraction Call Purchase Price for each
Retracted Share.
7.3 For the purposes of completing a purchase of the Retracted
Shares pursuant to the Retraction Call Right, 3-D shall deposit with the
Corporation, on or before the Retraction Date (or, where the holder of the
Retracted Shares is a non-resident of Canada, as soon as
- 15 -
<PAGE> 64
practicable thereafter), certificates representing the 3-D Common Shares to be
delivered to the holder of the Retracted Shares in payment of the total
Retraction Call Purchase Price for the Retracted Shares (or the portion thereof
payable in 3-D Common Shares, as the case may be) and a cheque in the amount of
the remaining portion, if any, of the total Retraction Call Purchase Price (or,
if any part of the Retraction Call Purchase Price consists of dividends payable
in property, such property or property that is the same as or economically
equivalent to such property). Provided that such total Retraction Call
Purchase Price has been so deposited with the Corporation, the closing of the
purchase and sale of the Retracted Shares pursuant to the Retraction Call Right
shall be deemed to have occurred as of the close of business on the Retraction
Date and, for greater certainty, no redemption by the Corporation of such
Retracted Shares shall take place on the Retraction Date. 3-D shall cause the
Corporation to deliver to the holder of the Retracted Shares, at the address of
such holder recorded in the securities register of the Corporation for the
Exchangeable Shares or at the address specified in the holder's Retraction
Request or by holding for pick-up by the holder at the office of the
Corporation to which the Retraction Request was delivered, in payment of such
total Retraction Call Purchase Price, certificates representing the 3-D Common
Shares to be delivered in respect of such payment (which shares shall be duly
issued as fully paid and non-assessable and shall be free and clear of any
Liens placed thereon by the Corporation or 3-D) registered in the name of the
holder or in such other name as the holder may request in payment of such and,
if applicable, a cheque of 3-D payable at par and in Canadian dollars at any
branch of the bankers of 3-D or the Corporation in Canada (or, if any part of
the Retraction Call Purchase Price consists of dividends payable in property,
such property or property that is the same as or economically equivalent to
such property), and such delivery of such certificates and cheque (and
property, if any) to the holder on behalf of 3-D by the Corporation shall be
deemed to be payment of and shall satisfy and discharge all liability for the
total Retraction Call Purchase Price to the extent that the same is represented
by such share certificates and cheque (and property, if any), unless such
cheque is not paid on due presentation. On and after the close of business on
the Retraction Date, the holder of the Retracted Shares shall cease to be a
holder of such Retracted Shares and shall not be entitled to exercise any of
the rights of a holder in respect thereof, other than the right to receive the
Retraction Call Purchase Price, unless upon presentation and surrender of
certificates in accordance with the foregoing provisions, payment of the total
Retraction Call Purchase Price shall not be made, in which case the rights of
such holder shall remain unaffected until the total Retraction Call Purchase
Price has been paid in the manner hereinbefore provided. On and after the
close of business on the Retraction Date, provided that presentation and
surrender of certificates and payment of the total Retraction Call Purchase
Price has been made in accordance with the foregoing provisions, the holder of
the Retracted Shares so purchased by 3-D shall thereafter be considered and
deemed for all purposes to be a holder of the 3-D Common Shares delivered to
such holder.
7.4 3-D shall have the overriding right (the "Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of the Corporation, to purchase from all but not less
than all of the holders (other than 3-D and its Affiliates) of Exchangeable
Shares on the Liquidation Date all but not less than all of the Exchangeable
Shares held by each such holder on payment by 3-D of an amount per share equal
to (a) the Current Market Price multiplied by the Current 3-D Common Share
Equivalent, in each case determined on the Liquidation Date, which shall be
satisfied in full in respect of all of the Exchangeable
- 16 -
<PAGE> 65
Shares held by such holder by 3-D causing to be delivered to such holder such
whole number of 3-D Common Shares as is equal to the product obtained by
multiplying the number of such Exchangeable Shares by the Current 3-D Common
Share Equivalent (together with an amount in lieu of any fractional 3-D Common
Share resulting from such calculation payable in accordance with section 10.4),
plus (b) the aggregate of all dividends declared and unpaid on such
Exchangeable Share up to the Liquidation Date (collectively the "Liquidation
Call Purchase Price"). In the event of the exercise of the Liquidation Call
Right by 3-D, each holder shall be obligated to sell all the Exchangeable
Shares held by the holder to 3-D on the Liquidation Date on payment by 3-D to
the holder of the Liquidation Call Purchase Price for each such share.
7.5 To exercise the Liquidation Call Right, 3-D must notify the
Corporation of 3-D's intention to exercise such right at least 10 days before
the Liquidation Date in the case of a voluntary liquidation, dissolution or
winding up of the Corporation and at least three Business Days before the
Liquidation Date in the case of an involuntary liquidation, dissolution or
winding up of the Corporation. The Corporation will notify the holders of
Exchangeable Shares as to whether or not 3-D has exercised the Liquidation Call
Right forthwith after the expiry of the date by which the same may be exercised
by 3-D. If 3-D exercises the Liquidation Call Right, on the Liquidation Date
3-D will purchase and the holders will sell all of the Exchangeable Shares then
outstanding for a price per share equal to the Liquidation Call Purchase Price.
7.6 For the purposes of completing the purchase of the
Exchangeable Shares pursuant to the Liquidation Call Right, 3-D shall
deposit with the Corporation, on or before the Liquidation Date (or where the
holder of the Exchangeable Shares is a non-resident of Canada. as soon as
practicable thereafter, certificates representing the aggregate number of 3-D
Common Shares deliverable by 3-D (which shares shall be duly issued as fully
paid and non-assessable and shall be free and clear of any Liens placed thereon
by the Corporation or 3-D) in payment of the total Liquidation Call Purchase
Price (or the portion thereof payable in 3-D Common Shares, as the case may be)
and a cheque or cheques in the amount of the remaining portion, if any, of the
total Liquidation Call Purchase Price (or, if any part of the Liquidation Call
Purchase Price consists of dividends payable in property, such property or
property that is the same as or economically equivalent to such property).
Provided that such total Liquidation Call Purchase Price has been so deposited
with the Corporation, on and after the Liquidation Date the rights of each
holder of Exchangeable Shares will be limited to receiving such holder's
proportionate part of the total Liquidation Call Purchase Price payable by 3-D
upon presentation and surrender by the holder of certificates representing the
Exchangeable Shares held by such holder and the holder shall on and after the
Liquidation Date be considered and deemed for all purposes to be the holder of
the 3-D Common Shares delivered to it. Upon surrender to the Corporation of a
certificate or certificates representing Exchangeable Shares, together with
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the CBCA and the articles and by-laws of the
Corporation and such additional documents and instruments as the Corporation
may reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the
Corporation on behalf of 3-D shall deliver to such holder, certificates
representing the 3-D Common Shares to which the holder is entitled and a cheque
or cheques of 3-D payable at par and in Canadian dollars at any branch of the
bankers of 3-D or of the Corporation in Canada in payment of the
- 17 -
<PAGE> 66
remaining portion, if any, of the total Liquidation Call Purchase Price (or, if
any part of the Liquidation Call Purchase Price consists of dividends payable
in property, such property or property that is the same as or economically
equivalent to such property). If 3-D does not exercise the Liquidation Call
Right in the manner described above, on the Liquidation Date the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor the
Liquidation Amount otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding-up of the Corporation pursuant to sections
4.1 to 4.3 hereof.
7.7 3-D shall have the overriding right (the "Redemption Call
Right"), not- withstanding the proposed redemption of the Exchangeable Shares
by the Corporation on the Automatic Redemption Date, to purchase from all but
not less than all of the holders (other than 3-D or its Affiliates) of
Exchangeable Shares on the Automatic Redemption Date all but not less than all
of the Exchangeable Shares held by each such holder on payment by 3-D to the
holder of an amount per share equal to (a) the Current Market Price multiplied
by the Current 3-D Common Share Equivalent, in each case determined on the
Automatic Redemption Date, which shall be satisfied in full in respect of all
of the Exchangeable Shares held by such holder by causing to be delivered to
such holder such number of 3-D Common Shares as is equal to the product
obtained by multiplying the number of such Exchangeable Shares by the Current
3-D Common Share Equivalent (together with an amount in lieu of any fractional
3-D Common Share resulting from such calculation payable in accordance with
section 10.4), plus (b) the aggregate of all dividends declared and unpaid on
such Exchangeable Share (collectively the "Redemption Call Purchase Price").
In the event of the exercise of the Redemption Call Right by 3-D, each holder
shall be obligated to sell to 3-D, and 3-D shall be obligated to purchase, all
the Exchangeable Shares held by the holder on the Automatic Redemption Date on
payment by 3-D to the holder of the Redemption Call Purchase Price for each
such share.
7.8 To exercise the Redemption Call Right, 3-D must notify the
Corporation, as agent for the holders of the Exchangeable Shares, and the
Corporation of 3-D's intention to exercise such right at least 10 days before
the Automatic Redemption Date. The Corporation will notify the holders of the
Exchangeable Shares as to whether or not 3-D has exercised the Redemption Call
Right forthwith after the date by which the same may be exercised by 3-D. If
3-D exercises the Redemption Call Right, on the Automatic Redemption Date 3-D
will purchase and the holders will sell all of the Exchangeable Shares then
outstanding for a price per share equal to the Redemption Call Purchase Price.
7.9 For the purposes of completing the purchase of the
Exchangeable Shares pursuant to the Redemption Call Right, 3-D shall deposit
with the Corporation, on or before the Automatic Redemption Date (or, where the
holder of the Exchangeable Shares is a non-resident of Canada, as soon as
practicable thereafter), certificates representing the aggregate number of 3-D
Common Shares deliverable by 3-D (which shares shall be duly issued as fully
paid and non-assessable and shall be free and clear of any Liens placed thereon
by the Corporation or 3-D) in payment of the total Redemption Call Purchase
Price (or the portion thereof payable in 3-D Common Shares, as the case may be)
and a cheque or cheques in the amount of the remaining portion, if any, of the
total Redemption Call Purchase Price (or, if part of the Redemption Call
Purchase Price consists of dividends payable in property, such property or
property the same as or economically equivalent to such property). Provided
that such total
- 18 -
<PAGE> 67
Redemption Call Purchase Price has been so deposited with the Corporation, on
and after the Automatic Redemption Date the rights of each holder of
Exchangeable Shares will be limited to receiving such holder's proportionate
part of the total Redemption Call Purchase Price payable by 3-D upon
presentation and surrender by the holder of certificates representing the
Exchangeable Shares held by such holder and the holder shall on and after the
Automatic Redemption Date be considered and deemed for all purposes to be the
holder of the 3-D Common Shares delivered to such holder. Upon surrender to
the Corporation of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be required
to effect a transfer of Exchangeable Shares under the CBCA and the articles and
by-laws of the Corporation and such additional documents and instruments as the
Corporation may reasonably require, the holder of such surrendered certificate
or certificates shall be entitled to receive in exchange therefor, and the
Corporation on behalf of 3-D shall deliver to such holder, certificates
representing the 3-D Common Shares to which the holder is entitled and a cheque
or cheques of 3-D payable at par and in Canadian dollars at any branch of the
bankers of 3-D or of the Corporation in Canada in payment of the remaining
portion, if any, of the total Redemption Call Purchase Price (or, if part of
the Redemption Call Purchase Price consists of dividends payable in property,
such property or property the same as or economically equivalent to such
property). If 3-D does not exercise the Redemption Call Right in the manner
described above, on the Automatic Redemption Date the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor the
redemption price otherwise payable by the Corporation in connection with the
redemption of the Exchangeable Shares pursuant to sections 6.1 and 6.2 hereof.
7.10 The Retraction Call Right, the Liquidation Call Right and
the Redemption Call Right are granted to 3-D by the holders of Exchangeable
Shares in consideration of the grant by 3-D of the Automatic Exchange Rights
and the Exchange Right (as such terms are respectively defined in the Share
Exchange Agreement) to the holders of Exchangeable Shares (other than 3-D and
its Affiliates).
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and the provisions of
sections 3.5, 9.1 and 11.2, the holders of the Exchangeable Shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching
to the Exchangeable Shares may be added to, changed or removed but only with
the approval of the holders of the Exchangeable Shares given as hereinafter
specified.
- 19 -
<PAGE> 68
9.2 Any approval given by the holders of the Exchangeable Shares
to add to, change or remove any right, privilege, restriction or condition
attaching to the Exchangeable Shares or any other matter requiring the approval
or consent of the holders of the Exchangeable Shares shall be deemed to have
been sufficiently given if it shall have been given in accordance with
applicable law subject to a minimum requirement that such approval be evidenced
by resolution passed by not less than two-thirds of the votes cast on such
resolution at a meeting of holders of Exchangeable Shares duly called and held
at which at least one or more holders of not less than 10% of the outstanding
Exchangeable Shares at that time are present or represented by proxy. If at
any such meeting one or more holders of at least 10% of the outstanding
Exchangeable Shares at that time are not present or represented by proxy within
one-half hour after the time appointed for such meeting then the meeting shall
be adjourned to such date not less than five days thereafter and to such time
and place as may be designated by the Chairman of such meeting. At such
adjourned meeting one or more holders of Exchangeable Shares present or
represented by proxy thereat may transact the business for which the meeting
was originally called and a resolution passed thereat by the affirmative vote
of not less than two thirds of the votes cast on such resolution at such
meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares. In lieu of calling a meeting of holders of Exchangeable
Shares, any matter requiring the approval or consent of the holders of
Exchangeable Shares shall be deemed to have been sufficiently given if a
written resolution in respect of such matter is signed by all the holders of
Exchangeable Shares entitled to vote on such matter.
ARTICLE 10
ECONOMIC EQUIVALENCE; CHANGES RELATING TO 3-D
10.1 The Board of Directors shall determine, in good faith and in
its sole discretion (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the Board of Directors
may require), economic equivalence for the purposes of any provision herein
that requires such a determination and each such determination shall be
conclusive and binding on 3-D and all holders of Exchangeable Shares where
applicable.
10.2 If at any time there is a capital reorganization of 3-D that
is not provided for in subsection 1.1(o) or a consolidation, merger,
arrangement or amalgamation (statutory or otherwise) of 3-D with or into
another entity (any such event being called a "Capital Reorganization"), any
holder of Exchangeable Shares whose Exchangeable Shares have not been exchanged
or automatically exchanged for 3-D Common Shares in accordance with the
provisions hereof or the provisions of the Share Exchange Agreement on or
before the record date for such Capital Reorganization shall be entitled to
receive and shall accept, upon any such exchange occurring pursuant to the
provisions hereof or the Share Exchange Agreement at any time after the record
date for such Capital Reorganization, in lieu of the 3-D Common Shares that he
would otherwise have been entitled to receive pursuant to the provisions hereof
or the Share Exchange Agreement, the number of shares or other securities of
3-D or of the body corporate resulting, surviving or continuing from the
Capital Reorganization, or other property, that such holder would have been
entitled to receive as a result of such Capital Reorganization
- 20 -
<PAGE> 69
if, on the record date, he had been the registered holder of the number of 3-D
Common Shares to which he was then entitled upon any exchange of his
Exchangeable Shares into 3-D Common Shares in accordance with the provisions
hereof or the Share Exchange Agreement, subject to adjustment thereafter in the
same manner, as nearly as may be possible, as is provided for in subsection
1.1(o); provided that in the event that all the outstanding Exchangeable Shares
are not exchanged or automatically exchanged for 3-D Common Shares in
accordance with the provisions hereof or the Share Exchange Agreement on or
before the record date for such Capital Reorganization such Capital
Reorganization shall not be carried into effect unless all necessary steps
shall have been taken so that each holder of Exchangeable Shares shall
thereafter be entitled to receive upon any exchange of his Exchangeable Shares
pursuant to the provisions hereof or the Share Exchange Agreement, such number
of shares or other securities of 3-D or of the body corporate resulting,
surviving or continuing from the Capital Reorganization, or other property.
10.3 In the case of any reclassification of, or other change in,
the outstanding 3-D Common Shares other than (i) a 3-D Common Share
Reorganization, (ii) a Capital Reorganization, or (iii) an Automatic Exchange
Event (as defined in the Share Exchange Agreement), such changes shall be made
in the rights attaching to the Exchangeable Shares, without any action on the
part of the Corporation or the holders of the Exchangeable Shares to the extent
permitted by applicable law, effective immediately following the record date
for such reclassification or other change, to the extent necessary to ensure
that holders of Exchangeable Shares shall be entitled to receive, upon the
occurrence at any time after such record date of any event whereby they would
receive 3-D Common Shares pursuant to the provisions hereof or the Share
Exchange Agreement, such shares, securities or rights as they would have
received if their Exchangeable Shares had been exchanged for 3-D Common Shares
pursuant to the provisions hereof or the Share Exchange Agreement immediately
prior to such record date, subject to adjustment thereafter in the same manner,
as nearly as may be possible, as is provided for in subsection 1.1(o).
10.4 No certificates or scrip representing fractional 3-D Common
Shares shall be delivered to holders of Exchangeable Shares pursuant to the
provisions hereof. In lieu of any such fractional security, each person
entitled to a fractional interest in a 3-D Common Share will receive an amount
of cash (rounded to the nearest whole cent), without interest, equal to the
Canadian Dollar Equivalent as of the second Business Day prior to the relevant
date of delivery of certificates representing 3-D Common Shares (the
"Fractional Share Calculation Date") of the product of (i) such fraction,
multiplied by (ii) the closing sale price of 3-D Common Shares as reported on
NASDAQ on the Fractional Share Calculation Date.
- 21 -
<PAGE> 70
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
11.1 The Corporation will take all such actions and do all such
things as shall be necessary or advisable to perform and comply with, and to
ensure performance and compliance by 3-D with, all provisions of the Support
Agreement and the Share Exchange Agreement applicable to the Corporation and
3-D, respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation all rights and benefits in favor of the Corporation
under or pursuant to such agreements.
11.2 The Corporation shall not propose, agree to or otherwise
give effect to any amendment to, or waiver or forgiveness of its rights or
obligations under the Support Agreement without the approval of the holders of
the Exchangeable Shares given in accordance with section 9.2 of these share
provisions other than such amendments, waivers and/or forgiveness as may be
necessary or advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders
of Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent
with such agreement as may be necessary or desirable with
respect to matters or questions arising thereunder which, in
the opinion of the Board of Directors, it may be expedient to
make, provided that the Board of Directors shall be of the
opinion, after consultation with counsel, that such provisions
and modifications will not be prejudicial to the interests of
the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement which,
on the advice of counsel to the Corporation, are required for
the purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error contained therein, provided that the Board of
Directors shall be of the opinion, after consultation with
counsel, that such changes or corrections will not be
prejudicial to the interests of the holders of the
Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Exchangeable Shares shall
contain or have affixed thereto a legend, in form and on terms approved by the
Board of Directors, with respect to the Support Agreement and the Share
Exchange Agreement (including the provisions relating to the
- 22 -
<PAGE> 71
Retraction Call Right, the Liquidation Call Right, the Redemption Call Right,
the voting rights, exchange right and automatic exchange thereunder).
ARTICLE 13
NOTICES
13.1 Any notice. request or other communication to be given to the
Corporation by 3-D or a holder of Exchangeable Shares shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by telecopy
or by delivery to the registered office of the Corporation and addressed to the
attention of the Assistant Treasurer. Any such notice, request or other
communication, if given by mail, telecopy or delivery, shall only be deemed to
have been given and received upon actual receipt thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable
Shares to the Corporation of certificates representing Exchangeable Shares in
connection with the liquidation, dissolution or winding up of the Corporation
or the retraction or redemption of Exchangeable Shares shall be made by
registered mail (postage prepaid) or by delivery to the registered office of
the Corporation or to such other place that may be specified by the
Corporation, in each case addressed to the attention of the Assistant Treasurer
of the Corporation. Any such presentation and surrender of certificates shall
only be deemed to have been made and to be effective upon actual receipt
thereof by the Corporation, as the case may be. Any such presentation and
surrender of certificates made by registered mail shall be at the sole risk of
the holder mailing the same.
13.3 Any notice, request or other communication to be given to a
holder of Exchangeable Shares by or on behalf of the Corporation shall be in
writing and shall be valid and effective if given by mail (postage prepaid),
Federal Express or other reputable courier or by delivery to the address of the
holder recorded in the securities register of the Corporation or, in the event
of the address of any such holder not being so recorded, then at the last known
address of such holder. Any such notice, request or other communication, if
given by mail, shall be deemed to have been given and received on the third
Business Day following the date of mailing and, if given by delivery, Federal
Express or other reputable courier shall be deemed to have been given and
received on the date of delivery. Accidental failure or omission to give any
notice, request or other communication to one or more holders of Exchangeable
Shares shall not invalidate or otherwise alter or affect any action or
proceeding to be taken by the Corporation pursuant thereto.
PROVISIONS ATTACHING TO THE COMMON SHARES OF THE CORPORATION
The common shares in the capital of the Corporation shall have
attached thereto the following rights, privileges, restrictions and conditions:
- 23 -
<PAGE> 72
DIVIDENDS
Subject to the prior rights of the holders of the Exchangeable
Shares and any other shares ranking senior to the common shares with respect to
priority in the payment of dividends, the holders of common shares shall be
entitled to receive dividends and the Corporation shall pay dividends thereon,
if, as and when declared by the Board of Directors out of moneys properly
applicable to the payment of dividends, in such amount and in such form as the
Board of Directors may from time to time determine and all dividends which the
Board of Directors may declare on the common shares shall be declared and paid
in equal amounts per share on all common shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of
the Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Exchangeable
Shares and any other shares ranking senior to the common shares with respect to
priority in the distribution of assets upon dissolution, liquidation or
winding-up, the holders of the common shares shall be entitled to receive the
remaining property and assets of the Corporation.
VOTING RIGHTS
The holders of the common shares shall be entitled to receive
notice of and to attend all meetings of the shareholders of the Corporation and
shall have one vote for each common share held at all meetings of the
shareholders of the Corporation, except for meetings at which only holders of
another specified class or series of shares of the Corporation are entitled to
vote separately as a class or series.
- 24 -
<PAGE> 73
SCHEDULE A
NOTICE OF RETRACTION
To: 3-D Geophysical of Canada, Inc. (the "Corporation") and 3-D
Geophysical, Inc. ("3-D")
This notice is given pursuant to Article 5 of the provisions
(the "Share Provisions") attaching to the share(s) represented by this
certificate. All capitalized words and expressions used in this notice and not
otherwise defined herein that are defined in the Share Provisions have the
meanings ascribed to such words and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject
to the Retraction Call Right referred to below, the undersigned desires to have
the Corporation redeem in accordance with Article 5 of the Share Provisions:
[ ] all share(s) represented by this certificate; or
[ ] share(s) only.
----------------------
The undersigned acknowledges the Retraction Call Right of 3-D
to purchase all but not less than all the Retracted Shares from the undersigned
and that this notice shall be deemed to be an irrevocable offer (subject as
hereinafter provided) by the undersigned to sell the Retracted Shares to 3-D in
accordance with the Retraction Call Right on the Retraction Date for the
Retraction Call Purchase Price. If 3-D determines not to exercise the
Retraction Call Right, the Corporation will notify the undersigned of such fact
as soon as possible.
The undersigned acknowledges that if, as a result of solvency
provisions of applicable law or otherwise, the Corporation fails to redeem all
Retracted Shares, the undersigned will be deemed to have exercised the Exchange
Right (as defined in the Share Exchange Agreement) so as to require 3-D to
purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the
Corporation and 3-D:
(a) that the undersigned has good title to, and owns, the
share(s) represented by this certificate to be
acquired by the Corporation or 3-D, as the case may
be, free and clear of all Liens; AND
(b) either
[ ] the undersigned is a resident of Canada for
purposes of the Income Tax Act (Canada); OR
[ ] the undersigned is not a resident of Canada
for purposes of the Income Tax Act (Canada).
<PAGE> 74
The undersigned hereby acknowledges that, if the undersigned is not a resident
of Canada, and has not submitted with this notice a certificate issued by
Revenue Canada under section 116 of the Income Tax Act (Canada) in respect of
the Retracted Shares, the amount of any securities or cash resulting from the
retraction or the purchase of the Retracted Shares will be reduced by the
amount of withholdings required under the Income Tax Act (Canada).
[ ] Please check this box if the securities and any cheque(s) resulting
from the retraction or purchase of the Retracted Shares are to be held
for pick-up by the shareholder at the registered office of the
Corporation at 4750 30th Street S.E., Calgary, Alberta, T2B 2ZI,
failing which the securities and any cheque(s) will be mailed to the
last address of the shareholder as it appears on the register.
NOTE: This panel must be completed and this certificate, together
with such additional documents as the Corporation may require, must
be deposited with the Corporation at its registered office in Calgary.
The securities and any cheque(s) resulting from the retraction or
purchase of the Retracted Shares will be issued and registered in, and
made payable to, respectively, the name of the shareholder as it
appears on the register of the Corporation and the securities and
cheque(s) resulting from such retraction or purchase will be delivered
to such shareholder as indicated above, unless the form appearing
immediately below is duly completed.
- -------------------------------------------------------------------------------
Name of Person in Whose Name Securities or Date
Cheque(s) Are To Be Registered, Issued or
Delivered (please print)
- -------------------------------------------------------------------------------
Street Address or P.O. Box Signature of Shareholder
- -------------------------------------------------------------------------------
City-Province Signature Guaranteed by
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the
remaining shares represented by this certificate will be issued and
registered in the name of the shareholder as it appears on the
register of the Corporation, unless the share transfer power on the
share certificate is duly completed in respect of such shares.
- 2 -
<PAGE> 75
Exhibit B-1
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of [January __, 1997]
between J.R.S. Exploration Company Limited, an Alberta corporation (the
"Company"), and D.E. Janveau (the "Employee").
WHEREAS, the Employee has been an executive officer of the Company for
a number of years;
WHEREAS, all of the outstanding capital stock of the Company has been
acquired by 3-D Geophysical, Inc., a Delaware corporation ("3-D"), pursuant to
that certain Stock Purchase Agreement dated as of December 10, 1996 by and
among 3-D, 3-D Geophysical of Canada, Inc., a Canadian corporation, the
Employee, Gladys Mueller and W.G. Mueller (the "Stock Purchase Agreement");
WHEREAS, it is a condition to the closing of the transactions
contemplated under the Stock Purchase Agreement that the parties hereto enter
into this Agreement;
WHEREAS, the Company desires to employ the Employee on the terms and
conditions provided in this Agreement; and
WHEREAS, the Employee desires to accept such employment and to render
services to the Company on the terms and conditions provided in this Agreement;
<PAGE> 76
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the Company and the Employee hereby agree as follows:
Section 1. Engagement. The Company hereby employs the Employee as
its President and Chief Executive Officer, and the Employee hereby accepts such
employment, upon and subject to the terms and conditions hereinafter set forth.
Section 2. Term. Unless sooner terminated as provided in this
Agreement, the term of the Employee's employment under this Agreement shall
commence on the Closing Date under the Stock Purchase Agreement (as defined
therein) and shall end on the third anniversary thereof (the "Term").
Section 3. Duties and Services.
3.1 The Employee shall render services to the Company as its
President and Chief Executive Officer and shall perform such other duties and
responsibilities as may be assigned to the Employee from time to time by the
Board of Directors of the Company (the "Directors") and shall abide by the
practices and policies of the Company governing the conduct of employees.
However, any assignments presented to the Employee for continuous work outside
of Canada for a duration of two weeks or longer may be accepted or rejected in
the discretion of the Employee. The Employee shall also serve as an officer or
director of such other direct or indirect subsidiaries of 3-D as may be
requested by the
-2-
<PAGE> 77
Directors or the Chief Executive Officer of 3-D, without any additional
compensation.
3.2 During the Term, the Employee shall devote such energy and time
(exclusive of normal holidays and vacation periods and periods of sickness and
disability) as are reasonably necessary to perform the Employee's duties as
defined herein and shall promptly and faithfully perform all the duties which
pertain to the Employee's employment.
Section 4. Compensation.
4.1 Annual Compensation. In consideration of all of the services to
be rendered by the Employee hereunder and the covenants of Employee herein, the
Company agrees to pay to the Employee, and the Employee agrees to accept, a
salary at the annual rate of $150,000.00 (Canadian).
4.2 Bonus Pool. 3-D intends to create a bonus plan based upon the
earnings of 3-D to provide incentives for certain employees of 3-D and its
subsidiaries, including the Company. The Employee shall be entitled to
participate in such plan on such terms as may be determined by the Compensation
Committee of the Board of Directors of 3-D, in its discretion. Nothing in this
Agreement shall require 3-D to pay any such bonus.
Section 5. Expenses and Reimbursement. The Employee shall be
reimbursed by the Company for reasonable and necessary out-of-pocket expenses
incurred by the Employee in performing his duties hereunder, provided such
expenses are approved in accordance with
-3-
<PAGE> 78
the procedures of the Company then in effect and are presented for
reimbursement in accordance with the Company's policies and practices then in
effect.
Section 6. Benefits. During the Term, the Company agrees to provide
the Employee, in addition to and not in limitation of the compensation set
forth in Section 4, the following benefits, which shall be determined in the
sole discretion of the Directors (or a duly constituted committee thereof):
(a) The Employee shall be entitled, subject to qualification
requirements, to participate in any and all group insurance plans, group health
or medical insurance plans and group accidental and disability insurance plans
made generally available to the senior executive employees of the Company.
(b) The Employee shall be entitled to participate in 3-D's
pension, profit-sharing, stock option, stock purchase and other employee
benefit programs made generally available to the senior executive employees of
the Company.
(c) The Employee shall be entitled to four weeks annual paid
vacation, as well as sick leave and holidays in accordance with the Company's
policies for senior executive employees generally.
(d) During the term of employment under this Agreement, the
Company shall pay the Employee, on a monthly basis, an amount equal to $650
(Canadian) per month as a non-accountable allowance
-4-
<PAGE> 79
for lease payments, insurance and other expenses of an automobile leased by the
Employee.
Section 7. Termination. Subject to the provisions of Section 8,
which shall survive the termination of this Agreement, this Agreement shall
terminate upon:
(a) The death of the Employee;
(b) Illness, disability or incapacity that prevents the Employee
from performing his duties hereunder for one hundred twenty (120) consecutive
days, or for any one hundred twenty (120) days within any twelve (12) month
period, and the provision of written notice to the Employee by the Company of
such election to terminate; or
(c) Upon written notice for Cause, which shall include, without
limitation, (i) the failure of the Employee to observe or perform any material
term of this Agreement for twenty (20) days after written notice thereof
specifying such failure; (ii) any act of illegality, dishonesty, moral
turpitude or fraud in connection with the Employee's employment; or (iii) the
commission by the Employee of any serious indictable offense.
Section 8. Restrictive Covenants. In consideration of the
undertakings of the Company set forth herein, the Employee agrees as follows:
8.1 Covenant Not to Compete. For a period of five (5) years from the
date of this Agreement, the Employee will not in
-5-
<PAGE> 80
any way, directly or indirectly, as an agent, employee, officer, director,
stockholder, partner or otherwise of any corporation, partnership or other
venture or enterprise compete with the Company, 3-D or any of their respective
subsidiaries in the provision of seismic data acquisition or analysis services
or any services related thereto (a "Competing Business"), other than pursuant
hereto.
8.2 Non-Solicitation Covenant. During the Term and for a period of
one (1) year after the termination of this Agreement for any reason whatsoever,
the Employee shall not solicit, sell to or contract with, on behalf of the
Employee or on behalf of any Competing Business, any person or entity to which
the Company or any subsidiary of the Company shall have provided seismic data
acquisition or analysis services at any time during the Term.
8.3 Covenant Not to Solicit Employees of the Company. During the
Term and for a period of one (1) year after the termination of this Agreement
for any reason whatsoever, the Employee shall not solicit for employment any
sales, engineering or other technical or management employee who was employed
by the Company or any of its subsidiaries during the Term.
8.4 Non-Disclosure Covenant. The Employee recognizes and
acknowledges that, in the course of his employment, the Employee will have
access to trade secrets and other confidential or proprietary information of
the Company, 3-D and their respective subsidiaries, including, but not limited
to, information
-6-
<PAGE> 81
concerning seismic data, marketing strategy, technology, techniques and
know-how, customer specifications and customer lists, cost figures, budgets,
sales forecasts and business plans. The Employee agrees that the disclosure of
any such trade secrets or information could be harmful to the interests of the
Company, 3-D or such subsidiaries and that, during the Employee's employment by
the Company or its subsidiaries, the Employee will take appropriate caution to
safeguard such trade secrets and information, and will not during the Term or
thereafter use, disclose, divulge or publish any such trade secrets or
information except as required by law or as the Employee's duties during the
Employee's employment by the Company or its subsidiaries may require or as the
Company may in writing specifically consent.
8.5 Proprietary Information. The Employee recognizes and
acknowledges that all documents, manuals, letters, notebooks, reports, records,
computer programs or data banks and other evidences of trade secrets and other
confidential or proprietary information of the Company, 3-D and their
respective subsidiaries, including copies thereof, whether prepared by the
Employee or others, are the sole property of and belong exclusively to the
Company, 3-D and their respective subsidiaries, and agrees that, during the
Employee's employment by the Company or its subsidiaries, the Employee will
under no circumstances remove any such material for use outside of his offices
except in connection with the business of the Company during the course of the
Employee's employment. In the event of
-7-
<PAGE> 82
the termination of this Agreement for any reason whatsoever, the Employee shall
immediately return to the Company any and all documents, manuals, letters,
notebooks, records, computer programs or data banks or other evidence of trade
secrets and other confidential or proprietary information of the Company, 3-D
and their respective subsidiaries, including copies thereof, which are the
property of the Company, 3-D or any of their respective subsidiaries.
8.6 Remedies. The Employee further agrees that in the event of a
breach or threatened breach of any of the covenants contained in this Section
8, the Company's remedy at law is likely to be inadequate and that accordingly
the Company will be entitled to obtain an injunction or other equitable relief
with regard thereto without proving damages or that damages would not
constitute an adequate remedy. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 8 is invalid
or unenforceable, the parties hereto agree that the court making the
determination of invalidity or unenforceability shall have the power to, and is
hereby directed to, reduce the scope, duration or area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
and unenforceable term or provision, and this Agreement shall be enforceable as
so modified.
8.7 Survival. The provisions of this Section 8 shall survive
-8-
<PAGE> 83
the Term.
9. Miscellaneous Provisions.
9.1 Notices. All notices and demands of any kind which any party
hereto may be required or desire to serve upon another party under the terms of
this Agreement shall be in writing and shall be served upon such other party:
(a) by personal service upon such other party at such other party's address set
forth below in this Section 9.1; or (b) by mailing a copy thereof by certified
or registered mail, postage prepaid, with return receipt requested, addressed
to such other party at the address of such other party set forth below in this
Section 9.1; or (c) by sending a copy thereof by Federal Express or equivalent
courier service, addressed to such other party at the address of such other
party set forth below in this Section 9.1; or (d) by sending a copy thereof by
facsimile to such other party at the facsimile number, if any, of such other
party set forth below in this Section 9.1.
In case of service by Federal Express or equivalent courier
service or by facsimile or by personal service, such service shall be deemed
complete upon receipt. In the case of service by mail, such service shall be
deemed complete upon reasonable proof of receipt. The address and facsimile
number to which, and person to whose attention, notices and demands shall be
delivered or sent may be changed from time to time by notice served, as
hereinabove provided, by any party upon the other party.
-9-
<PAGE> 84
The current addresses and facsimile numbers of the parties
are:
If to the Employee:
D.E. Janveau
c/o J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B271
Telecopier No.: (403) 264-0478
If to the Company:
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B271
Attention: Chief Financial Officer
Telecopier No.: (403) 264-0478
with copies to:
3-D Geophysical, Inc.
599 Lexington Avenue
Suite 4102
New York, New York 10022
Telecopier No.: (212) 317-9230
Attention: Joel Friedman, Chairman
-and-
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Attention: Peter S. Kolevzon, Esq.
9.2 Entire Agreement; Amendment. This Agreement contains the
entire agreement between the parties, merges all prior negotiations, agreements
and understandings, if any, and states in full all representations, warranties
and agreements which have induced this Agreement. Each party agrees that in
dealing with third parties no contrary representations will be made. This
Agreement may not be amended, modified or otherwise changed orally but only by
an agreement in writing signed by the party
-10-
<PAGE> 85
against whom enforcement of any amendment, modification or change is sought.
9.3 Assignment; Binding Nature; Assumption. This Agreement shall
inure to the benefit of and be enforceable by, and may be assigned by the
Company to, any purchaser of all or substantially all of the Company's business
or assets, any successor to the Company or any assignee thereof (whether direct
or indirect, by purchase, merger, consolidation or otherwise). The Company
will require any such purchaser, successor or assignee to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such purchase, succession or
assignment had taken place. This Agreement may not be assigned by the Employee
without the prior written consent of the Company.
9.4 Nonwaiver. No waiver by any party of any term, provision or
covenant contained in this Agreement (or any breach thereof) shall be effective
unless it is in writing executed by the party against which such waiver is to
be enforced; no waiver shall be deemed or construed as a further or continuing
waiver of any such term, provision or covenant (or breach) on any other
occasion or as a waiver of any other term, provision or covenant (or of the
breach of any other term, provision or covenant) contained in this Agreement on
the same or any other occasion.
9.5 Remedies. The remedies provided for or permitted by this
Agreement shall be cumulative and the exercise by any party of any remedy
provided for herein or otherwise available shall
-11-
<PAGE> 86
not preclude the assertion or exercise by such party of any other right or
remedy provided for herein or otherwise available.
9.6 Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
9.7 Construction. In this Agreement (i) words denoting the
singular include the plural and vice versa, (ii) "it" or "its" or words
denoting any gender include all genders, (iii) any reference herein to a
Section refers to a Section of the Agreement, unless otherwise stated, (iv)
when calculating the period of time within or following which any act is to be
done or steps taken, the date which is the reference day in calculating such
period shall be excluded and if the last day of such period is not a business
day, then the period shall end on the next day which is a business day, and (v)
all dollar amounts are expressed in Canadian funds.
9.8 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Province of Alberta
applicable to contracts made and to be entirely performed therein.
9.9 Counterparts. For the convenience of the parties, any number
of counterparts hereof may be executed, each such executed counterpart shall be
deemed an original and all such counterparts together shall constitute one and
the same instrument.
-12-
<PAGE> 87
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date and year first written above.
J.R.S. EXPLORATION COMPANY LIMITED
By
---------------------------------
Name:
Title:
EMPLOYEE:
----------------------------------
D.E. Janveau
-13-
<PAGE> 88
Exhibit B-2
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of [January __, 1997]
between J.R.S. Exploration Company Limited, an Alberta corporation (the
"Company"), and W.G. Mueller (the "Employee").
WHEREAS, the Employee has been an executive officer of the Company for
a number of years;
WHEREAS, all of the outstanding capital stock of the Company has been
acquired by 3-D Geophysical, Inc., a Delaware corporation ("3-D"), pursuant to
that certain Stock Purchase Agreement dated as of December 10, 1996 by and
among 3-D, 3-D Geophysical of Canada, Inc., a Canadian corporation, D.E.
Janveau, Gladys Mueller and the Employee (the "Stock Purchase Agreement");
WHEREAS, it is a condition to the closing of the transactions
contemplated under the Stock Purchase Agreement that the parties hereto enter
into this Agreement;
WHEREAS, the Company desires to employ the Employee on the terms and
conditions provided in this Agreement; and
WHEREAS, the Employee desires to accept such employment and to render
services to the Company on the terms and conditions provided in this Agreement;
<PAGE> 89
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the Company and the Employee hereby agree as follows:
Section 1. Engagement. The Company hereby employs the Employee as
its Vice President of Operations, and the Employee hereby accepts such
employment, upon and subject to the terms and conditions hereinafter set forth.
Section 2. Term. Unless sooner terminated as provided in this
Agreement, the term of the Employee's employment under this Agreement shall
commence on the Closing Date under the Stock Purchase Agreement (as defined
therein) and shall end on the third anniversary thereof (the "Term").
Section 3. Duties and Services.
3.1 The Employee shall render services to the Company as its Vice
President of Operations and shall perform such other duties and
responsibilities as may be assigned to the Employee from time to time by the
President of the Company or the Board of Directors of the Company (the
"Directors") and shall abide the practices and policies of the Company
governing the conduct of employees. However, any assignments presented to the
Employee for continuous work outside of Canada for a duration of two weeks or
longer may be accepted or rejected in the discretion of the Employee. The
Employee shall also serve as an officer or director of such other direct or
indirect subsidiaries of 3-D as
-2-
<PAGE> 90
may be requested by the Directors or the Chief Executive Officer of 3-D,
without any additional compensation.
3.2 During the Term, the Employee shall devote such energy and time
(exclusive of normal holidays and vacation periods and periods of sickness and
disability) as are reasonably necessary to perform the Employee's duties as
defined herein and shall promptly and faithfully perform all the duties which
pertain to the Employee's employment.
Section 4. Compensation.
4.1 Annual Compensation. In consideration of all of the services to
be rendered by the Employee hereunder and the covenants of Employee herein, the
Company agrees to pay to the Employee, and the Employee agrees to accept, a
salary at the annual rate of $150,000.00 (Canadian).
4.2 Bonus Pool. 3-D intends to create a bonus plan based upon the
earnings of 3-D to provide incentives for certain employees of 3-D and its
subsidiaries, including the Company. The Employee shall be entitled to
participate in such plan on such terms as may be determined by the Compensation
Committee of the Board of Directors of 3-D, in its discretion. Nothing in this
Agreement shall require 3-D to pay any such bonus.
Section 5. Expenses and Reimbursement. The Employee shall be
reimbursed by the Company for reasonable and necessary out-of-pocket expenses
incurred by the Employee in performing his duties
-3-
<PAGE> 91
hereunder, provided such expenses are approved in accordance with the
procedures of the Company then in effect and are presented for reimbursement in
accordance with the Company's policies and practices then in effect.
Section 6. Benefits. During the Term, the Company agrees to provide
the Employee, in addition to and not in limitation of the compensation set
forth in Section 4, the following benefits, which shall be determined in the
sole discretion of the Directors (or a duly constituted committee thereof):
(a) The Employee shall be entitled, subject to qualification
requirements, to participate in any and all group insurance plans, group health
or medical insurance plans and group accidental and disability insurance plans
made generally available to the senior executive employees of the Company.
(b) The Employee shall be entitled to participate in 3-D's
pension, profit-sharing, stock option, stock purchase and other employee
benefit programs made generally available to the senior executive employees of
the Company.
(c) The Employee shall be entitled to four weeks annual paid
vacation, as well as sick leave and holidays in accordance with the Company's
policies for senior executive employees generally.
(d) During the term of employment under this Agreement, the
Company shall pay the Employee, on a monthly basis, an amount equal to $650
(Canadian) per month as a non-accountable allowance
-4-
<PAGE> 92
for lease payments, insurance and other expenses of an automobile leased by the
Employee.
Section 7. Termination. Subject to the provisions of Section 8,
which shall survive the termination of this Agreement, this Agreement shall
terminate upon:
(a) The death of the Employee;
(b) Illness, disability or incapacity that prevents the Employee
from performing his duties hereunder for one hundred twenty (120) consecutive
days, or for any one hundred twenty (120) days within any twelve (12) month
period, and the provision of written notice to the Employee by the Company of
such election to terminate; or
(c) Upon written notice for Cause, which shall include, without
limitation, (i) the failure of the Employee to observe or perform any material
term of this Agreement for twenty (20) days after written notice thereof
specifying such failure; (ii) any act of illegality, dishonesty, moral
turpitude or fraud in connection with the Employee's employment; or (iii) the
commission by the Employee of any serious indictable offense.
Section 8. Restrictive Covenants. In consideration of the
undertakings of the Company set forth herein, the Employee agrees as follows:
8.1 Covenant Not to Compete. For a period of five (5) years from
the date of this Agreement, the Employee will not in
-5-
<PAGE> 93
any way, directly or indirectly, as an agent, employee, officer, director,
stockholder, partner or otherwise of any corporation, partnership or other
venture or enterprise compete with the Company, 3-D or any of their respective
subsidiaries in the provision of seismic data acquisition or analysis services
or any services related thereto (a "Competing Business"), other than pursuant
hereto.
8.2 Non-Solicitation Covenant. During the Term and for a period of
one (1) year after the termination of this Agreement for any reason whatsoever,
the Employee shall not solicit, sell to or contract with, on behalf of the
Employee or on behalf of any Competing Business, any person or entity to which
the Company or any subsidiary of the Company shall have provided seismic data
acquisition or analysis services at any time during the Term.
8.3 Covenant Not to Solicit Employees of the Company. During the
Term and for a period of one (1) year after the termination of this Agreement
for any reason whatsoever, the Employee shall not solicit for employment any
sales, engineering or other technical or management employee who was employed
by the Company or any of its subsidiaries during the Term.
8.4 Non-Disclosure Covenant. The Employee recognizes and
acknowledges that, in the course of his employment, the Employee will have
access to trade secrets and other confidential or proprietary information of
the Company, 3-D and their respective subsidiaries, including, but not limited
to, information
-6-
<PAGE> 94
concerning seismic data, marketing strategy, technology, techniques and
know-how, customer specifications and customer lists, cost figures, budgets,
sales forecasts and business plans. The Employee agrees that the disclosure of
any such trade secrets or information could be harmful to the interests of the
Company, 3-D or such subsidiaries and that, during the Employee's employment by
the Company or its subsidiaries, the Employee will take appropriate caution to
safeguard such trade secrets and information, and will not during the Term or
thereafter use, disclose, divulge or publish any such trade secrets or
information except as required by law or as the Employee's duties during the
Employee's employment by the Company or its subsidiaries may require or as the
Company may in writing specifically consent.
8.5 Proprietary Information. The Employee recognizes and
acknowledges that all documents, manuals, letters, notebooks, reports, records,
computer programs or data banks and other evidences of trade secrets and other
confidential or proprietary information of the Company, 3-D and their
respective subsidiaries, including copies thereof, whether prepared by the
Employee or others, are the sole property of and belong exclusively to the
Company, 3-D and their respective subsidiaries, and agrees that, during the
Employee's employment by the Company or its subsidiaries, the Employee will
under no circumstances remove any such material for use outside of his offices
except in connection with the business of the Company during the course of the
Employee's employment. In the event of
-7-
<PAGE> 95
the termination of this Agreement for any reason whatsoever, the Employee shall
immediately return to the Company any and all documents, manuals, letters,
notebooks, records, computer programs or data banks or other evidence of trade
secrets and other confidential or proprietary information of the Company, 3-D
and their respective subsidiaries, including copies thereof, which are the
property of the Company, 3-D or any of their respective subsidiaries.
8.6 Remedies. The Employee further agrees that in the event of a
breach or threatened breach of any of the covenants contained in this Section
8, the Company's remedy at law is likely to be inadequate and that accordingly
the Company will be entitled to obtain an injunction or other equitable relief
with regard thereto without proving damages or that damages would not
constitute an adequate remedy. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 8 is invalid
or unenforceable, the parties hereto agree that the court making the
determination of invalidity or unenforceability shall have the power to, and is
hereby directed to, reduce the scope, duration or area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
and unenforceable term or provision, and this Agreement shall be enforceable as
so modified.
8.7 Survival. The provisions of this Section 8 shall
-8-
<PAGE> 96
survive the Term.
9. Miscellaneous Provisions.
9.1 Notices. All notices and demands of any kind which any party
hereto may be required or desire to serve upon another party under the terms of
this Agreement shall be in writing and shall be served upon such other party:
(a) by personal service upon such other party at such other party's address set
forth below in this Section 9.1; or (b) by mailing a copy thereof by certified
or registered mail, postage prepaid, with return receipt requested, addressed
to such other party at the address of such other party set forth below in this
Section 9.1; or (c) by sending a copy thereof by Federal Express or equivalent
courier service, addressed to such other party at the address of such other
party set forth below in this Section 9.1; or (d) by sending a copy thereof by
facsimile to such other party at the facsimile number, if any, of such other
party set forth below in this Section 9.1.
In case of service by Federal Express or equivalent courier
service or by facsimile or by personal service, such service shall be deemed
complete upon receipt. In the case of service by mail, such service shall be
deemed complete upon reasonable proof of receipt. The address and facsimile
number to which, and person to whose attention, notices and demands shall be
delivered or sent may be changed from time to time by notice served, as
hereinabove provided, by any party upon the other party.
-9-
<PAGE> 97
The current addresses and facsimile numbers of the parties
are:
If to the Employee:
W.G. Mueller
c/o J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B271
Telecopier No.: (403) 264-0478
If to the Company:
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B271
Telecopier No.: (403) 264-0478
Attention: Chief Financial Officer
with copies to:
3-D Geophysical, Inc.
599 Lexington Avenue
Suite 4102
New York, New York 10022
Telecopier No.: (212) 317-9230
Attention: Joel Friedman, Chairman
-and-
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Attention: Peter S. Kolevzon, Esq.
9.2 Entire Agreement; Amendment. This Agreement contains the
entire agreement between the parties, merges all prior negotiations, agreements
and understandings, if any, and states in full all representations, warranties
and agreements which have induced this Agreement. Each party agrees that in
dealing with third parties no contrary representations will be made. This
Agreement may not be amended, modified or otherwise changed
-10-
<PAGE> 98
orally but only by an agreement in writing signed by the party against whom
enforcement of any amendment, modification or change is sought.
9.3 Assignment; Binding Nature; Assumption. This Agreement shall
inure to the benefit of and be enforceable by, and may be assigned by the
Company to, any purchaser of all or substantially all of the Company's business
or assets, any successor to the Company or any assignee thereof (whether direct
or indirect, by purchase, merger, consolidation or otherwise). The Company
will require any such purchaser, successor or assignee to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such purchase, succession or
assignment had taken place. This Agreement may not be assigned by the Employee
without the prior written consent of the Company.
9.4 Nonwaiver. No waiver by any party of any term, provision or
covenant contained in this Agreement (or any breach thereof) shall be effective
unless it is in writing executed by the party against which such waiver is to
be enforced; no waiver shall be deemed or construed as a further or continuing
waiver of any such term, provision or covenant (or breach) on any other
occasion or as a waiver of any other term, provision or covenant (or of the
breach of any other term, provision or covenant) contained in this Agreement on
the same or any other occasion.
-11-
<PAGE> 99
9.5 Remedies. The remedies provided for or permitted by this
Agreement shall be cumulative and the exercise by any party of any remedy
provided for herein or otherwise available shall not preclude the assertion or
exercise by such party of any other right or remedy provided for herein or
otherwise available.
9.6 Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
9.7 Construction. In this Agreement (i) words denoting the
singular include the plural and vice versa, (ii) "it" or "its" or words
denoting any gender include all genders, (iii) any reference herein to a
Section refers to a Section of the Agreement, unless otherwise stated, (iv)
when calculating the period of time within or following which any act is to be
done or steps taken, the date which is the reference day in calculating such
period shall be excluded and if the last day of such period is not a business
day, then the period shall end on the next day which is a business day, and (v)
all dollar amounts are expressed in Canadian funds.
9.8 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Province of Alberta
applicable to contracts made and to be entirely performed therein.
9.9 Counterparts. For the convenience of the parties, any number
of counterparts hereof may be executed, each such executed
-12-
<PAGE> 100
counterpart shall be deemed an original and all such counterparts together
shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
-13-
<PAGE> 101
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date and year first written above.
J.R.S. EXPLORATION COMPANY LIMITED
By
-------------------------------
Name:
Title:
EMPLOYEE:
---------------------------------
W.G. Mueller
-14-
<PAGE> 102
Exhibit C
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement") dated as of [_________ __,
1996] among 3-D Geophysical, Inc., a Delaware corporation ("3-D"), 3-D
Geophysical of Canada, Inc., a Canadian corporation ("Buyer"), D.E. Janveau
("DJ"), Gladys Mueller ("GM") and W.G. Mueller ("WGM"; DJ, GM and WGM being
sometimes referred to individually as a "Seller" and collectively as
"Sellers")and Montreal Trust Company of Canada, a financial institution
incorporated under the laws of Canada (the "Escrow Agent").
WHEREAS, 3-D, Buyer and Sellers have entered into a Stock
Purchase Agreement dated as of December 10, 1996 (the "Stock Purchase
Agreement") providing for the sale to Buyer by Sellers of all of the issued and
outstanding capital stock of J.R.S. Exploration Company Limited, an Alberta
corporation ("Company"). Capitalized terms not otherwise defined herein shall
have the same meaning as defined in the Stock Purchase Agreement; and
WHEREAS, Section 3.2(a)(viii) of the Stock Purchase Agreement
provides for the deposit by Sellers with the Escrow Agent of a certificate or
certificates, registered in the name of Sellers, together with appropriate
stock powers duly executed in blank, for 50% of the aggregate number of Buyer's
Shares issued to DJ, GM and WGM pursuant to the provisions of Section 2.1(b) of
the Stock Purchase Agreement (the deposits described in this Whereas clause,
together with any funds deposited with the Escrow Agent pursuant to Section
2(c), being referred to as the "Escrow Fund");
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein and in the Stock Purchase Agreement, the parties
hereto hereby agree as follows:
1. Appointment. Montreal Trust Company of Canada is
hereby appointed Escrow Agent to accept, retain and dispose of the Escrow Fund
in accordance with the provisions of this Agreement. The Escrow Agent hereby
accepts such appointment and agrees to accept, retain and dispose of the Escrow
Fund in accordance with the provisions of this Agreement.
2. Deposit of Escrow Fund; Substitution. (a) Each
Seller hereby deposits with the Escrow Agent, and the Escrow Agent hereby
acknowledges receipt of, a certificate or certificates registered in the name
of such Seller and representing 50% of the aggregate number of Buyer's Shares
issued to such Seller pursuant to the provisions of Section 2.1(b) of the Stock
Purchase Agreement (the "Stock Portion of the Escrow Fund") in full
satisfaction of such Seller's obligations to make
<PAGE> 103
deposits with the Escrow Agent under Section 3.2(a)(viii) of the Stock Purchase
Agreement.
(b) Schedule I attached hereto sets forth the name of
each Seller and sets forth the number of Buyer's Shares to be deposited into
the Escrow Fund by such Seller pursuant to the terms of Section 3.2(a)(viii) of
the Stock Purchase Agreement.
(c) From time to time during the Escrow Term (as
hereinafter defined), each Seller has the right to substitute all or any
portion of the Buyer's Shares forming a part of the Escrow Fund and deposited
with the Escrow Agent by such Seller pursuant to this Agreement, by depositing
with the Escrow Agent cash in an amount equal to the Common Stock Market Price
for each Buyer's Share substituted pursuant to the provisions of this Section
2(c). Not less than ten (10) days prior to the date a Seller wishes to effect
the foregoing described substitution, he shall notify in writing the Escrow
Agent and Buyer that he wishes to substitute such Buyer's Shares ("Substituted
Stock") for cash on such date ("Substitution Date"). On the Substitution Date,
(i) the Seller shall deliver to the Escrow Agent a certified or official bank
check payable to the order of the Escrow Agent in an amount equal to the
product of (x) the Common Stock Market Price and (y) the number of shares of
Substituted Stock; and (ii) the Escrow Agent shall deliver or cause to be
delivered to such Seller, as the case may be, a stock certificate registered in
the name of such Seller, as the case may be, representing the number of shares
of Substituted Stock. All deposits of cash made pursuant to this Section 2(c)
shall be accepted by the Escrow Agent, retained as part of the Escrow Fund and
disposed of by it in accordance with the provisions of this Agreement (such
cash being referred to as the "Cash Portion of the Escrow Fund").
(d) Each Seller shall only have the right of substitution
described in Section 2(c) with respect to a number of Buyer's Shares equal to
the number of Buyer's Shares of such Seller initially deposited by such Seller
pursuant to Section 2(a) (subject to appropriate adjustment for any stock
dividend on or split-up or combination of the Buyer's Shares).
3. Duty of Care, Investments. (a) The Escrow Agent
shall hold and safeguard the Escrow Fund and shall treat the Escrow Fund as a
trust fund in accordance with the provisions of this Agreement. The Escrow
Agent shall invest the Cash Portion of the Escrow Fund in money market
obligations, certificates of deposit or other short-term interest bearing
securities.
(b) Any (i) interest, gains on the sale of securities or
other income received by the Escrow Agent in respect of the Cash Portion of the
Escrow Fund, reduced by any taxes, brokerage fees and other expenses incurred
in connection with the investment of the Cash Portion of the Escrow Fund (the
"Net Gain"), and (ii) Buyer's Shares with respect to the Stock Portion of the
Escrow Fund as a result of any stock dividend, split-up or
-2-
<PAGE> 104
combination, or into which the Buyer's Shares shall be converted or exchanged
as a result of any merger, reclassification or reorganization, shall constitute
a part of the Escrow Fund and shall be retained and disposed of in accordance
with the provisions of this Agreement.
4. Disbursement of Escrow Fund. The following
provisions shall govern the Escrow Fund:
(a) The Escrow Fund shall be retained by the Escrow Agent
until the first anniversary of the Closing Date (the "Escrow Term").
(b) In order to make a claim against the Escrow Fund
(which claim shall, if appropriate, include interest thereon at the rate equal
to the rate 3-D then pays on its long-term debt), Buyer shall deliver to the
Escrow Agent either (i) a certificate signed by (A) an officer of Buyer and (B)
the Sellers' Representative (as defined in Section 11), as the representative
of the Sellers, stating in reasonable detail the factual and legal basis for
and the amount of such claim (a "Certificate of Claim Resolution"), or (ii) a
copy of a final, non-appealable order of a court of competent jurisdiction (a
"Final Order") ordering the Escrow Agent to pay an amount specified in such
Final Order to Buyer. Upon receipt of a Certificate of Claim Resolution or a
Final Order, the Escrow Agent shall as soon as practicable, and in any event
within ten (10) days, thereafter pay the amount set forth in such Certificate
of Claim Resolution or Final Order (the "Claim Amount") to Buyer by delivering
or causing to be delivered to Buyer a certificate registered in the name of
Buyer for a number of whole Buyer's Shares equal to the Claim Amount divided by
the Common Stock Market Price; provided, however, that, if any Seller has made
a substitution pursuant to Section 2(c), the Escrow Agent shall instead
deliver, or cause to be delivered, to Buyer (x) a check payable to the order of
Buyer in an amount equal to the product of the Cash Percentage (as hereinafter
defined) and the Claim Amount (plus the Net Gain on such amount from the
respective date(s) of substitution pursuant to Section 2(c)), and (y) a
certificate registered in the name of Buyer for a number of whole Buyer's
Shares equal to the product of the Stock Percentage (as hereinafter defined)
and the Claim Amount, divided by the Common Stock Market Price. "Cash
Percentage" means a fraction, where the numerator is the value of the Cash
Portion of the Escrow Fund (excluding any Net Gain) on the day before the date
payment is to be made pursuant to this Section 4(b), determined by the Escrow
Agent in its absolute discretion ("Cash Value"), and the denominator is the
Cash Value plus the product of (x) the number of Buyer's Shares constituting
the Stock Portion of the Escrow Fund on the day before the date payment is to
be made pursuant to this Section 4(b), and (y) the Common Stock Market Price.
"Stock Percentage" means the percentage equal to 100% minus the Cash
Percentage.
-3-
<PAGE> 105
(c) As soon as practicable after the expiration of the
Escrow Term, and in any event within thirty (30) days thereafter:
(i) If there is not then unresolved a Notice of a
Pending Claim (as defined below) from Buyer, the Escrow Agent shall
automatically deliver, or cause to be delivered, (A) to each Seller
who has not substituted pursuant to Section 2(c), a certificate
registered in the name of such Seller representing a whole number of
Buyer's Shares equal to the product of (x) the Seller's Stock
Percentage (as hereinafter defined) of such Seller, and (y) the number
Buyer's Shares then held by the Escrow Agent as part of the Escrow
Fund; and (B) to each Seller who has substituted pursuant to Section
2(c), an official bank check payable to the order of such Seller in an
amount equal to the sum of (A) product of (x) Seller's Cash Percentage
(as hereinafter defined) of such Seller, and (y) the Cash Portion of
the Escrow Fund (excluding any Net Gain) then held by the Escrow Agent
and (B) the Net Gain allocable to such Seller, as determined by the
Escrow Agent, whose determination shall be final and binding. Upon
such deliveries, this Escrow Agreement shall terminate. Seller's
Stock Percentage means the percentage obtained by dividing (x) the
excess of (A) number of Buyer's Shares initially deposited into the
Escrow Fund in respect of such Seller pursuant to the terms of Section
3.1(a)(viii) of the Stock Purchase Agreement, over (B) the number of
shares of Substituted Stock of such Seller (in each case appropriately
adjusted for stock splits or combinations of the Buyer Common Stock)
by (y) the total number of Buyer's Shares then constituting the Stock
Portion of the Escrow Fund. Seller's Cash Percentage means the
percentage obtained by dividing the amount of cash such Seller has
deposited pursuant to Section 2(c) by the total amount of cash all
such Sellers have deposited pursuant to Section 2(c).
(ii) If there is then unresolved one or more
written notices (a "Notice of a Pending Claim"), signed by an officer
of Buyer, stating in reasonable detail the factual and legal basis for
and the amount of one or more then unresolved claims against the
Escrow Fund and such unresolved claims are for an amount equal to or
in excess of the balance of the Escrow Fund, the Escrow Agent shall
continue to hold the Escrow Fund until resolution of any such
unresolved claim by a Certificate of Claim Resolution or a Final
Order. Upon receipt of such Certificate of Claim Resolution or Final
Order, the Escrow Agent shall (x) pay to Buyer the amount set forth in
such Certificate of Claim Resolution or such Final Order in
accordance with the provisions of Section 4(b), (y) retain as much of
the Escrow Fund as is necessary to cover the full amount of any then
still unresolved claims, and (z) pay to Sellers the balance, if any,
of the Escrow Fund in accordance with the provisions of Section
4(c)(i). Upon the payment of the
-4-
<PAGE> 106
entire Escrow Fund in accordance with the provisions of this Section
4(c)(ii), this Agreement shall terminate.
(iii) If there is then unresolved one or more
Notices of a Pending Claim, and such unresolved claims are for an
amount less than the balance of the Escrow Fund, the Escrow Agent
shall pay to Sellers the excess of the balance of the Escrow Fund over
the full amount of any then unresolved claims in accordance with the
provisions of Section 4(c)(i). The remaining balance of the Escrow
Fund shall be retained and disposed of in accordance with the
provisions of Section 4(c)(ii).
(d) For all purposes of this Section 4, the value of each
Buyer's Share constituting a portion of the Stock Portion of the Escrow Fund
shall be deemed to be the Common Stock Market Price.
5. Terms and Conditions to Escrow Agent's Acceptance.
Acceptance by the Escrow Agent of its duties under this Agreement is subject to
the following terms and conditions, which the parties to this Agreement hereby
agree shall govern and control the rights, duties and immunities of the Escrow
Agent:
(a) The duties and obligations of the Escrow
Agent shall be determined solely by the express provisions of this Agreement
and the Escrow Agent shall not be bound by the provisions of the Stock Purchase
Agreement or any other agreement between or among 3-D, Buyer, Company, Sellers
or any other Person;
(b) The Escrow Agent shall not be responsible for
any failure or inability of the parties to this Agreement, or of any one else,
to deliver monies or other property to the Escrow Agent or otherwise to honor
any of the provisions of this Agreement;
(c) The fees of the Escrow Agent in administering
this Agreement shall be borne by 3-D and Buyer. 3-D, Buyer and Sellers will
jointly indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability or expense, including reasonable attorneys' fees and expenses,
incurred without bad faith, willful misconduct or gross negligence on the part
of the Escrow Agent arising out of or in connection with its acceptance of, or
the performance of its duties and obligations under, this Agreement. The
provisions of this Section 5(c) shall survive any termination of this
Agreement;
(d) The Escrow Agent shall be fully protected in
acting on and relying upon any written notice, direction, re-quest, waiver,
consent, receipt or other paper or document which the Escrow Agent in good
faith believes to be genuine and to have been signed or presented by the proper
party or parties, as certified to the Escrow Agent from time to time;
-5-
<PAGE> 107
(e) The Escrow Agent shall not be liable for any
error of judgment, or for any act done or step taken or omitted by it in good
faith or for any mistake in fact or law, or for anything which it may do or
refrain from doing in connection herewith, except as a result of its own bad
faith, willful misconduct or gross negligence;
(f) The Escrow Agent may seek the advice of legal
counsel in the event of any dispute or question as to the construction of any
of the provisions of this Agreement or its duties hereunder, and it shall incur
no liability and shall be fully protected in respect of any action taken,
omitted or suffered by it in good faith in accordance with the written opinion
of such counsel; and
(g) In the event of ambiguity in the provisions
governing the Escrow Fund or uncertainly on the part of the Escrow Agent as to
how to proceed, such that the Escrow Agent, in its sole and absolute judgment,
deems it necessary for its protection so to do, the Escrow Agent may refrain
from taking any action other than to retain custody of the Escrow Fund until it
shall have received written instructions signed by Buyer and the Sellers'
Representative, or may deposit the Escrow Fund with a court of competent
jurisdiction and thereupon have no further duties or responsibilities in
connection therewith.
6. Resignation or Removal of Escrow Agent.
(a) The Escrow Agent may resign at any time by
giving thirty (30) days' written notice thereof to Buyer and the Sellers'
Representative. Within thirty (30) days after receiving such notice, Buyer and
the Sellers' Representative shall agree on and appoint a successor escrow agent
(the "Successor Escrow Agent") at which time the Escrow Agent shall deliver the
Escrow Fund to the Successor Escrow Agent, net of any fees and expenses or
other obligations then owed to the Escrow Agent. After appointment of the
Successor Escrow Agent and delivery of the Escrow Fund by the Escrow Agent, the
Escrow Agent shall have no further duties or responsibilities in connection
herewith.
(b) Buyer and the Sellers' Representative may
remove the Escrow Agent upon written notice to the Escrow Agent signed by the
Buyer and the Sellers' Representative stating such removal and designating a
Successor Escrow Agent, and, upon delivery of the Escrow Fund to the Successor
Escrow Agent, net of any fees or expenses then owed to the Escrow Agent, the
Escrow Agent shall thereupon be discharged from all obligations under this
Agreement and shall have no further duties or responsibilities in connection
herewith.
(c) If after thirty (30) days from the date of
delivery of its written notice of intent to resign, or of Buyer's and the
Sellers' Representative's notice of removal, the Escrow Agent has not received
a written designation of a Successor
-6-
<PAGE> 108
Escrow Agent, the Escrow Agent's sole responsibility shall be in its sole
discretion either to retain custody of the Escrow Fund without any obligation
to invest or reinvest any portion of the Cash Portion of the Escrow Fund until
it receives such designation, or to apply to a court of competent jurisdiction
for appointment of a Successor Escrow Agent and after such appointment to have
no further duties or responsibilities in connection herewith.
7. Notices. All notices and demands of any kind which
any party hereto may be required or desire to serve upon another party under
the terms of this Agreement shall be in writing and shall be served upon such
other party: (a) by personal service upon such other party at such other
party's address set forth on the signature pages of this Agreement; or (b) by
mailing a copy thereof by certified or registered mail, postage prepaid, with
return receipt requested, addressed to such other party at the address of such
other party set forth on the signature pages of this Agreement; or (c) by
sending a copy thereof by Federal Express or equivalent courier service,
addressed to such other party at the address of such other party set forth on
the signature pages of this Agreement; or (d) by sending a copy thereof by
facsimile to such other party at the facsimile number, if any, of such other
party set forth on the signature pages of this Agreement.
In case of service by mail, Federal Express or equivalent
courier service, facsimile or by Personal service, such service shall be deemed
complete upon receipt. The addresses and facsimile numbers to which, and
Persons to whose attention, notices and demands shall be delivered or sent may
be changed from time to time by notice served, as hereinabove provided, by any
party upon the other parties.
8. Choice of Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the [State of New
York] applicable to contracts made and to be entirely performed therein.
9. Benefits and Assignment. Nothing in this Agreement,
expressed or implied, shall give or be construed to give any Person, other than
3-D, Buyer, Sellers and the Escrow Agent, and their respective successors and
permitted assigns, heirs, personal representatives and legatees, any legal
claim under any covenant, condition or provision hereof, all the covenants,
conditions and provisions contained in this Agreement being for the sole
benefit of the foregoing Persons only. Subject to the provisions of Section
6(a) no party may assign any of its right or obligations under this Agreement
except to a successor by operation of law.
10. Counterparts. For the convenience of the parties,
any number of counterparts hereof may be executed, each such executed
counterpart shall be deemed an original and all such
-7-
<PAGE> 109
counterparts together shall constitute one and the same instrument.
11. Sellers' Representative. D.E. Janveau is hereby
named as the Sellers' Representative. In the event Mr. Janveau (or any
successor to him designated in accordance with the provisions of this Section
11) is unwilling or unable to serve as the Sellers' Representative hereunder,
Sellers shall, by vote or consent of a majority in interest, designate a
replacement Sellers' Representative. Any and all action taken hereunder by the
Sellers' Representative, including any modification or amendment hereof, shall
bind all Sellers and 3-D and Buyer shall be entitled to rely thereon for all
purposes. The Sellers' Representative shall have no liability or obligation to
any Seller for any action or omission to act hereunder in good faith.
12. Entirety of Agreement. This Agreement (including
Schedule I hereto), together with the Stock Purchase Agreement, states the
entire agreement of the parties with respect to the subject matter hereof,
merges all prior negotiations, agreements and understandings, if any, and
states in full all representations, warranties and agreements which have
induced this Agreement. Each party agrees that in dealing with third parties
no contrary representations will be made.
13. Amendment. This Agreement may be modified or amended
only by an instrument in writing, duly executed by 3-D, Buyer and the Sellers'
Representative. No such modification or amendment shall be binding on the
Escrow Agent unless the Escrow Agent consents thereto in writing.
14. Nonwaiver. No waiver by any party of any provision
contained in this Agreement (or any breach thereof) shall be effective unless
it is in writing executed by the party against which such waiver is to be
enforced; no waiver shall be deemed or construed as a further or continuing
waiver of any such provision (or breach) on any other occasion or as a waiver
of any other provision (or of the breach of any other provision) contained in
this Agreement on the same or any other occasion.
15. Headings. The headings in this Agreement are
inserted for convenience only and shall not constitute a part hereof.
16. Construction. In this Agreement (i) words denoting
the singular include the plural and vice versa, (ii) "it" or "its" or words
denoting any gender include all genders, (iii) the word "including" shall mean
"including without limitation," whether or not expressed, (iv) any reference
herein to a Section or Schedule refers to a Section of or a Schedule to this
Agreement, unless otherwise stated, and (v) when calculating the period of time
within or following which any act is to be done or steps taken, the date which
is the reference day in calculating such period shall be excluded and if the
last day of such period
-8-
<PAGE> 110
is not a Business Day, then the period shall end on the next day which is a
Business Day.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
-9-
<PAGE> 111
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
3-D GEOPHYSICAL, INC.
Address:
By:
---------------------
Name:
-------------------
Title:
------------------
with a copy to:
Peter S. Kolevzon, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Facsimile No.: (212) 715-8000
3-D GEOPHYSICAL OF CANADA, INC.
Address:
By:
7076 South Alton Way ---------------------
Building H Name:
Englewood, CO 80112 -------------------
Attn: Chief Financial Officer Title:
------------------
with a copy to:
Peter S. Kolevzon, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Facsimile No.: (212) 715-8000
Address:
------------------------
D.E. Janveau
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B 271 CANADA
with a copy to:
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
-10-
<PAGE> 112
Address:
------------------------
W.G. Mueller
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B 271 CANADA
with a copy to:
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
Address:
------------------------
Gladys Mueller
c/o J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B 271 CANADA
with a copy to:
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
The undersigned, by its duly authorized officer, hereby
accepts appointment as the Escrow Agent and agrees to act as the Escrow Agent
pursuant to and in accordance with the provisions of the foregoing Agreement:
MONTREAL TRUST COMPANY OF CANADA
Address:
By:
----------------------
Name:
--------------------
Title:
-------------------
The undersigned hereby agrees to act as the Sellers'
Representative under the foregoing Agreement:
-------------------------
D.E. Janveau
-11-
<PAGE> 113
SCHEDULE I
<TABLE>
<CAPTION>
No.of Buyer's
Shares to
Seller's Name be Deposited
------------- ------------
<S> <C>
D.E. Janveau
Gladys Mueller
W.G. Mueller
</TABLE>
-12-
<PAGE> 114
EXHIBIT E
SHARE EXCHANGE AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of January, 1997.
A M O N G:
3-D GEOPHYSICAL, INC.,
a corporation existing under the
laws of the State of Delaware,
(hereinafter referred to as "3-D"),
OF THE FIRST PART,
- and -
3-D GEOPHYSICAL OF CANADA, INC.,
a corporation existing under the laws of Canada,
(hereinafter referred to as "Corporation"),
OF THE SECOND PART,
- and -
D.E. JANVEAU,
GLADYS MUELLER,
W.G. MUELLER,
C. DAVID SIEGFRIED AND
PEGGY J. SIEGFRIED,
the holders of non-voting exchangeable
shares in the capital of the Corporation,
(each a "Seller", and collectively the "Sellers"),
OF THE THIRD PART.
<PAGE> 115
WHEREAS pursuant to certain stock purchase agreements dated as
of October 31, 1996 (collectively, the "Purchase Agreements") among 3-D, the
Corporation and certain Sellers, the Sellers agreed to sell to the Corporation,
and the Corporation agreed to purchase from the Sellers, the outstanding shares
in the capital of certain corporations in consideration for, inter alia, the
issuance by the Corporation to the Seller of exchangeable non-voting shares in
the capital of the Corporation ("Exchangeable Shares") that are exchangeable at
any time by the holders thereof for shares of common stock, par value U.S. $0.01
per share, in the capital of 3-D;
AND WHEREAS the parties to the Purchase Agreements agreed that
at the closing of the purchase and sale transactions provided for therein, 3-D,
the Corporation and the Sellers would execute and deliver a share exchange
agreement in substantially the form set forth in Exhibit E to the Purchase
Agreements;
AND WHEREAS 3-D is to grant to and in favour of the Sellers
and such other holders (other than 3-D and its Affiliates) from time to time of
Exchangeable Shares the right, in the circumstances set forth herein, to require
3-D to purchase from each such Seller or other holder, as the case may be, all
or any part of the Exchangeable Shares held by such Seller or such other holder;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In this Agreement, the following terms shall
have the following meanings:
"3-D COMMON SHARES" means the shares of common stock, par
value U.S. $0.01 per share, in the capital of 3-D.
"3-D SUCCESSOR" has the meaning ascribed thereto in
subparagraph 2.11(a)(i)(A) hereof.
"AFFILIATE" of any Person means any other Person directly or
indirectly controlling, controlled by, or under common control with that Person.
For the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, means the possession by another Person,
directly or indirectly, of the power to direct or cause the direction of the
2
<PAGE> 116
management and polices of that first mentioned Person; whether through the
ownership of voting securities, by contract or otherwise.
"AUTOMATIC EXCHANGE EVENT" has the meaning ascribed thereto in
subsection 2.11(a) hereof .
"AUTOMATIC EXCHANGE EVENT EFFECTIVE DATE" has the meaning
ascribed thereto in subsection 2.11(b) hereof.
"AUTOMATIC EXCHANGE RIGHTS" means the benefit of the
obligation of 3-D to effect the automatic exchange of 3-D Common Shares for
Exchangeable Shares pursuant to subsection 2.11(b) hereof.
"BOARD OF DIRECTORS" means the Board of Directors of the
Corporation.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a legal holiday on which banks are not open for business in Calgary, Alberta
or New York, New York.
"CALL RIGHTS" means collectively the Liquidation Call Right,
the Redemption Call Right and the Retraction Call Right.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount
expressed in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (a) the Foreign Currency Amount by (b) the noon
spot exchange rate on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event such spot exchange
rate is not available, such exchange rate on such date for such foreign currency
expressed in Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose.
"CBCA" means the Canada Business Corporations Act, as amended;
"CURRENT MARKET PRICE" means, in respect of 3-D Common Shares
on any date, the Canadian Dollar Equivalent of the closing sale price of 3-D
Common Shares on such day (or, if no trades of 3-D Common Shares occurred on
such day, on the last trading day prior thereto on which such trades occurred)
reported on NASDAQ, or, if the 3-D Common Shares are not then quoted on NASDAQ,
on such stock exchange or other automated quotation system on which the 3-D
Common Shares are listed or quoted, as the case may be, as may be selected by
the Board of Directors for such purpose.
"CURRENT 3-D COMMON SHARE EQUIVALENT" has the meaning ascribed
thereto in the Exchangeable Share Provisions.
"DEFAULT EVENT" means any failure, other than by reason of an
Insolvency Event, of the Corporation to perform any of its obligations pursuant
to the Exchangeable Share Provisions including, without limitation, its
obligation to redeem any Retracted Shares.
3
<PAGE> 117
"EXCHANGE RIGHT" has the meaning ascribed thereto in section
2.1 hereof.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions set forth in the provisions attaching to the
Exchangeable Shares.
"EXCHANGEABLE SHARES" has the meaning ascribed thereto in the
recitals hereto.
"HOLDERS" means the registered holders from time to time of
Exchangeable Shares including, without limitation, the Sellers, but excluding
3-D and its Affiliates.
"INSOLVENCY EVENT" means the institution by the Corporation of
any proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or
wound up, or the consent of the Corporation to the institution of bankruptcy,
insolvency, dissolution or winding up proceedings against it, or the filing of a
petition, answer or consent seeking dissolution or winding up under any
bankruptcy, insolvency or analogous laws, including without limitation the
Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and Insolvency
Act (Canada), and the failure by the Corporation to contest in good faith any
such proceedings commenced in respect of the Corporation within 60 days of
becoming aware thereof, or the consent by the Corporation to the filing of any
such petition or to the appointment of a receiver, or the making by the
Corporation of a general assignment for the benefit of creditors, or the
admission in writing by the Corporation of its inability to pay its debts
generally as they become due, or the Corporation not being permitted, pursuant
to solvency requirements of applicable law, to redeem any Retracted Shares
pursuant to section 5.6 of the Exchangeable Share Provisions.
"LIEN" means any lien, pledge, adverse claim, security
interest, mortgage, restriction, claim, charge or other encumbrance of any kind
or nature whatsoever.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in
the Exchangeable Share Provisions.
"NASDAQ" means the NASDAQ - National Market System.
"OFFICER'S CERTIFICATE" means, with respect to 3-D or the
Corporation, as the case may be, a certificate signed by any one of the Chairman
of the Board, the President, any Vice- President or any other senior officer of
3-D or the Corporation, as the case may be.
"PERSON" includes an individual, partnership, corporation,
company, unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative
"PURCHASE AGREEMENTS" has the meaning ascribed thereto in the
recitals hereto.
"PRE-DILUTION MARKET PRICE" has the meaning ascribed hereto in
the Exchangeable Share Provisions.
4
<PAGE> 118
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in
the Exchangeable Share Provisions.
"RETRACTED SHARES" has the meaning ascribed thereto in section
2.6 hereof.
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in
the Exchangeable Share Provisions.
"SUPPORT AGREEMENT" means the support agreement made as of
even date herewith between the Corporation and 3-D.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of
this Agreement into articles, sections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement.
1.3 NUMBER, GENDER, ETC. In this Agreement, words importing the
singular number only shall include the plural and vice versa, and words
importing the use of any gender shall include all genders.
1.4 DATE FOR ANY ACTION. If any date on which any action is
required to be taken under this Agreement is not a Business Day, such action
shall be required to be taken on the next succeeding Business Day.
1.5 WITHHOLDING OF TAX. All amounts required to be paid, deposited
or delivered hereunder shall be paid, deposited or delivered after deduction of
any amount required by applicable law to be deducted or withheld on account of
tax and the deduction of such amounts and remittance to the applicable tax
authorities shall, to the extent thereof, satisfy such requirement to pay,
deposit or deliver hereunder.
ARTICLE 2
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE RIGHTS
2.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. In consideration
of the granting of the Call Rights to 3-D, 3-D hereby grants to the Holders (a)
the right (the "Exchange Right"), upon the occurrence and during the continuance
of an Insolvency Event or a Default Event, to require 3-D to purchase from each
Holder all or any part of the Exchangeable Shares held by such Holder, and (b)
the Automatic Exchange Rights, all in accordance with the provisions of this
Agreement. 3-D hereby acknowledges receipt from the Holders of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right and
the Automatic Exchange Rights by 3-D to the Holders.
2.2 LEGENDED SHARE CERTIFICATES. The Corporation shall cause each
certificate representing Exchangeable Shares to bear an appropriate legend
notifying the Holders of:
5
<PAGE> 119
(a) the right to exercise the Exchange Right in respect of the
Exchangeable Shares held by a Holder; and
(b) the Automatic Exchange Rights.
2.3 PURCHASE PRICE. The purchase price payable by 3-D for each
Exchangeable Share to be purchased by 3-D under the Exchange Right shall be an
amount per share equal to (a) the Current Market Price multiplied by the Current
3-D Common Share Equivalent, in each case determined on the day of closing of
the purchase and sale of such Exchangeable Share under the Exchange Right, which
shall be satisfied in full in respect of the Exchangeable Shares in regard to
which a Holder has exercised the Exchange Right by causing to be delivered to
such Holder such whole number of 3-D Common Shares as is equal to the product
obtained by multiplying the number of such Exchangeable Shares by the Current
3-D Common Share Equivalent (together with an amount in lieu of any fractional
3-D Common Share resulting from such calculation payable in accordance with
section 10.4 of the Exchangeable Share Provisions), plus (b) the aggregate of
all dividends declared and unpaid on each such Exchangeable Share (provided that
if the record date for any such declared and unpaid dividends occurs on or after
the day of closing of such purchase and sale the purchase price shall not
include such declared and unpaid dividends).
2.4 EXERCISE OF THE EXCHANGE RIGHT. Subject to the terms and
conditions herein set forth, a Holder shall be entitled, upon the occurrence and
during the continuance of an Insolvency Event or a Default Event, to exercise
the Exchange Right with respect to all or any part of the Exchangeable Shares
registered in the name of such Holder on the books of the Corporation. To
exercise the Exchange Right, the Holder shall deliver to 3-D, in person, by
courier or by certified or registered mail, at its principal office or at such
other place as 3-D may from time to time designate by written notice to the
Holders, the certificates representing the Exchangeable Shares that such Holder
desires 3-D to purchase pursuant to the Exchange Right, duly endorsed in blank,
and accompanied by such other documents and instruments as 3-D may reasonably
require together with:
(a) a duly completed form of notice of exercise of the Exchange
Right, contained on the reverse of or attached to the
Exchangeable Share certificates, stating (i) that the Holder
thereby exercises the Exchange Right so as to require 3-D to
purchase from the Holder the number of Exchangeable Shares
specified therein, (ii) that such Holder has good title to and
owns all such Exchangeable Shares to be acquired by 3-D free
and clear of all Liens, (iii) the names in which the
certificates representing 3-D Common Shares issuable in
connection with the exercise of the Exchange Right are to be
issued, and (iv) the names and addresses of the Persons to
whom such new certificates should be delivered;
(b) payment (or evidence satisfactory to 3-D of payment) of the
taxes (if any) payable as contemplated by section 2.7 hereof;
and
(c) a certificate or certificates of such Holder satisfactory to
3-D attesting to such Holder's accredited investor status and
investment intent.
6
<PAGE> 120
If only a part of the Exchangeable Shares represented by any certificate or
certificates delivered to 3-D are to be purchased by 3-D under the Exchange
Right, a new certificate for the balance of such Exchangeable Shares shall be
issued to the Holder at the expense of the Corporation.
2.5 DELIVERY OF 3-D COMMON SHARES: EFFECT OF EXERCISE. Promptly
after receipt of the certificates, duly endorsed in blank, representing the
Exchangeable Shares in respect of which the Exchange Right was exercised
pursuant to section 2.4 hereof (together with such documents and instruments of
transfer and a duly completed form of notice of exercise of the Exchange Right
(and payment of taxes, if any, or evidence thereof in accordance with section
2.4 hereof, 3-D shall notify the Corporation of its receipt of the same and 3-D
shall immediately thereafter deliver or cause to be delivered to the Holder of
such Exchangeable Shares (or to such other Persons, if any, properly designated
by such Holder), the certificates for the number of 3-D Common Shares issuable
in connection with the exercise of the Exchange Right, which shares shall be
duly issued as fully paid and non-assessable and shall be free and clear of any
Liens placed thereon by 3-D or the Corporation, and cheques for the balance, if
any, of the total purchase price therefor (or, if part of the purchase price
consists of dividends payable in property, such property or property the same as
or economically equivalent to such property). Immediately upon the exercise of
the Exchange Right, as provided in section 2.4 hereof, the closing of the
transaction of purchase and sale contemplated by the Exchange Right shall be
deemed to have occurred, and the Holder of such Exchangeable Shares shall be
deemed to have transferred to 3-D all of its right, title and interest in and to
such Exchangeable Shares free and clear of all Liens and shall cease to be a
holder of such Exchangeable Shares and shall not be entitled to exercise any of
the rights of a holder in respect thereof, other than the right to receive the
purchase price therefor, unless the requisite number of 3-D Common Shares
(together with a cheque for the balance, if any, of the purchase price therefor
or, if part of the purchase price consists of dividends payable in property,
such property or property the same as or economically equivalent to such
property) is not allotted, issued and delivered by 3-D to such Holder (or to
such other Persons, if any, properly designated by such Holder) within five
Business Days of the date of the exercise of the Exchange Right, in which case
the rights of the Holder shall remain unaffected until such 3-D Common Shares
are so allotted, issued and delivered by 3-D and any such cheque or property is
so delivered and paid. Concurrently with such Holder ceasing to be a holder of
Exchangeable Shares, the Holder shall be considered and deemed for all purposes
to be the holder of the 3-D Common Shares delivered to it pursuant to the
Exchange Right. The Board of Directors shall sanction or approve any transfer of
Exchangeable Shares made pursuant to an exercise of the Exchange Right pursuant
to the provisions hereof and such sanction or approval shall be effective as at
the closing of the transaction of purchase and sale of Exchangeable Shares as
provided in this section 2.5.
2.6 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the
event that a Holder has exercised its right under Article 5 of the Exchangeable
Share Provisions to require the Corporation to redeem any or all of the
Exchangeable Shares held by the Holder (the "Retracted Shares") and is notified
by the Corporation pursuant to section 5.6 of the Exchangeable Share Provisions
that the Corporation is not permitted as a result of solvency requirements of
applicable law to redeem all of such Retracted Shares, and provided that 3-D
shall not have exercised the Retraction Call Right with respect to the Retracted
Shares, the retraction request shall constitute and shall be deemed to
constitute an exercise of the Exchange
7
<PAGE> 121
Right with respect to those Retracted Shares that the Corporation is unable to
redeem. In any such event, the Corporation hereby agrees with the Holder
immediately to notify 3-D of such prohibition against the Corporation redeeming
all of the Retracted Shares and immediately to forward or cause to be forwarded
to 3-D all relevant materials delivered by the Holder to the Corporation
(including without limitation a copy of the retraction request delivered
pursuant to section 5.1 of the Exchangeable Share Provisions) in connection with
such proposed redemption of the Retracted Shares and 3-D shall thereupon
purchase the Retracted Shares that the Corporation is not permitted to redeem in
accordance with the provisions of this Article 2.
2.7 STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable
Shares to 3-D pursuant to the Exchange Right or the Automatic Exchange Rights,
the share certificate or certificates representing 3-D Common Shares to be
delivered in connection with the payment of the purchase price therefor shall be
issued in the name of the Holder of the Exchangeable Shares so sold or in such
names as such Holder may otherwise direct in writing without charge to the
Holder, provided, however, that such Holder (a) shall pay (and neither 3-D nor
the Corporation shall be required to pay) any documentary, stamp, transfer or
other similar taxes that may be payable in respect of any transfer involved in
the issuance or delivery of such shares to a Person other than such Holder or
(b) shall establish to the satisfaction of 3-D and the Corporation that such
taxes, if any, have been paid.
2.8 NOTICE OF INSOLVENCY EVENT OR DEFAULT EVENT. Immediately upon the
occurrence of an Insolvency Event or a Default Event or any event that with the
giving of notice or the passage of time or both would be an Insolvency Event or
a Default Event, the Corporation and 3-D shall give written notice thereof to
the Holders. Such notice shall describe the event that has occurred and shall
specify that, pursuant to this Agreement, the Holders are currently entitled, or
may become entitled at a later date, to exercise the Exchange Right.
2.9 QUALIFICATION OF 3-D COMMON SHARES. 3-D shall use all reasonable
efforts to obtain all orders required from the applicable Canadian securities
authorities to permit the issuance of the 3-D Common Shares upon any exchange of
the Exchangeable Shares for 3-D Common Shares without registration or
qualification with, or approval of, or the filing of any document including any
prospectus or similar document, or the taking of any proceeding with, or the
obtaining of any order, ruling or consent from, any governmental or regulatory
authority under any Canadian federal or provincial law or regulation or pursuant
to the rules and regulations of any regulatory authority in Canada or the
fulfillment of any other legal requirement before such 3-D Common Shares may be
issued and delivered by the Corporation or 3-D to the holder thereof.
2.10 RESERVATION OF 3-D COMMON SHARES. 3-D hereby represents and
warrants that it has irrevocably reserved for issuance out of its authorized and
unissued capital stock such number of 3-D Common Shares as is equal to the
number of Exchangeable Shares outstanding at the date hereof and covenants that
it will at all times keep available, free from pre-emptive and other rights, out
of its authorized and unissued capital stock such number of 3-D Common Shares
(or other shares or securities into which 3-D Common Shares may be reclassified
or changed) as is necessary to enable 3-D and the Corporation to perform their
8
<PAGE> 122
respective obligations pursuant to this Agreement, the Exchangeable Share
Provisions and the Support Agreement.
2.11 AUTOMATIC EXCHANGE RIGHTS.
(a) 3-D shall give the Holders notice of each of the following
events (each an "Automatic Exchange Event") at the time set forth below:
(i) in the event of any determination by the board of
directors of 3-D to enter into any transaction
(whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of the
undertaking, property and assets of 3-D would become
the Property of any other Person or, in the case of a
merger, of the continuing corporation resulting
therefrom, except where:
(A) such other Person or continuing corporation
is a corporation (herein called "13-D
Successor") incorporated under the laws of
any state of the United States or the laws
of Canada or any province thereof; and
(B) 3-D Successor, by operation of law, becomes,
without more, bound by the terms and
provisions of this Agreement and the Support
Agreement or, if not so bound:
(I) 3-D Successor, the Corporation and
a majority in interest of the
Holders execute, prior to or
contemporaneously with the
consummation of such transaction, an
agreement whereby 3-D Successor
agrees to (i) be bound by the
provisions hereof as if it were an
original party hereto, and (ii)
observe and perform all of the
covenants and obligations of 3-D
under this Agreement, which
agreement shall be in form
satisfactory to the Corporation and
a majority in interest of the
Holders, acting reasonably: and
(II) 3-D Successor and the Corporation
execute, prior to or
contemporaneously with the
consummation of such transaction, an
agreement whereby 3-D Successor
agrees to (i) be bound by the
provisions of the Support Agreement
as if it were an original party
thereto. and (ii) observe and
perform all of the covenants and
obligations of 3-D under the Support
Agreement, which agreement shall be
in form satisfactory to the
Corporation, acting reasonably,
at least 10 days prior to the proposed date on which
such transaction shall be completed or otherwise
become effective;
9
<PAGE> 123
(ii) in the event of any determination by the board of
directors of 3-D to institute voluntary liquidation,
dissolution or winding-up proceedings with respect to
3-D or to effect any other distribution of assets of
3-D among its stockholders for the purpose of winding
up its affairs, at least 30 days prior to the
proposed effective date of such liquidation,
dissolution, winding-up or other distribution; and
(iii) immediately, upon the earlier of (A) receipt by 3-D
of notice of and (B) 3-D otherwise becoming aware of
any threatened or instituted claim, suit, petition or
other proceedings with respect to the involuntary
liquidation, dissolution or winding up of 3-D or to
effect any other distribution of assets of 3-D among
its stockholders for the purpose of winding up its
affairs.
Such notice shall describe the Automatic Exchange Event and shall specify that,
pursuant to this Agreement, the occurrence of such event causes the Exchangeable
Shares to be exchanged automatically for 3-D Common Shares.
(b) On the fifth Business Day prior to the effective date of an
Automatic Exchange, Event (the "Automatic Exchange Event Effective Date") all of
the then outstanding Exchangeable Shares shall be automatically exchanged for
3-D Common Shares. To effect such automatic exchange, 3-D shall purchase each
Exchangeable Share outstanding on the fifth Business Day prior to the Automatic
Exchange Event Effective Date and held by Holders, and each Holder shall sell
the Exchangeable Shares held by it at such time, for a purchase price per share
equal to (a) the Current Market Price multiplied by the Current 3-D Common Share
Equivalent on such fifth Business Day prior to the Automatic Exchange Event
Effective Date, which shall be satisfied in full in respect of the Exchangeable
Shares held by each Holder by 3-D issuing to such Holder such whole number of
3-D Common Shares as is equal to the product obtained by multiplying the number
of such Exchangeable Shares by the Current 3-D Common Share Equivalent (together
with an amount in lieu of any fractional 3-D Common Share resulting from such
calculation payable in accordance with section 10.4 of the Exchangeable Share
Provisions), plus (b) an additional amount equal to the aggregate of all
dividends declared and unpaid on each such Exchangeable Share (provided that if
the record date for any such declared and unpaid dividends occurs on or after
the day of closing of such purchase and sale, the purchase price shall not
include such additional amount equal to such declared and unpaid dividends). The
Board of Directors shall sanction or approve any transfer of Exchangeable Shares
made pursuant to the Automatic Exchange Rights and such sanction or approval
shall be effective as of the fifth Business Day prior to the Automatic Exchange
Event Effective Date.
(c) On the fifth Business Day prior to the Automatic Exchange Event
Effective Date, the closing of the transaction of purchase and sale contemplated
by the automatic exchange of Exchangeable Shares for 3-D Common Shares shall be
deemed to have occurred, and each Holder of Exchangeable Shares shall be deemed
to have transferred to 3-D all of the Holder's right, title and interest in and
to such Exchangeable Shares free and clear of all Liens and shall cease to be a
holder of Exchangeable Shares and 3-D shall issue to the Holder the 3-D Common
Shares issuable upon the automatic exchange of Exchangeable Shares for 3-D
Common Shares
10
<PAGE> 124
and shall deliver to the Holder a cheque for the balance, if any, of the
purchase price for such Exchangeable Shares (or, if any part of the purchase
price consists of dividends payable in property, such property or property that
is the same as or economically equivalent to such property). Concurrently with
such Holder ceasing to be a holder of Exchangeable Shares, the Holder shall be
considered and deemed for all purposes to be the holder of the 3-D Common Shares
issued to it pursuant to the automatic exchange of Exchangeable Shares for 3-D
Common Shares and the certificates held by the Holder previously representing
the Exchangeable Shares exchanged by the Holder with 3-D pursuant to such
automatic exchange shall thereafter be deemed to represent the 3-D Common Shares
issued to the Holder by 3-D pursuant to such automatic exchange. Upon the
request of a Holder and the surrender by the Holder of Exchangeable Share
certificates deemed to represent 3-D Common Shares, duly endorsed in blank and
accompanied by such instruments of transfer as 3-D may reasonably require, 3-D
shall deliver or cause to be delivered to the Holder certificates representing
the 3-D Common Shares of which the Holder is the holder.
ARTICLE 3
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
3.1 AMENDMENTS, MODIFICATIONS, ETC. Except as provided for in section 3.2
hereof, this Agreement may not be amended or modified except by an agreement in
writing executed by the Corporation, 3-D and a majority in interest of the
Holders. Any amendment or modification of this Agreement by the Corporation, 3-D
and a majority in interest of the Holders shall bind all the Holders, and the
Corporation, 3-D and each Holder shall be entitled to rely on such amendment or
modification for all purposes. No Holder shall be liable to any other Holder for
or in respect of any action taken hereunder, or any omission to act hereunder,
by such Holder including, without limitation, for or in respect of any act or
omission of such Holder that may result in the amendment or modification of this
Agreement or the execution and delivery of an agreement referred to in clause
2.11(a)(i)(B)(I) hereof. For the purposes of this Agreement, a "majority in
interest of the Holders at any given time shall mean one or more Holders
holding, in aggregate, more than 50% of the Exchangeable Shares that are
outstanding at such time.
3.2 CHANGES IN THE CAPITAL OF 3-D OR THE CORPORATION. Notwithstanding
section 3.1 hereof, at all times after the occurrence of any 3-D Common Share
Reorganization or Capital Reorganization (as such terms are respectively defined
in the Exchangeable Share Provisions) or other change in either the 3-D Common
Shares or the Exchangeable Shares or both, other than an Automatic Exchange
Event, this Agreement shall forthwith be deemed to have been amended and
modified as necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which 3-D Common Shares or the
Exchangeable Shares or both are so changed and the parties hereto shall execute
and deliver an agreement giving effect to and evidencing such necessary
amendments and modifications.
3.3 VESTING OF POWERS IN 3-D SUCCESSOR. Upon 3-D Successor, the
Corporation and a majority in the interest of the Holders executing and
delivering the agreement referred to in
11
<PAGE> 125
clause 2.11(a)(i)(B)(I) hereof, 3-D Successor shall possess and from time to
time may exercise each and every right and power of 3-D under this Agreement in
the name of 3-D or otherwise and any act or proceeding by any provision of this
Agreement required to be done or performed by the board of directors of 3-D or
any officers of 3-D may be done and performed with like force and effect by the
directors or officers of such 3-D Successor.
ARTICLE 4
TRANSFERS OF EXCHANGEABLE SHARES
4.1 APPROVAL OF THE BOARD OF DIRECTORS. Except for any transfers of
Exchangeable Shares to 3-D or any of its Affiliates pursuant to the provisions
hereof or the Exchangeable Share Provisions, the Holders shall not be entitled
to transfer any Exchangeable Shares except as permitted pursuant to the articles
of incorporation of the Corporation. 3-D and the Board of Directors shall not
sanction any transfer of Exchangeable Shares (other than to 3-D or any of its
Affiliates pursuant to the provisions hereof or the Exchangeable Share
Provisions) unless, as a condition precedent to any such transfer of
Exchangeable Shares, the transferee, if it is not a party to this Agreement,
executes and delivers an agreement in form and containing terms satisfactory to
3-D and the Corporation, acting reasonably, whereby the transferee shall become
a party hereto and shall agree to be bound by the provisions hereof as if the
transferee was an original party hereto, and thereupon the transferee shall have
the same rights, and shall be subject to the same obligations, as the transferor
hereunder.
ARTICLE 5
3-D DISCLOSURE MATERIALS
TO BE PROVIDED TO HOLDERS
5.1 DISCLOSURE MATERIAL TO BE SENT BY 3-D TO THE HOLDERS. 3-D covenants
and agrees with the Holders to send to each Holder at the address of such Holder
set forth in section 7.3 hereof (or, in the absence of such an address, at the
address of such Holder as shown at the relevant time on the register of Holders
maintained by the Corporation or otherwise to such address that may be
communicated by such Holder to 3-D), all materials that 3-D is required.
pursuant to the provisions of the United States Securities Exchange Act of 1934,
as amended, to send from time to time during the term of this Agreement to
holders of 3-D Common Shares resident in the United States including, without
limitation, copies of its annual reports and all proxy solicitation materials.
Upon the request of a Holder, 3-D shall send to such Holder a copy of its
quarterly reports.
12
<PAGE> 126
ARTICLE 6
TERMINATION
6.1 TERM.
(a) This Agreement, including the Exchange Right and the Automatic
Exchange Rights, shall come into force and effect as at and from the date hereof
and shall remain in force and effect until the earliest to occur of the
following events, at which time this Agreement shall terminate:
(i) no outstanding Exchangeable Shares are held by any
Holder; and
(ii) each of the Holders, the Corporation and 3-D agree in
writing to terminate this Agreement.
(b) Notwithstanding anything herein to the contrary, the
provisions of this Agreement shall no longer be applicable to any Person
(including, without limitation, any Seller) that ceases to be a registered
holder of Exchangeable Shares and such Person shall, upon ceasing to be a
registered holder of Exchangeable Shares, be deemed to have ceased to be a party
to this Agreement until, if applicable, such time as such Person subsequently
becomes a party to this Agreement by executing an agreement referred to in
section 4.1 hereof.
ARTICLE 7
GENERAL
7.1 SEVERABILITY. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this Agreement shall not in any way be affected or impaired
thereby and this Agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions; provided, however, that if
the provision or provisions so held to be invalid, in the reasonable judgment of
the parties, is or are so fundamental to the intent of the parties and the
operation of this Agreement that the enforcement of the other provisions hereof,
in the absence of such invalid provision or provisions, would damage irreparably
the intent of the parties in entering into this Agreement, the parties shall
agree (i) to terminate this Agreement, or (ii) to amend or otherwise modify this
Agreement so as to carry out the intent and purposes hereof and the transactions
contemplated hereby.
7.2 INUREMENT. Subject to the provisions of Article 7 hereof, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns and, where applicable,
their respective heirs and personal representatives,
7.3 NOTICES TO PARTIES. All notices and other
communications between the parties hereunder shall be in writing and shall be
deemed to have been given if delivered
13
<PAGE> 127
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for such party as shall be specified in like notice):
(a) if to 3-D at:
3-D Geophysical, Inc.
7076 South Alton Way
Building H
Englewood, Colorado
U.S.A. 80112
Attention: Ronald L. Koons, Chief Financial Officer
Telecopy: (303) 290-0447
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
Telecopy: (212) 715-8000
(b) if to the Corporation at:
3-D Geophysical of Canada, Inc.
4750 - 30th Street S.E.
Calgary, Alberta
T2B 2ZI
Attention: Assistant Treasurer
Telecopy:
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
Telecopy: (212) 715-8000
14
<PAGE> 128
(c) if to D.E. Janveau at:
[Note to Draft: insert address]
Attention:
Telecopy:
With a copy to:
(d) if to Gladys Mueller at:
[Note to Draft: insert address]
Attention:
Telecopy:
With a copy to:
(e) if to W.G. Mueller at:
[Note to Draft: insert address]
Attention:
Telecopy:
With a copy to:
(f) if to C. David Siegfried at:
[Note to Draft: insert address]
Attention:
Telecopy:
15
<PAGE> 129
With a copy to:
(g) if to Peggy J. Siegfried at:
[Note to Draft: insert address]
Attention:
Telecopy:
With a copy to:
(h) if to any other Holder, at such address or telecopy number
specified in a notice given by such Holder to the other
parties hereto pursuant to the provisions of this section 7.3,
failing which any notice required to be given to such Holder
shall be given in accordance with the provisions of section
7.4 hereof.
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day or unless such notice or communication was not
given during the normal business hours of the recipient on such day in which
case it shall be deemed to have been given and received upon the immediately
following Business Day.
7.4 NOTICE TO HOLDERS. If a Holder does not provide an address for
delivering a notice pursuant to subsection 7.3(h) hereof, any and all notices to
be given and any documents to be sent to such Holder shall be given or sent to
the address of such Holder shown at the relevant time on the register of Holders
maintained by the Corporation.
7.5 RISK OF PAYMENTS BY POST. Whenever payments are to be made or
documents are to be sent to any Holder by 3-D or by the Corporation, or by such
Holder to 3-D or the Corporation, the making of such payment or sending of such
document sent through the post shall be at the risk of:
(a) 3-D, in the case of payments made or documents sent by 3-D;
(b) the Corporation, in the case of payments made or documents
sent by the Corporation; and
(c) the Holder, in the case of payments made or documents sent by
the Holder.
7.6 COUNTERPARTS. This Agreement and any amendments or supplements thereto
may be executed in counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same instrument.
16
<PAGE> 130
7.7 JURISDICTION. This Agreement shall be construed and enforced in
accordance with the laws of the Province of Alberta and the laws of Canada
applicable therein.
7.8 ATTORNMENT. 3-D agrees that any action or proceeding arising out
of or relating to this Agreement may be instituted in the courts of the Province
of Alberta, waives any objection that it may have now or hereafter to the venue
of any such action or proceeding, irrevocably submits to the jurisdiction of the
said courts in any such action or proceeding, agrees to be bound by any judgment
of the said courts and agrees not to seek, and hereby waives, any review of the
merits of any such judgment by the courts of any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
)
- ------------------------------ ) ----------------------------------
Name: ) D.E. Janveau
)
)
)
- ------------------------------ ) ----------------------------------
Name: ) Gladys Mueller
)
)
)
- ------------------------------ ) ----------------------------------
Name: ) W.G. Mueller
)
)
)
- ------------------------------ ) ----------------------------------
Name: ) C. David Siegfried
)
)
- ------------------------------ ) ----------------------------------
Name: ) Peggy J. Siegfried
3-D GEOPHYSICAL, INC. 3-D GEOPHYSICAL OF CANADA, INC.
by C.S. By C.S.
---------------------------- -----------------------------
Name: Name:
Title: Title:
17
<PAGE> 131
EXHIBIT F
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of January 1997.
B E T W E E N:
3-D GEOPHYSICAL, INC.,
a corporation existing under the laws
of the State of Delaware,
(hereinafter referred to as "3-D"),
OF THE FIRST PART,
- and -
3-D GEOPHYSICAL OF CANADA, INC.
a corporation existing under the laws of Canada,
(hereinafter referred to as "Corporation"),
OF THE SECOND PART.
WHEREAS pursuant to certain stock purchase agreements dated as
of October 31, 1996 (collectively, the "Purchase Agreements") among 3-D, the
Corporation and certain sellers, the Corporation agreed to purchase the
outstanding shares in the capital of certain corporations from such sellers in
consideration for, inter alia, the issuance by the Corporation to such sellers
of exchangeable non-voting shares in the capital of the Corporation
("Exchangeable Shares") that are exchangeable at any time by the holders thereof
for shares of common stock, par value U.S. $0.01 per share, in the capital of
3-D ("3-D Common Shares");
AND WHEREAS the parties to the Purchase Agreements, agreed
that at the closing of the purchase and sale transactions provided for therein,
3-D and the Corporation would execute and deliver a support agreement in
substantially the form set forth as Exhibit F to the Purchase Agreements.
1
<PAGE> 132
AND WHEREAS the parties hereto desire to make appropriate
provision and to establish a procedure whereby 3-D will take certain actions and
make certain payments and deliveries necessary to ensure that the Corporation
will be able to make certain payments and to deliver or cause to be delivered
3-D Common Shares in satisfaction of the obligations of the Corporation under
the provisions (the "Exchangeable Share Provisions") attaching to the
Exchangeable Shares with respect to the payment and satisfaction of dividends,
Liquidation Amounts, Retraction Prices and Redemption Prices all in accordance
with the Exchangeable Share Provisions;
NOW THEREFORE in consideration of the respective covenants in this
Agreement and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereto hereby agree
as follows:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
A. DEFINED TERMS. In this Agreement including the recitals
hereto, all capitalized words and expressions used herein and not otherwise
defined herein shall have the meanings ascribed to such words and expressions in
the Exchangeable Share Provisions, unless the context requires otherwise.
B. INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of
this Agreement into articles, sections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement.
C. NUMBER, GENDER, ETC. In this Agreement, words importing the
singular number only shall include the plural and vice versa, words importing
the use of any gender shall include all genders.
D. DATE FOR ANY ACTION. If any, date on which any action is
required to be taken under this Agreement is not a Business Day such action
shall be required to be taken on the next succeeding Business Day.
ARTICLE II.
COVENANTS OF 3-D AND THE CORPORATION
2.1 COVENANTS OF 3-D REGARDING EXCHANGEABLE SHARES. So long as any
Exchangeable Shares are outstanding, 3-D shall:
1. not declare or pay any dividend on 3-D Common Shares unless
(i) the Corporation shall have sufficient assets, funds and
other property (including,
2
<PAGE> 133
where applicable, 3-D Common Shares or other securities of
3-D) available to enable the due declaration and the due and
punctual payment in accordance with applicable law, of an
equivalent dividend on the Exchangeable Shares in accordance
with the Exchangeable Share Provisions, and (ii) the
Corporation shall simultaneously declare or pay, as the case
may be, an equivalent dividend on the Exchangeable Shares in
accordance with the Exchangeable Share Provisions;
2. cause the Corporation to declare simultaneously with the
declaration of any dividend on 3-D Common Shares an equivalent
dividend on the Exchangeable Shares and, when such dividend is
paid on 3-D Common Shares, cause the Corporation to pay
simultaneously therewith such equivalent dividend on the
Exchangeable Shares, in each case in accordance with the
Exchangeable Share Provisions;
3. advise the Corporation sufficiently in advance of the
declaration by 3-D of any dividend on 3-D Common Shares and
take all such other actions as are necessary, in cooperation
with the Corporation, to ensure that the declaration date,
record date and payment date for any dividend on the
Exchangeable Shares shall be the same as the record date,
declaration date and payment date for the corresponding
dividend on 3-D Common Shares, and such dates in respect of
dividends on the Exchangeable Shares shall be in accordance
with any requirement of the Exchangeable Share Provisions;
4. ensure that the record date for any dividend declared on 3-D
Common Shares, 3-D Common Share Reorganization, Rights
Offering, Special Distribution or Capital Reorganization is
not less than ten Business Days after the declaration date for
such dividend, 3-D common Share Reorganization, Rights
Offering, Special Distribution or Capital Reorganization;
5. take all such actions and do all such things as are necessary
or desirable to enable and permit the Corporation, in
accordance with applicable law, to pay and otherwise perform
its obligations with respect to the satisfaction of the
Liquidation Amount in respect of each issued and outstanding
Exchangeable Share upon the liquidation, dissolution or
winding-up of the Corporation, including without limitation
all such actions and all such things as are necessary or
desirable to enable and permit the Corporation to deliver 3-D
Common Shares to the holders of Exchangeable Shares in
satisfaction of the Liquidation Amount for each such
Exchangeable Share, in accordance with the provisions of
Article 4 of the Exchangeable Share Provisions;
6. take all such actions and do all such things as are necessary
or desirable to enable and permit the Corporation, in
accordance with applicable law, to pay and otherwise perform
its obligations with respect to the satisfaction of the
Retraction
3
<PAGE> 134
Price and the Redemption Price, including without limitation
all such actions and all such things as are necessary or
desirable to enable and permit the Corporation to deliver 3-D
Common Shares to the holders of Exchangeable Shares, upon the
retraction or redemption of the Exchangeable Shares in
accordance with the provisions of Article 5 or Article 6 of
the Exchangeable Share Provisions, as the case may be;
7. not exercise its vote as a shareholder of the Corporation to
initiate, consent to or approve the voluntary liquidation,
dissolution or winding-up of the Corporation nor take any
action or omit to take any action that is designed to result
in the liquidation, dissolution or winding-up of the
Corporation; and
8. not exercise its vote as a shareholder of the Corporation to
authorize the continuance or other transfer of the corporate
existence of the Corporation to any jurisdiction outside
Canada.
2.2 SEGREGATION OF FUNDS. 3-D will cause the Corporation to
deposit a sufficient amount of funds in a separate account and segregate a
sufficient amount of such assets and other property as is necessary to enable
the Corporation to pay or otherwise satisfy the applicable dividends,
Liquidation Amount, Retraction Price or Redemption Price, and will cause the
Corporation to use such funds, assets and other property so segregated
exclusively for the payment of dividends and the payment or other satisfaction
of the Liquidation Amount, the Retraction Price or the Redemption Price, as
applicable, in each case in accordance with the Exchangeable Share Provisions.
2.3 RESERVATION OF 3-D COMMON SHARES. 3-D hereby represents and
warrants that it has irrevocably reserved for issuance out of its authorized and
unissued capital stock such number of 3-D Common Shares as is equal to the
number of Exchangeable Shares outstanding immediately following the Effective
Date and covenants that at all times in the future while any Exchangeable Shares
are outstanding it will keep available, free from pre-emptive and other rights,
out of its authorized and unissued capital stock such number of 3-D Common
Shares (or other shares or securities into which 3-D Common Shares may be
reclassified or changed) as is necessary to enable 3-D and the Corporation to
perform their respective obligations pursuant to this Agreement, the
Exchangeable Share Provisions and the Share Exchange Agreement.
2.4 NOTIFICATION OF CERTAIN EVENTS. In order to assist 3-D to
comply with its obligations hereunder, the Corporation will give 3-D notice of
each of the following events at the time set forth below:
(a) in the event of any determination by the Board of Directors of
the Corporation to institute voluntary liquidation,
dissolution or winding up proceedings with respect to the
Corporation or to effect any other distribution of the assets
of the Corporation among its shareholders for the purpose of
winding up its affairs, at
4
<PAGE> 135
least 30 days prior to the proposed effective date of such
liquidation, dissolution, winding up or other distribution;
(b) immediately upon the earlier of (i) receipt by the Corporation
of notice of, and (ii) the Corporation otherwise becoming
aware of, any threatened or instituted claim, suit, petition
or other proceedings with respect to the involuntary
liquidation, dissolution or winding up of the Corporation or
to effect any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding
up its affairs;
(c) immediately, upon receipt by the Corporation of a Retraction
Request; and
(d) as soon as practicable upon the issuance by the Corporation of
any Exchangeable Shares or rights to acquire Exchangeable
Shares.
2.5 DELIVERY OF 3-D COMMON SHARES. In furtherance of its
obligations under subsections 2.1(e) and (f) hereof, upon notice of any event
that requires the Corporation to cause to be delivered 3-D Common Shares to any
holder of Exchangeable Shares, 3-D shall forthwith issue and deliver the
requisite 3-D Common Shares to or to the order of the former holder of the
surrendered Exchangeable Shares, as the Corporation shall direct. All such 3-D
Common Shares shall be duly issued as fully paid and non-assessable and shall be
free and clear of any Liens. In consideration of the issuance of each such 3-D
Common Share by 3-D, the Corporation shall issue to 3-D, or as 3-D shall direct,
such number of common shares of the Corporation as is equal to the fair value of
such 3-D Common Shares.
2.6 QUALIFICATION OF COMMON SHARES. 3-D shall use all reasonable
efforts to obtain all orders required from the applicable Canadian securities
authorities to permit the issuance of the 3-D Common Shares upon any exchange of
the Exchangeable Shares pursuant to the Exchangeable Share Provisions or the
Share Exchange Agreement without registration or qualification with, or approval
of, or the filing of any document including any prospectus or similar document,
or the taking of any proceeding with, or the obtaining of any order, ruling or
consent from, any governmental or regulatory authority under any Canadian
federal or provincial law or regulation or pursuant to the rules and regulations
of any regulatory authority in Canada or the fulfillment of any other legal
requirement before such 3-D Common Shares may be issued and delivered by the
Corporation or 3-D to the holder thereof.
2.7 TENDER OFFERS, ETC. In the event that a tender offer, share
exchange offer, issuer bid, take-over bid or similar transaction with respect to
3-D Common Shares (an "Offer") is proposed by 3-D or is proposed to 3-D or its
stockholders and is recommended by the board of directors of 3-D, or is
otherwise effected or to be effected with the consent or approval of the board
of directors of 3-D, 3-D will use all commercially reasonable efforts
expeditiously and in good faith to take all such actions and do all such things
as are necessary or desirable to enable and permit holders of Exchangeable
Shares to participate in such Offer to the same extent
5
<PAGE> 136
and on an economically equivalent basis as the holders of 3-D Common Shares,
without discrimination. Without limiting the generality of the foregoing, 3-D
will use all commercially reasonable efforts expeditiously and in good faith to
ensure that holders of Exchangeable Shares may participate in all such Offers
without being required to retract Exchangeable Shares as against the Corporation
(or, if so required, to ensure that any such retraction shall be effective only
upon, and shall be conditional upon, the closing of the Offer and only to the
extent necessary to tender or deposit to the Offer).
2.8 OWNERSHIP OF OUTSTANDING SHARES. 3-D covenants and agrees in
favour of the Corporation that, as long as any outstanding Exchangeable Shares
are owned by any person or entity other than 3-D or any of its Affiliates, 3-D
will be and remain the direct or indirect beneficial owner of all issued and
outstanding voting shares in the capital of the Corporation (other than
Exchangeable Shares) and all outstanding securities of the Corporation carrying
or otherwise entitled to voting rights in any circumstances (other than
Exchangeable Shares), unless 3-D shall have obtained the prior approval of the
Corporation and the holders of the Exchangeable Shares given in accordance with
section 9.2 of the Exchangeable Share Provisions.
2.9 3-D NOT TO VOTE EXCHANGEABLE SHARES. 3-D covenants and agrees
that it will appoint and cause to be appointed proxyholders with respect to all
Exchangeable Shares held by 3-D and its Affiliates for the sole purpose of
attending each meeting of holders of Exchangeable Shares in order to be counted
as part of the quorum for each such meeting. 3-D further covenants and agrees
that it will not, and will cause its Affiliates not to, exercise any voting
rights that may be exercisable by holders of Exchangeable Shares from time to
time pursuant to the Exchangeable Share Provisions or pursuant to the provisions
of the CBCA with respect to any Exchangeable Shares held by it or by its
Affiliates in respect of any matter considered at any meeting of holders of
Exchangeable Shares, including without limitation any approval to be given by
holders of Exchangeable Shares pursuant to section 9.2 of the Exchangeable Share
Provision.
2.10 DUE PERFORMANCE. On and after the Effective Date, 3-D shall
duly and timely perform all of its obligations provided for in the Share
Exchange Agreement and any obligations of 3-D that may arise upon the exercise
of 3-D's rights under the Exchangeable Share Provisions.
2.11 ECONOMIC EQUIVALENCE. 3-D hereby acknowledges that it will be
bound by any determination of economic equivalence made by the Board of
Directors of the Corporation pursuant to section 10.1 of the Exchangeable Share
Provisions.
2.12 CAPITAL REORGANIZATION OF 3-D. If at any time there is a
capital reorganization of 3-D that is not provided for in subsection 1.1(o) of
the Exchangeable Share Provisions or a consolidation, merger, arrangement or
amalgamation (statutory or otherwise) of 3-D with or into another entity (any
such event being called a "Capital Reorganization"), 3-D shall take all such
actions and do all such things as are necessary to ensure that holders of
Exchangeable Shares
6
<PAGE> 137
whose Exchangeable Shares have not been exchanged or automatically exchanged for
3-D Common Shares in accordance with the Exchangeable Share Provisions or the
Share Exchange Agreement on or before the record date for such Capital
Reorganization shall receive, upon any such exchange occurring pursuant to the
Exchangeable Share Provisions or the Share Exchange Agreement at any time after
the record date for such Capital Reorganization, in lieu of the 3-D Common
Shares that such holders would otherwise have been entitled to receive pursuant
to the Exchangeable Share Provisions or the Share Exchange Agreement, the number
of shares or other securities of 3-D or of the body corporate resulting,
surviving or continuing from the Capital Reorganization, or other property, that
such holders would have been entitled to receive as a result of such Capital
Reorganization if, on the record date, such holders would have been the
registered holders of the number of 3-D Common Shares to which such holders were
then entitled upon any exchange of their Exchangeable Shares into 3-D Common
Shares in accordance with the Exchangeable Share Provisions or the Share
Exchange Agreement, subject to adjustment thereafter in the same manner, as
nearly as may be possible, as is provided for in subsection 1.1(o) of the
Exchangeable Share Provisions; provided that, in the event that all the
outstanding Exchangeable Shares are not exchanged or automatically exchanged for
3-D Common Shares in accordance with the provisions hereof or the Share Exchange
Agreement on or before the record date for such Capital Reorganization, such
Capital Reorganization shall not be carried into effect unless all necessary
steps shall have been taken so that each holder of Exchangeable Shares shall
thereafter be entitled to receive, upon any exchange of his Exchangeable Shares
pursuant to the Exchangeable Share Provisions or the Share Exchange Agreement,
such number of shares or other securities of 3-D or of the body corporate
resulting, surviving or continuing from the Capital Reorganization, or other
property.
2.13 OTHER CHANGE IN 3-D COMMON SHARES. In the case of any
reclassification of, or other change in the outstanding 3-D Common Shares other
than (i) a 3-D Common Share Reorganization, (ii) a Capital Reorganization, or
(iii) an Automatic Exchange Event (as defined in the Share Exchange Agreement,
3-D shall take all such actions and do all such things as are necessary to
ensure that holders of Exchangeable Shares shall receive, upon the occurrence at
any time after such record date of any event whereby they would receive 3-D
Common Shares pursuant to the Exchangeable Share Provisions or the Share
Exchange Agreement, such shares, securities or rights as they would have
received if their Exchangeable Shares had been exchanged for 3-D Common Shares
pursuant to the Exchangeable Share Provisions or the Share Exchange Agreement
immediately prior to such record date, subject to adjustment thereafter in the
same manner, as nearly as may be possible, as is provided for in subsection
1.1(o) of the Exchangeable Share Provisions.
7
<PAGE> 138
ARTICLE III.
GENERAL
3.1 TERM. This Agreement shall come into force and be effective as
of the date hereof and shall terminate and be of no further force and effect at
such time as there are no Exchangeable Shares (or securities or rights
convertible into or exchangeable for or carrying rights to acquire Exchangeable
Shares) held by any party other than 3-D and its Affiliates.
3.2 CHANGES IN CAPITAL OF 3-D AND THE CORPORATION. Notwithstanding
the provisions of section 3.4 hereof, at all times after the occurrence of any
event effected pursuant to sections 2.7, 2.12 or 2.13 hereof, other than an
Automatic Exchange Event (as defined in the Share Exchange Agreement), as a
result of which either 3-D Common Shares or the Exchangeable Shares or both are
in any way changed, this Agreement shall forthwith to the extent practicable be
amended and modified as necessary in order that it shall apply with full force
and effect, mutatis mutandis, to all new securities into which 3-D Common Shares
or the Exchangeable Shares or both are so changed and the parties hereto shall
execute and deliver an agreement in writing giving effect to and evidencing such
necessary amendments and modifications.
3.3 SEVERABILITY. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this Agreement shall not in any way be affected or impaired
thereby and this Agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions.
3.4 AMENDMENTS, MODIFICATIONS, ETC. This Agreement may not be
amended or modified except by an agreement in writing executed by the
Corporation and 3-D and approved by the holders of the Exchangeable Shares in
accordance with section 9.2 of the Exchangeable Share Provisions.
3.5 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of
section 3.4, the parties to this Agreement may without the approval of the
holders of the Exchangeable Shares, at any time and from time to time, amend or
modify this Agreement in writing for the purposes of:
1. adding to the covenants of either or both parties for the
protection of the holders of the Exchangeable Shares;
2. making such amendments or modifications not inconsistent with
this Agreement as may be necessary or desirable with respect
to matters or questions which, in the opinion of the board of
directors of each of the Corporation and 3-D, it may be
expedient to make, provided that each such board of directors
shall be of the opinion that such amendments or modifications
will not be prejudicial to the interests of the holders of the
Exchangeable Shares; or
8
<PAGE> 139
3. making such change or corrections which, on the advice of
counsel to the Corporation and 3-D, are required for the
purpose of curing or correcting any ambiguity or detect or
inconsistent provision or clerical omission or mistake or
manifest error herein, provided that the boards of directors
of each of the Corporation and 3-D shall be of the opinion
that such changes or corrections will not be prejudicial to
the interests of the holders of the Exchangeable Shares.
3.6 MEETING TO CONSIDER AMENDMENTS. The Corporation, at the
request of 3-D, shall call a meeting or meetings of the holders of the
Exchangeable Shares for the purpose of considering any proposed amendment or
modification requiring approval pursuant to section 3.4 hereof. Any such meeting
or meetings shall be called and held in accordance with the by-laws of the
Corporation and the Exchangeable Share Provisions. In lieu of calling a meeting
of holders of Exchangeable Shares, with the consent of 3-D, any proposed
amendment or modification requiring approval of the holders of Exchangeable
Shares pursuant to section 3.4 hereof may be given by such holders executing a
written resolution evidencing the approval of such proposed amendment or
modification, which resolution must be signed by all the holders of Exchangeable
Shares entitled to vote on such matter.
3.7 WAIVERS ONLY IN WRITING. No waiver of any of the provisions of
this Agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by both of the parties hereto.
3.8 ENUREMENT. This Agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
3.9 NOTICES TO PARTIES. All notices and other communications
between the parties shall be in writing and shall be deemed to have been given
if delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for either such party, as shall be specified
in like notice):
(i) if to 3-D at:
3-D Geophysical, Inc.
7076 South Alton Way
Building H
Englewood, Colorado
U.S.A. 80112
Attention: Ronald L. Koons, Chief Financial Officer
----------------------------------------------------
Telecopy: (303) 290-0447
9
<PAGE> 140
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
-----------------------------------
Telecopy: (212) 715-8000
(ii) if to the Corporation at:
3-D Geophysical of Canada, Inc.
4750 30th Street S.E.
Calgary, Alberta
T2B 2Z1
Attention: Assistant Treasurer
-------------------------------
Telecopy: (-) -
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
-----------------------------------
Telecopy: (212) 715-8000
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day or unless such notice or communication was
not given during the normal business hours of the recipient on such day, in
which case it shall be deemed to have been given and received upon the
immediately following Business Day.
3.10 COUNTERPARTS. his Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
10
<PAGE> 141
3.11 JURISDICTION. This Agreement shall be construed and enforced
in accordance with the laws of the Province of Alberta and the laws of Canada
applicable therein.
3.12 ATTORNMENT. 3-D agrees that any action or proceeding arising
out of or relating to this Agreement may be instituted in the courts of the
Province of Alberta, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to the
jurisdiction of the said courts in any such action or proceeding, agrees to be
bound by any judgment of the said courts and not to seek, and hereby waives, any
review of the merits of any such judgment by the courts of any other
jurisdiction.
IN WITNESS WHEREOF the parties have executed this Agreement as
of the date first above written.
3-D GEOPHYSICAL, INC.
by___________________________________C.S.
Name:
Title:
3-D GEOPHYSICAL OF CANADA, INC.
by___________________________________C.S.
Name:
Title:
11
<PAGE> 1
STOCK PURCHASE AGREEMENT
among
3-D GEOPHYSICAL, INC.,
3-D GEOPHYSICAL OF CANADA, INC.,
C. DAVID SIEGFRIED
and
PEGGY J. SIEGFRIED
Dated as of December 10, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I Certain Definitions.................................................................... 1
ARTICLE II Purchase and Sale...................................................................... 4
2.1 Purchase and Sale of Company Shares.................................................... 4
ARTICLE III Closing................................................................................ 6
3.1 Closing Date........................................................................... 6
3.2 Certain Actions at Closing............................................................. 6
ARTICLE IV Representations and Warranties of Sellers.............................................. 7
4.1 Organization and Good Standing......................................................... 7
4.2 Capitalization...........................................................................8
4.3 Ownership of Shares.................................................................... 8
4.4 Authorization.......................................................................... 8
4.5 No Conflict; Transactions with Certain Persons......................................... 9
4.6 Financial Statements; Undisclosed Liabilities; Receivables;
Supplies............................................................................... 9
4.7 Taxes.................................................................................. 10
4.8 Title to Properties; Absence of Encumbrances........................................... 12
4.9 Intellectual Property.................................................................. 12
4.10 Contracts and Agreements.............................................................. 13
4.11 Insurance.............................................................................. 15
4.12 Litigation............................................................................. 15
4.13 Condition of Assets.................................................................... 15
4.14 Compliance with Law.................................................................... 15
4.15 Employees.............................................................................. 16
4.16 Employee Benefit Plans................................................................. 17
4.17 Environmental Matters.................................................................. 18
4.18 Powers of Attorney..................................................................... 20
4.19 Officers and Directors................................................................. 20
4.20 Bank Accounts............................................................... 20
4.21 Absence of Certain Changes............................................................. 20
4.22 Books and Records...................................................................... 22
4.23 Absence of Certain Business Practices.................................................. 22
4.24 Customer Relationships................................................................. 22
4.25 No Broker or Finder.................................................................... 22
4.26 Securities Laws........................................................................ 22
4.27 Disclosure Schedule.................................................................... 24
4.28 Residency.............................................................................. 24
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V Representations and Warranties of 3-D and Buyer........................................ 24
5.1 Organization and Good Standing......................................................... 24
5.2 Capitalization......................................................................... 24
5.3 Ownership of Shares.................................................................... 24
5.4 Authorization.......................................................................... 25
5.5 No Conflicts........................................................................... 25
5.6 Financial Condition; Etc............................................................... 25
5.7 Litigation............................................................................. 26
5.8 No Broker or Finder.................................................................... 26
ARTICLE VI Covenants of Sellers................................................................... 26
6.1 Normal Course.......................................................................... 26
6.2 Negative Covenants..................................................................... 27
6.3 Certain Filings........................................................................ 27
6.4 Best Efforts to Satisfy Conditions..................................................... 27
6.5 Delivery of Financial Statements....................................................... 27
6.6 Resignation of Officers and Directors.................................................. 27
6.7 Further Assurances..................................................................... 27
ARTICLE VII Covenants of 3-D and Buyer............................................................. 28
7.1 Certain Filings........................................................................ 28
7.2 Best Efforts to Satisfy Conditions..................................................... 28
7.3 7.3 Amendments to Registration Statement........................................ 28
7.4 Further Assurances..................................................................... 28
ARTICLE VIII Conditions Precedent to Obligations of 3-D and Buyer................................... 28
8.1 Representations and Warranties......................................................... 28
8.2 Compliance with Covenants.............................................................. 29
8.3 Lack of Adverse Change................................................................. 29
8.4 Update Certificate..................................................................... 29
8.5 Legal Opinion.......................................................................... 29
8.6 Regulatory Approvals................................................................... 29
8.7 Consents of Third Parties to Contracts................................................. 29
8.8 No Violation of Orders................................................................. 30
8.9 Employment Agreement................................................................... 30
8.10 Acquisition of J.R.S................................................................... 30
8.11 Other Closing Matters.................................................................. 30
ARTICLE IX Conditions Precedent to Obligations of Sellers......................................... 30
9.1 Representations and Warranties......................................................... 30
9.2 Compliance with Covenants.............................................................. 30
9.3 Update Certificate..................................................................... 30
9.4 Legal Opinion.......................................................................... 31
9.5 Regulatory Approvals................................................................... 31
9.6 No Violation of Orders................................................................. 31
9.7 Other Agreements....................................................................... 31
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE X Termination of Agreement............................................................... 31
10.1 Mutual Consent......................................................................... 31
10.2 Transaction Date....................................................................... 31
ARTICLE XI Indemnification........................................................................ 31
11.1 Survival of Representations, Warranties and Covenants.................................. 32
11.2 Indemnification by Sellers............................................................. 32
11.3 Indemnification by 3-D and Buyer....................................................... 32
11.4 Assumption of Defense.................................................................. 32
11.5 Non-Assumption of Defense.............................................................. 33
11.6 Indemnified Party's Cooperation as to Proceedings...................................... 33
11.7 General Limitations on Indemnification................................................. 34
ARTICLE XII Miscellaneous.......................................................................... 34
12.1 Expenses............................................................................... 34
12.2 Entirety of Agreement.................................................................. 34
12.3 Notices................................................................................ 34
12.4 Amendment.............................................................................. 35
12.5 Nonwaiver.............................................................................. 35
12.6 Counterparts........................................................................... 35
12.7 Assignment; Binding Nature; No Beneficiaries........................................... 35
12.8 Headings............................................................................... 35
12.9 Governing Law; Consent to Jurisdiction................................................. 35
12.10 Specific Performance................................................................... 36
12.11 Construction........................................................................... 36
12.12 Public Announcements................................................................... 36
12.13 Remedies Cumulative.................................................................... 36
</TABLE>
iii
<PAGE> 5
Schedules
IV Disclosure Schedule
Exhibits
A Description of rights, privileges, restrictions and
conditions of Terms of Buyer's Shares
B Form of Employment Agreement for C. David Siegfried
C Interim Balance Sheet
D Support Agreement
E Share Exchange Agreement
F List of Equipment
G Major Customers
H List of New Officers and Directors
I Legal Opinion of Sellers' Counsel
J-1 Legal Opinion of Buyer's United States Counsel
J-2 Legal Opinion of Buyer's Canadian Counsel
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of
December 10, 1996, by and among 3-D Geophysical, Inc., a Delaware corporation
("3-D"), 3-D Geophysical of Canada, Inc., a Canadian corporation ("Buyer"), C.
David Siegfried ("DS") and Peggy J. Siegfried ("PS") (DS and PS being sometimes
referred to individually as a "Seller" and collectively as "Sellers").
RECITALS
WHEREAS, DS owns 10 shares of Company Class A Stock;
WHEREAS, PS owns 10 shares of Company Class A Stock;
WHEREAS, Buyer desires to purchase all of the issued and
outstanding capital stock of Company and Sellers desire to sell the same, on the
terms and conditions hereinafter contained;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
Certain Definitions
"Act" means the United States Securities Act of 1933, as
amended.
"Affiliated Person(s)" has the meaning set forth in Section
4.5(b).
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Business Day" means any day that is not a Saturday or Sunday
or a legal holiday on which banks are authorized or required by law to be closed
in Calgary, Canada or New York, New York.
"Buyer" has the meaning set forth in the preamble to this
Agreement.
"Buyer's Shares" means the exchangeable non-voting shares in
the capital of Buyer having substantially the rights, privileges, restrictions
and conditions set forth on Exhibit A attached hereto to be issued to Sellers
pursuant to Section 2.1.
"Closing" has the meaning set forth in Section 3.1.
<PAGE> 7
"Closing Date" has the meaning set forth in Section 3.1.
"Code" has the meaning set forth in Section 4.7(c)(x).
"Company" means Siegfried & Siegfried Resource Consultants
Ltd., an Alberta corporation.
"Company Class A Stock" has the meaning set forth in Section
4.2(a).
"Company Shares" has the meaning set forth in Section 4.2(a).
"Contracts" has the meaning set forth in Section 4.10(b).
"Common Stock" means the shares of common stock, par value
0.01 per share, of 3-D.
"Common Stock Market Price" has the meaning set forth in
Section 2.1(b).
"Disclosure Schedule" has the meaning set forth in the
preamble to Article IV.
"Dollars" or "$" means Canadian dollars, unless otherwise
specified.
"Employee Benefit Plan(s)" has the meaning set forth in
Section 4.16(a).
"Employees" has the meaning set forth in Section 4.4(b).
"Employment Agreement" means the employment agreement between
J.R.S. and DS in substantially the form attached hereto as Exhibit B to be
entered into by J.R.S. and DS at the Closing.
"Encumbrance" means any lien, pledge, mortgage, security
interest, charge, restriction, adverse claim or other encumbrance of any kind or
nature whatsoever.
"Environment" has the meaning set forth in Section 4.17(i).
"Environmental Laws" has the meaning set forth in Section
4.17(i).
"Environmental Permits" has the meaning set forth in Section
4.17(i).
"Equipment" has the meaning set forth in Section 4.1(c).
"Financial Statements" means the balance sheet and statements
of earnings, shareholders' equity and cash flows of Company as of, and for the
fiscal year ended, November 30 in each of the years 1993 through 1995 and as of,
and for the ten months ended, September 30, 1996.
2
<PAGE> 8
"GAAP" means Canadian generally accepted accounting
principles.
"Hazardous Substance(s)" has the meaning set forth in Section
4.17(i).
"Indemnification Obligations" means the indemnification
obligations of Sellers or Buyer under Article XI.
"Intellectual Property" means all patents and patent
applications, all trademarks, trade names, business names, brand names, service
marks and copyrights, all applications for registration of such trademarks,
trade names, business names, brand names, service marks and copyrights, all
common law trade names and all common law or statutory trade secrets, including
know-how, inventions, designs, processes and computer programs (including source
codes).
"Interim Balance Sheet" means the balance sheet of Company as
of September 30, 1996, a copy of which is attached hereto as Exhibit C.
"J.R.S." means J.R.S. Exploration Company Limited, an Alberta
corporation.
"Loss(es)", in respect of any matter, means any loss,
liability, cost, expense, judgment, settlement or other damage arising directly
or indirectly as a result of or in connection with such matter, including
reasonable attorneys', consultants' and other advisors' fees and expenses,
reasonable costs of investigating or defending any claim, action, suit or
proceeding or of avoiding the same or the imposition of any judgment or
settlement, and reasonable costs of enforcing any Indemnification Obligations.
"Major Customers" has the meaning set forth in Section 4.24.
"Material Adverse Effect" means any material adverse effect on
the business, operations, assets, condition (financial or otherwise),
liabilities, results of operations or prospects of Company.
"Parent Common Stock" means the shares of Common Stock
issuable in accordance with the share provisions attaching to the Buyer's
Shares.
"Permitted Encumbrances" has the meaning set forth in Section
4.8(c).
"Person" means an individual, partnership, venture,
unincorporated association, organization, syndicate, corporation, trust and
trustee, executor, administrator or other legal or personal representative or
any government or any agency or political subdivision thereof.
"Pre-Closing Period" means all taxable periods ending on or
before the Closing Date and the portion ending on or before the Closing Date of
any taxable period that includes (but does not end on) the Closing Date.
3
<PAGE> 9
"Prospectus" has the meaning set forth in Section 4.26(b).
"Public Offering" means the underwritten public offering of
Common Stock by the Company that is contemplated by the Registration Statement.
"Registration Statement" means 3-D's registration statement on
Form S-1 filed with the SEC on October 8, 1996 (Registration No. 333-13665),
including all amendments thereto.
"SEC" means the United States Securities and Exchange
Commission.
"Share Exchange Agreement" means the Share Exchange Agreement
among 3-D and the Buyer in substantially the form attached hereto as Exhibit D
to be entered into by 3-D and the Buyer at the Closing.
"Support Agreement" means the Support Agreement between 3-D
and Buyer in substantially the form attached hereto as Exhibit E to be entered
into by 3-D and Buyer at the Closing.
"Tax(es)" means all federal, provincial, local, foreign and
other taxes, assessments or other governmental charges, including without
limitation, income, estimated income, gross receipts, business, capital,
occupation, franchise, property, value added, goods and services, sales, use,
transfer, excise, employment, payroll and withholding taxes, including interest,
penalties and additions in connection therewith.
"United States" or "U.S." means the United States of America.
ARTICLE II
Purchase and Sale
2.1 Purchase and Sale of Company Shares. (a) Subject to and
upon the terms and conditions hereinafter set forth, at the Closing, and in
reliance upon the representations and warranties of each other contained in this
Agreement or made pursuant hereto:
(i) DS shall sell, convey, assign, transfer and deliver to
Buyer (a) 5 shares of Company Class A Stock, free and clear of any and all
Encumbrances, and Buyer shall purchase the same for a number of Buyer's Shares
determined pursuant to Section 2.1(b), and (b) 5 shares of Company Class A
Stock, free and clear of any and all Encumbrances, and Buyer shall purchase the
same for $75,000 in cash;
(ii) PS shall sell, convey, assign, transfer and deliver to
Buyer (a) 5 shares of Company Class A Stock, free and clear of any and all
Encumbrances, and Buyer shall purchase the same for a number of Buyer's Shares
determined pursuant to Section 2.1(b),
4
<PAGE> 10
and (b) 5 shares of Company Class A Stock, free and clear of any and all
Encumbrances, and Buyer shall purchase the same for $75,000 in cash;
(b) The number of Buyer's Shares to be delivered to DS
pursuant to Section 2.1(a)(i) shall equal the result obtained by multiplying
$150,000 by 50% and by dividing the product so obtained by the Common Stock
Market Price and the number of Buyer's Shares to be delivered to PS pursuant to
Section 2.1(a)(ii) shall equal the result obtained by multiplying $150,000 by
50% and by dividing the product so obtained by the Common Stock Market Price;
provided, however, that in no event shall Buyer issue any fractional share and
any such fraction shall be rounded up to the nearest whole number. The Common
Stock Market Price means the equivalent in Canadian dollars as provided below of
the average closing price (in U.S. dollars) of one share of Common Stock on the
NASDAQ National Market for the three consecutive Business Days ending on the
Business Day immediately prior to the Closing Date, as reported by The Wall
Street Journal (provided, however, that if such average is less than $8.00
(U.S.) or more than $10.00 (U.S.), such average shall be deemed to be $8.00
(U.S.) or $10.00 (U.S.), respectively for purposes of determining the Common
Stock Market Price), which average (or deemed average) shall be translated into
Canadian dollars at the exchange rate therefor as reported by The Wall Street
Journal on the last Business Day immediately prior to the Closing Date.
(c) Each of DS and PS and the Buyer shall elect jointly under
subsection 85(1) of the Income Tax Act (Canada) in respect of the purchase and
sale of shares provided for in this Section 2.1 and shall specify therein as
each Seller's proceeds of disposition of the Company Shares, as the case may be,
and Buyer's cost of such shares shall be such amount as such Seller determines,
subject to the several limitations of said section 85. Such election shall be
made in the manner and filed within the time provided by said section 85.
ARTICLE III
Closing
3.1 Closing Date. Subject to the fulfillment or waiver of the
conditions precedent set forth in Articles VIII and IX, the closing of the
transactions contemplated hereby (the "Closing") shall be held on January 7,
1997 at 10:00 a.m., prevailing local time, at the offices of Beaumont Church,
AGT Tower, 2200-411 1st Street S.E., Calgary, Canada, or at such other time or
other place as may be agreed to by Buyer and Sellers. The date on which the
Closing occurs is herein referred to as the "Closing Date"; provided, however,
that, subject to Section 10.2, if any condition to a party's obligation
hereunder to close shall not have been satisfied (or waived by the party
entitled to waive it) on the day prior to the date determined by Buyer and
Sellers to be the Closing Date, then the party whose obligation to close is
subject to a condition not satisfied or waived may postpone the Closing, from
time to time, by giving notice to the other parties, until the condition has
been met. For accounting purposes, the parties agree that the Closing shall be
deemed to have occurred at 12:01 A.M., local time, in Calgary, Canada on
December 31, 1996.
5
<PAGE> 11
3.2 Certain Actions at Closing. (a) At the Closing:
(i) DS shall deliver to Buyer one or more certificates
representing in the aggregate 10 shares of Company Class A Stock, duly
endorsed in blank or accompanied by duly executed stock transfer
powers, and Buyer shall duly issue and deliver to DS one or more
certificates registered in DS's name representing an aggregate of the
number of Buyer's Shares determined pursuant to the provisions of
Section 2.1(b) and $75,000 in cash, payable by certified or official
bank check payable to the order of C. David Siegfied;
(ii) PS shall deliver to Buyer one or more certificates
representing in the aggregate 10 shares of Company Class A Stock, duly
endorsed in blank or accompanied by duly executed stock transfer
powers, and Buyer shall duly issue and deliver to PS one or more
certificates registered in PS's name representing an aggregate of the
number of Buyer's Shares determined pursuant to the provisions of
Section 2.1(b) and $75,000 in cash, payable by certified or official
bank check payable to the order of Peggy J. Siegfried;
(iii) 3-D and Buyer shall execute and deliver the Support
Agreement and the Share Exchange Agreement;
(iv) DS shall execute and deliver the Employment
Agreement;
(v) Sellers shall execute and/or deliver to Buyer
each other document, certificate or other instrument required to be
executed and/or delivered by Sellers under this Agreement at or prior
to the Closing;
(vi) 3-D and Buyer shall execute and/or deliver to
Sellers each other document, certificate or other instrument required
to be executed and/or delivered by 3-D or Buyer under this Agreement at
or prior to the Closing; and
(vii) Sellers shall cause Company to deliver to Buyer
its minute book, share certificate book, stock register, stock transfer
records, books of account, accounting records and all other corporate
records and documents.
(b) Sellers shall be liable for and shall pay all Taxes,
direct or indirect, if any, attributable to the transfer of the Company Shares,
and, in connection therewith, shall affix any necessary transfer stamps to the
stock certificates (or stock transfer powers) evidencing such shares.
6
<PAGE> 12
ARTICLE IV
Representations and Warranties of Sellers
Sellers, jointly and severally, hereby represent and warrant
to the Buyer that, except as set forth in the disclosure schedule accompanying
this Agreement (the "Disclosure Schedule"), each of the statements contained in
this Article IV is true, correct and complete. The Disclosure Schedule will be
arranged in sections corresponding to the Sections of this Article IV.
4.1 Organization and Good Standing.
(a) Company is a corporation duly organized, validly existing
and in good standing under the laws of the Province of Alberta. Company has full
corporate power and authority to own its properties and to carry on its business
as it is now being conducted and as it is proposed to be conducted. Company is
duly qualified to transact business and is in good standing in each jurisdiction
wherein the nature of the business done or the property owned, leased or
operated by it requires such qualification. Copies of the constating documents
and by-laws of Company and all amendments thereto have been delivered to Buyer
and are true and complete. The corporate minutes, corporate records and stock
register and transfer records of Company have been made available to Buyer and
are true and complete. Such corporate minutes reflect all actions taken by the
Board of Directors (or any committee thereof) and shareholders of Company.
(b) The business carried on by Company has been conducted by
Company directly, and not through any Affiliated Person, or any shareholder,
officer, director or employee of any Affiliated Person, or through any other
Person. Company has no subsidiaries and is not a party to, directly or
indirectly, or under any obligation to enter into, any joint venture,
partnership or other profit sharing arrangement.
(c) Company owns the seismic data acquisition equipment listed
on Exhibit F attached hereto (the "Equipment"), which it leases to J.R.S., and
owns no other assets, conducts no other operations, carries on no other business
and provides no other services. Company is not a party to, directly or
indirectly, or under any obligation to enter into, any joint venture,
partnership or other profit sharing arrangement.
(d) Each Seller has full legal capacity to enter into and
carry out his or her obligations under this Agreement and is not under any
prohibition or restriction, contractual, statutory or otherwise, against doing
so.
4.2 Capitalization. (a) Company's authorized capital stock
consists solely of an unlimited number of shares of Class A Voting Common Stock
("Company Class A Stock") and an unlimited number of shares of Class B
Non-Voting Common Stock ("Company Class B Common Stock"), of which twenty shares
(and no more) of Company Class A Stock and no shares of Company Class B Stock
(collectively, "Company Shares") are validly issued and outstanding, fully paid
and non-assessable.
7
<PAGE> 13
(b) There are no outstanding or authorized options, warrants,
purchase agreements, subscription rights, conversion rights, exchange rights or
other securities, contracts or commitments that could require Company to issue,
sell or otherwise cause to become outstanding any of its authorized but unissued
shares of capital stock or to create, authorize, issue, sell or otherwise cause
to become outstanding any new class of capital stock. None of the issued and
outstanding shares of capital stock of Company has been issued in violation of
any rights of any Person or in violation of the prospectus or registration
requirements of any Canadian or United States securities law.
4.3 Ownership of Shares. (a) DS owns beneficially and of
record, and has good, valid and marketable title to and the right to transfer to
Buyer, 10 shares of Company Class A Stock and PS owns beneficially and of
record, and has good, valid and marketable title to and the right to transfer to
Buyer, 10 shares of Company Class A Stock, free and clear of any and all
Encumbrances.
(b) No person other than DS and PS owns any shares of capital
stock of the Company. Jill Ann Siegfried and Kari Lee Siegfried no longer hold
any right, title to, or interest in 2 shares of Class B Non-Voting Common Stock
of the Company, said shares having been subscribed for and exchanged by the
Company in exchange for good and sufficient consideration.
(c) No person other than Buyer has any written or oral
agreement or option to or any right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an agreement or option for the purchase or
acquisition from either Seller of any of the shares of capital stock of Company.
4.4 Authorization. (a) This Agreement has been duly executed
and delivered by each Seller and constitutes a legal, valid and binding
obligation of each Seller, enforceable against him or her in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other laws affecting the rights of creditors generally
and by general principles of equity.
(b) At the Closing, the Employment Agreement shall be duly
executed and delivered by DS (the "Employee") and will constitute a legal,
valid, binding and enforceable obligation of the Employee.
4.5 No Conflict; Transactions with Certain Persons.
(a) Except as set forth in Section 4.5(a) of the Disclosure
Schedule, the execution and delivery of this Agreement by either of Sellers, nor
the consummation of the transactions contemplated hereby, will (i) conflict with
or violate the constating documents or by-laws or resolutions of the directors
or shareholders of Company, or (ii) conflict with, violate, result in the breach
of any term of, constitute a default under, require the consent or approval of
or any notice to or filing with any third party or governmental authority under,
or create an Encumbrance on any of the shares of capital stock or the assets of
Company under, any note, mortgage, deed of trust or other agreement or
instrument to which either of Sellers or Company is a party or by which either
of Sellers or Company is bound, or either
8
<PAGE> 14
law, order, rule, regulation, decree, writ, injunction, license, approval,
authorization, franchise or permit of any governmental body having jurisdiction
over either of Sellers or Company or their respective properties.
(b) Except as described in Section 4.5(b) of the Disclosure
Schedule, (i) Company has not at any time since July 1, 1990, directly or
indirectly, purchased, leased or otherwise acquired any property or obtained any
services from, or sold, leased or otherwise disposed of any property or
furnished any services to (except in each case with respect to remuneration for
services rendered as a director, officer or employee of Company), in the
ordinary course of business or otherwise, either Seller, any member of the
immediate family of either Seller or any other Person (other than Company) that,
directly or indirectly, alone or together with others, controls, is controlled
by or is under common control with Company or either Seller or any member of the
immediate family of either Seller (the Persons listed in this clause (i) being
referred to herein collectively as "Affiliated Persons" and individually as an
"Affiliated Person"); (ii) Company does not owe any amount to any Affiliated
Person; and (iii) no Affiliated Person owes any amount to Company and no part of
the property or assets of any Affiliated Person is used by Company in the
conduct or operation of its business, except for the property referred to in
Section 4.5(b)(i).
4.6 Financial Statements; Undisclosed Liabilities;
Receivables; Supplies.
(a) The Financial Statements, complete and correct copies of
which have been delivered to Buyer, fairly present the financial condition of
Company as at their respective dates and the results of operations and cash
flows of Company for the periods covered thereby. The Financial Statements have
been prepared from the books and records of Company in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby.
(b) Except as and to the extent reflected or reserved against
on the Interim Balance Sheet or as set forth in Section 4.6(b) of the Disclosure
Schedule, as of the date of the Interim Balance Sheet, Company had no
liabilities, debts or obligations (whether absolute, accrued, contingent or
otherwise) of any nature that would be required as of such date to have been
included on a balance sheet prepared in accordance with GAAP. Since the date of
the Interim Balance Sheet, Company has incurred no expenditures, debts or
obligations (whether absolute, accrued, contingent or otherwise) except as set
forth in Section 4.9(b) of the Disclosure Schedule, and there has been no
material adverse change in the business, operations, assets, condition
(financial or otherwise), liabilities, results of operations or prospects of
Company, and no event has occurred which is reasonably likely to result in a
Material Adverse Effect.
(c) Except as set forth in Section 4.6(c) of the Disclosure
Schedule, all receivables of Company (including accounts receivable, loans
receivable and advances) which are reflected on the Interim Balance Sheet, and
all such receivables which arise thereafter and prior to the Closing, have
arisen or will have arisen only from bona fide transactions in the ordinary
course of business and such receivables (i) shall be fully collectible at the
aggregate recorded amounts thereof (except to the extent of appropriate reserves
therefor
9
<PAGE> 15
established in accordance with GAAP), and (ii) are not and will not be subject
to defense, counterclaim or offset.
(d) All items of supplies and other consumables reflected on
the Interim Balance Sheet, and all such items of supplies and other consumables
that are acquired thereafter and prior to the Closing, are or will be useable in
the ordinary course of business. Company has and will through the Closing
maintain a sufficient but not an excessive quantity of each type of such
supplies and other consumables in order to meet the normal requirements of its
business and operations.
4.7 Taxes.
(a) Company has timely filed with the appropriate taxing
authorities all returns and reports in respect of Taxes ("Returns") required to
be filed by it (taking into account any extension of time to file). The
information on such Returns is complete and accurate in all respects. Company
has paid on a timely basis all Taxes (whether or not shown on any Return) due
and payable, except for Taxes which Company, in good faith, represents are not
due and payable because they are being diligently contested by appropriate
proceedings and for which the Company has set aside on its books reserves to the
extent required by GAAP; there are no such Taxes being contested at the date of
this Agreement and such Taxes shall not aggregate in excess of $10,000. There
are no liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of Company.
(b) No unpaid (or unreserved in accordance with GAAP)
deficiencies for Taxes have been claimed, proposed or assessed by any taxing or
other governmental authority with respect to Company for any Pre-Closing Period,
and there are no pending or threatened audits, investigations or claims or
issued and outstanding assessments for or relating to any liability in respect
of Taxes of Company. Company has not requested any extension of time within
which to file any currently unfiled returns in respect of any Taxes and no
extension of a statute of limitations relating to any Taxes is in effect with
respect to Company. All taxation years of Company up to and including [November
30, 1991] are considered closed by Canadian federal and provincial tax
authorities for purposes of all Taxes.
(c) (i) Company has made or will make provision for all Taxes
payable by it with respect to any Pre-Closing Period which are not payable prior
to the Closing Date; (ii) the provisions for Taxes with respect to Company for
the Pre-Closing Period (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) are adequate to cover
all Taxes with respect to such period; (iii) Company has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, shareholder or other
third party; (iv) all material elections with respect to Taxes affecting Company
as of the date hereof are set forth in Section 4.7(c)(iv) of the Disclosure
Schedule; (v) Company has no net capital losses, non-capital losses or other
loss carryovers, tax credits or other favorable tax attributes; (vi) there are
no advance tax rulings in respect of any Tax pending between Company and any
taxing authority; (vii) Company does not own any interest in real
10
<PAGE> 16
property in the State of New York; (viii) the taxation year end for Company is
[November 30th] and Company has never been a member of an affiliated group or
filed or been included in a combined, consolidated or unitary return of any
Person; (ix) Company is not currently under any contractual obligation to
indemnify any Person with respect to Taxes or is a party to any tax sharing
agreement or any other agreement providing for payments by Company with respect
to Taxes; (x) Company has not made an election pursuant to Section 897(i) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), to be
treated as a domestic corporation; (xi) Company is not a party to any joint
venture, partnership or other arrangement or contract which could be treated as
a partnership for United States or Canadian income tax purposes; (xii) Company
has not entered into any sale leaseback or any leveraged lease transaction that
fails to satisfy the requirements of U.S. Revenue Procedure 75-21 (or similar
provisions of foreign law); (xiii) Company, as of the Closing Date, will not be
required, as a result of a change in method of accounting for any portion of the
Pre-Closing Period, to include any adjustment under Section 481 of the Code (or
any corresponding provision of foreign law) in taxable income for any period
after the Closing Date; (xiv) Company is not a party to any agreement, contract,
arrangement or plan that would result after the Closing (taking into account the
transactions contemplated by this Agreement), separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code; and (xv) the Disclosure Schedule contains a list of all
jurisdictions to which any Tax is properly payable by Company.
4.8 Title to Properties; Absence of Encumbrances.
(a) The Disclosure Schedule contains a complete and accurate
list by address of all real property owned, leased or used by Company,
indicating the nature of Company's interest therein. No condemnation,
expropriation, eminent domain or similar proceeding affecting all or any
material portion of any such real property is pending or, to the best knowledge
of Sellers or Company, threatened.
(b) Except as set forth in Section 4.8(b) of the Disclosure
Schedule, Company has good title to all of the material properties and assets,
real and personal, tangible and intangible, it owns or purports to own,
including the Equipment and those properties and assets reflected on its books
and records and on the Interim Balance Sheet (except for supplies and other
consumables utilized in the ordinary course of business and accounts receivable
collected after the date of the Interim Balance Sheet), free and clear of all
Encumbrances, except for Permitted Encumbrances. The Company has a valid
leasehold, license or other interest in all of the other material assets, real
or personal, tangible or intangible, which are used in the operation of its
business, free and clear of all Encumbrances, except for Permitted Encumbrances.
(c) "Permitted Encumbrances" means: (i) liens for Taxes not
yet due and payable or which are being diligently contested in good faith by
appropriate proceedings and as to which appropriate reserves (to the extent
required by GAAP) have been established in Company's books and records; (ii)
mechanics', materialmen's, carriers', warehousemen's, landlord's and similar
liens securing obligations not yet delinquent or which are being
11
<PAGE> 17
diligently contested in good faith by appropriate proceedings and as to which
appropriate reserves (to the extent required by GAAP) have been established in
Company's books and records; (iii) such imperfections of title, easements,
encroachments and Encumbrances as do not detract from the value or interfere
with the present use of the properties or assets subject thereto or affected
thereby; (iv) Encumbrances on personal property taken by or granted to a Person
who, by making advances or incurring an obligation gives value to enable Company
to acquire rights in or the use of such property, provided that the Encumbrance
does not extend to or cover any other property and the total cost to Company
that would be required to discharge such Encumbrance in full does not exceed the
value so given by such Person to Company; (v) Encumbrances, if any, noted in the
Financial Statements. None of such property leased by Company is subject to any
sublease, sublicense or other agreement granting to any other Person any right
to the use, occupancy or enjoyment of such property or any portion thereof.
(d) Except for the Equipment, Company does not own or lease
any property or assets, conduct any operation, carry on any business or provide
any services in the United States.
4.9 Intellectual Property.
(a) The Disclosure Schedule contains a complete and accurate
list and brief description of all patents and patent applications, all
registrations and applications for registration of trademarks, trade names,
business names, brand names, service marks, copyrights and common-law trademarks
owned or used by Company.
(b) All Intellectual Property used by Company in the operation
of its business is either (i) owned by Company free and clear of all
Encumbrances, other than Permitted Encumbrances, or (ii) subject to a right of
use by Company pursuant to a license or other agreement. No third party has been
granted by Company the right to use any Intellectual Property owned or used by
Company. To the best knowledge of Sellers or Company, no third party is
infringing upon or misappropriating any Intellectual Property used by Company in
the operation of its business and no activity in which Company is engaged
violates or infringes upon any intellectual property or other proprietary rights
of any third party. There is no legal action by any Person pending or, to the
best knowledge of Sellers or Company, threatened against Company with respect to
such matters, and no written claim with respect to such matters has been
received by Company since July 1, 1990.
4.10 Contracts and Agreements.
(a) Set forth in the Disclosure Schedule is a true and
complete list of each of the following contracts and agreements to which Company
is a party or by which Company or its properties are bound:
(i) each agreement providing for compensation in respect of
services performed by employees of Company;
12
<PAGE> 18
(ii) each management, service, consulting, retainer or other
similar type of agreement under which services are provided by any
other Person to Company;
(iii) each agreement that restricts the operation of the
business of Company as presently conducted and each agreement that
restricts the ability of Company to solicit customers or employees;
(iv) each agreement with an Affiliated Person;
(v) each operating lease (as lessor, lessee, sublessor or
sublessee) of any real property;
(vi) each operating lease (as lessor, lessee, sublessor or
sublessee) of any tangible personal property (except for leases calling
for payments of less than $10,000 per year and having a term of less
than two (2) years);
(vii) each license (as licensor, licensee, sublicensor or
sublicensee) of any Intellectual Property (other than customary,
non-negotiated licenses of computer software);
(viii) each agreement under which services are provided by
Company to any customer;
(ix) each written agreement for the purchase of supplies or
products which calls for performance by Company over a period of more
than two (2) months or with respect to which there exists an aggregate
future liability of Company in excess of $20,000;
(x) each agreement under which any money has been or may be
borrowed or loaned or any note, bond, indenture or other evidence of
indebtedness has been issued or assumed (other than those under which
there remain no ongoing obligations of Company), and each guaranty of
any evidence of indebtedness or other obligation, or of the net worth,
of any Person (other than endorsements for the purpose of collection in
the ordinary course of business);
(xi) each mortgage agreement, deed of trust, security
agreement, purchase money agreement, conditional sales contract or
capital lease (other than any purchase money agreement, conditional
sales contract or capital lease evidencing Encumbrances solely on
tangible personal property under which there exists an aggregate future
liability of Company not in excess of $30,000 per agreement, contract
or lease);
(xii) each partnership, joint venture or similar agreement;
(xiii) each agreement containing restrictions with respect to
the payment of dividends or other distributions in respect of Company's
capital stock;
13
<PAGE> 19
(xiv) each agreement to make unpaid capital expenditures in
excess of $10,000; and
(xv) each other agreement having an indefinite term or a
term of more than one (1) year (other than those that are terminable at
will or upon not more than thirty (30) days' notice by Company without
penalty) or requiring payments by Company of more than $10,000 per
year.
A complete and correct copy of each written agreement, lease, license, mortgage,
deed of trust, instrument, contract or other type of document required to be
disclosed pursuant to this Section 4.10(a) has been delivered to 3-D.
(b) Each material agreement, lease, license, mortgage, deed
of trust, instrument, contract or other type of document required to be
delivered pursuant to Section 4.10(a) to which Company is a party or by which
Company or its properties is bound (collectively, the "Contracts") is legal,
valid, binding and in full force and effect and is enforceable by Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity. Except as set forth in
Section 4.10(b) of the Disclosure Schedule, Company is not (with or without the
lapse of time or the giving of notice, or both) in material breach of or in
material default under any of the Contracts, and, to the best knowledge of
Sellers or Company, no other party to any of the Contracts is (with or without
the lapse of time or the giving of notice, or both) in material breach of or in
material default under any of the Contracts.
4.11 Insurance. All insurance policies currently maintained
by Company are accurately listed and described in the Disclosure Schedule. Each
such insurance policy is in full force and effect (free from any presently
exercisable right of termination on the part of the insurance company issuing
such policy prior to the expiration of the term of such policy) and all premiums
due and payable in respect thereof have been paid. Company has not received
notice of cancellation or non-renewal of any such policy. The transactions
contemplated by this Agreement will not give rise to a right of termination of
any such policy by the insurance company issuing the same prior to the
expiration of the term of such policy.
4.12 Litigation. Except as set forth in Section 4.12 of the
Disclosure Schedule, no lawsuit, governmental investigation or legal,
administrative or arbitration action or proceeding is pending or, to the best
knowledge of Sellers or Company, threatened against either of Sellers or Company
or any director, officer or employee of Company, in his or her capacity as such,
(i) which questions the validity of this Agreement or seeks to prohibit, enjoin
or otherwise challenge the consummation of the transactions contemplated hereby,
or (ii) which, if decided adversely to such Person, is reasonably likely to
result in a Material Adverse Effect. Company is not specifically identified as a
party subject to any restrictions or limitations under any judgment, order or
decree of any court, administrative agency or other governmental authority.
14
<PAGE> 20
4.13 Condition of Assets. The properties and assets, including
the Equipment and other supplies and other consumables, owned, leased or used by
Company in the operation of its business are in good operating condition and
repair, are suitable for the purposes for which they are used, are adequate and
sufficient for Company's current and reasonably foreseeable operations and are
directly related to the business of Company.
4.14 Compliance with Law. Except with respect to environmental
matters, which are covered by Section 4.17, (a) Company is in compliance in all
material respects with all applicable laws, statutes, rules, ordinances,
regulations, orders and decrees governing the operation of its business and all
of its governmental licenses, approvals, authorizations, franchises and permits.
Company has not received since July 1, 1990 any written notice of any violation
of any such law, statute, rule, ordinance, regulation, order, decree, license,
approval, authorization, franchise or permit. No written claim has been made or
legal action commenced against Company since July 1, 1990 that alleges any
violation of any laws, regulations or contract provisions relating to the
pricing of contracts with the Canadian or United States federal government or
any provincial, state or local government, or any agency of any thereof. Company
has not engaged in any fraudulent practices in connection with any bid or
contract for services to be performed for any governmental entity.
(b) Except with respect to environmental matters, which are
covered by Section 4.17, Company has all governmental licenses, approvals,
authorizations, franchises and permits necessary to conduct its business as
currently conducted; such governmental licenses, approvals, authorizations,
franchises and permits are in full force and effect; and no proceeding is
pending or, to the best knowledge of Sellers or Company, threatened seeking the
revocation or limitation of any such governmental license, approval,
authorization, franchise or permit. All governmental licenses, approvals,
authorizations, franchises and permits necessary for the ownership or operation
of its properties or assets, the provision of its services or the conduct of its
business by Company are listed in Section 4.14(b) of the Disclosure Schedule.
4.15 Employees.
(a) Other than DS and PS, Company has as of the date hereof
no employees.
(b) Company is in compliance in all material respects with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours.
(c) Company is not engaged in any unfair labor practice.
(d) No collective bargaining agreement with respect to the
business of Company is currently in effect or being negotiated. Company has no
obligation to negotiate any such collective bargaining agreement, and, to the
best knowledge of Sellers or Company,
15
<PAGE> 21
there is no indication that the employees of Company desire to be covered by a
collective bargaining agreement.
(e) There are no strikes, slowdowns or work stoppages pending
or, to the best knowledge of Sellers or Company, threatened with respect to the
employees of Company, nor has any such strike, slowdown or work stoppage
occurred or, to the best knowledge of Sellers or Company, been threatened since
July 1, 1990.
(f) Since July 1, 1990, Company has received no notice of the
intent of any government, body or agency responsible for the enforcement of
labor or employment laws to conduct an investigation of Company, and, to the
best knowledge of Sellers or Company, no such investigation is in progress.
(g) No notice has been received by Company of any complaint
filed by any of the employees against Company claiming that Company has violated
any applicable employment standards or human rights legislation or any
complaints or proceedings of any kind involving Company or, to the best
knowledge of Sellers or Company, any of the employees of Company before any
labor relations board. There are no outstanding orders or charges against
Company under any occupational health or safety legislation. All levies,
assessments and penalties made against Company pursuant to all applicable
workers compensation legislation have been paid by Company and Company has never
been reassessed under any such legislation.
4.16 Employee Benefit Plans.
(a) Section 4.16 of the Disclosure Schedule identifies each
retirement, pension, bonus, stock purchase, profit sharing, stock option,
deferred compensation, severance or termination pay, insurance, medical,
hospital, dental, vision care, drug, sick leave, disability, salary
contributions, legal benefits, unemployment benefits, vacation, incentive or
other compensation plan or arrangement or other employee benefit that is
maintained or otherwise contributed to, or required to be contributed to, by
Company for the benefit of employees or former employees of Company (the
"Employee Benefit Plans") and a true and complete copy of each Employee Benefit
Plan has been furnished to Buyer. Each Employee Benefit Plan has been maintained
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such Employee
Benefit Plan. Sellers have delivered to Buyer the actuarial valuations, if any,
prepared for each Employee Benefit Plan. Except as described in Section 4.16 of
the Disclosure Schedule:
(i) all contributions to, and payments from, each Employee
Benefit Plan that may have been required to be made in accordance with
the terms of any such Employee Benefit Plan, or with the recommendation
of the actuary for such Employee Benefit Plan, and, where applicable,
the laws of the jurisdictions that govern such Employee Benefit Plan,
have been made in a timely manner;
16
<PAGE> 22
(ii) all material reports, returns and similar documents
(including applications for approval of contributions) with respect to
any Employee Benefit Plan required to be filed with any governmental
agency or distributed to any Employee Benefit Plan participant have
been duly filed on a timely basis or distributed;
(iii) there are no pending investigations by any governmental
or regulatory agency or authority involving or relating to an Employee
Benefit Plan, no threatened or pending claims (except for claims for
benefits payable in the normal operation of the Employee Benefit
Plans), suits or proceedings against any Employee Benefit Plan or
asserting any rights or claims to benefits under any Employee Benefit
Plan that could give rise to a liability nor, to the best knowledge of
Sellers or Company, are there any facts that could give rise to any
liability in the event of such investigation, claim, suit or
proceeding;
(iv) no notice has been received by either Seller or Company
of any complaints or other proceedings of any kind involving Company
or, to the best knowledge of Sellers or Company, any of the employees
of Company before any pension board or committee relating to any
Employee Benefit Plan or to Company; and
(v) the assets of each Employee Benefit Plan are at least
equal to the liabilities of such Employee Benefit Plan based on the
actuarial assumptions utilized in the most recent valuation performed
by the actuary for such Employee Benefit Plan, and neither 3-D, Buyer
nor any of their respective affiliates (other than Company) will incur
any liability with respect to any Employee Benefit Plan as a result of
the transactions contemplated by this Agreement.
(b) The Disclosure Schedule also sets forth a summary, in
reasonable detail, of the Employee Benefit Plans that cover the employees of
Company.
4.17 Environmental Matters.
(a) Company has all Environmental Permits that are required
for the lawful operation of its business, and all Environmental Permits
possessed by Company are listed in Section 4.17(a) of the Disclosure Schedule.
Each such Environmental Permit is valid, subsisting and in good standing and
Company is not in default or in breach of any such Environmental Permit and no
proceeding is pending or threatened and no grounds exist to revoke or limit any
such Environmental Permit. Company (i) is in compliance with all terms and
conditions of its Environmental Permits and is in compliance with and not in
default under any applicable Environmental Law, and (ii) has not received since
July 1, 1990 written notice of any violation by or claim under any Environmental
Law.
(b) There have been no Releases by Company of any Hazardous
Substances (i) into, on, around, from or under any of the properties or assets
owned or operated (or formerly owned or operated) by Company, or (ii) into, on,
around, from or under any other properties, including landfills, in which
Hazardous Substances have been Released or
17
<PAGE> 23
properties on or under which Company has performed services, in any case in such
a way as to create any material unpaid liability (including the costs of
required remediation) of Company under any applicable Environmental Law.
(c) No property has been used at any time by Company as a
"landfill" or as a treatment, storage or disposal facility for any Hazardous
Substance.
(d) Company has never received any notice of, or has been
prosecuted for, non-compliance with any Environmental Law nor has Company
settled any allegation of non-compliance prior to prosecution. There are no
notices, orders or directions relating to environmental matters requiring, or
notifying Company that it is or may be responsible for, any containment,
clean-up or remediation or corrective action of any work, repairs, construction
or capital expenditures to be made under any Environmental Law with respect to
the business of Company or any of the properties or assets owned, operated or
occupied (or formerly owned, operated or occupied) by Company.
(e) There are no Hazardous Substances located at, on or under
any of the properties or assets owned, operated or occupied (or formerly owned,
operated or occupied) by Company except those being used, stored and handled in
compliance with Environmental Laws.
(f) Sellers have delivered to Buyer true and complete copies
of all environmental audits, evaluations, assessments, studies and tests
relating to the business or the properties or assets of Company or their use
which are or with reasonable effort could be within the possession or control of
either Seller.
(g) There is no asbestos or asbestos-containing material or
PCBs contained in any of the buildings or structures owned or leased by Company,
except for asbestos or asbestos-containing material the present form, amount and
location of which does not create any unpaid material liability (including the
costs of required remediation) of Company under any applicable Environmental Law
(regardless of whether subsequent occurrences could expose or change the form or
location of, or cause the Release of, such substances). No written claims have
been made, and no suits or proceedings are pending or threatened, by any
employee against Company that are premised on exposure to asbestos or
asbestos-containing material or PCBs.
(h) No underground storage tanks, abandoned wells or landfills
are or have been located on any real property owned, operated or occupied by
Company.
(i) For purposes of this Agreement, the capitalized terms
defined below shall have the meanings ascribed to them below.
(i) "Environment" means all air, surface water,
groundwater, drinking water or land, including land surface or
subsurface.
18
<PAGE> 24
(ii) "Environmental Laws" means any and all federal,
provincial, municipal or local laws, statutes, ordinances, by-laws and
regulations, and orders, directives and decisions rendered by, and
policies, instructions, guidelines and similar guidance of, any
ministry, department or administrative or regulatory agency relating to
the protection of the Environment, occupational health and safety or
the manufacture, processing, distribution, use, treatment, storage,
disposal, discharge, packaging, transport, handling, containment,
clean-up or other remediation or corrective action of any Hazardous
Substances.
(iii) "Environmental Permits" means all approvals, consents,
permits, licenses, registrations, certificates and other authorizations
required by any applicable Environmental Law relating to: (A) pollution
or the protection of the Environment, occupational health or safety,
including without limitation those relating to the emission, Release or
discharge of any Hazardous Substances into the Environment, (B) the
manufacture, processing, distribution, use, treatment, storage,
disposal, generation, packaging, transport or handling of Hazardous
Substances, or (C) the containment, cleanup or other remediation of
Hazardous Substances from any real property.
(iv) "Hazardous Substance(s)" means, without limitation, any
flammable explosives, radioactive materials, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products
(including but not limited to waste petroleum and petroleum products),
methane, hazardous materials, hazardous wastes, pollutants,
contaminants, chemicals and hazardous, industrial or toxic substances
or wastes.
(v) "Release" means any past or present spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of a Hazardous Substance into the
Environment.
4.18 Powers of Attorney. There are no outstanding powers of
attorney to act in the place and stead of Company.
4.19 Officers and Directors. Section 4.19 of the Disclosure
Schedule sets forth all of the officers and directors of Company and, with
respect to each such officer, all offices held by such Person.
4.20 Bank Accounts. Section 4.20 of the Disclosure Schedule
sets forth the name of each bank in which Company has an account, lock box or
safe deposit box, the number of each such account, lock box and safe deposit
box, and the names of all Persons authorized to draw thereon or have access
thereto.
4.21 Absence of Certain Changes. Since November 30, 1995,
Company has operated its business in the ordinary course consistent with past
practice. Without limiting the generality of the immediately preceding sentence,
since that date, Company has not:
19
<PAGE> 25
(i) amended or otherwise modified its constating documents or
by- laws (or similar organizational documents);
(ii) issued or sold or authorized for issuance or sale, or
granted any options or made other agreements of the type referred to in
Section 4.2(e) with respect to, any shares of its capital stock or any
other of its securities, or altered any term of any of its outstanding
securities or made any change in its outstanding shares of capital
stock or other ownership interests or its capitalization, whether by
reason of a reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares, stock dividend or
otherwise;
(iii) except as disclosed in Section 4.21 of the Disclosure
Schedule, mortgaged, pledged or granted any security interest in any of
its assets, except security interests solely in tangible personal
property granted pursuant to any purchase money agreement, conditional
sales contract or capital lease under which there exists an aggregate
future liability not in excess of $30,000 per agreement, contract or
lease (which amount was not more than the purchase price for such
personal property and which security interest does not extend to any
other item or items of personal property);
(iv) declared, set aside, made or paid any dividend or other
distribution to any shareholder with respect to its capital stock;
(v) redeemed, purchased or otherwise acquired, directly or
indirectly, any capital stock;
(vi) increased the compensation of any of its employees;
(vii) adopted or (except as otherwise required by law) amended
any Employee Benefit Plan or entered into any collective bargaining
agreement;
(viii) terminated or modified any Contract, or received any
written notice of termination of any Contract, except for terminations
of Contracts upon their expiration during such period in accordance
with their terms and terminations or modifications that have not had
and are not reasonably likely to result in a Material Adverse Effect;
(ix) incurred or assumed any indebtedness for borrowed money
or guaranteed any obligation or the net worth of any Person, except for
endorsements of negotiable instruments for collection in the ordinary
course of business;
(x) discharged or satisfied any Encumbrance other than those
then required to be discharged or satisfied in accordance with their
original terms;
(xi) paid any material obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, except
for any current
20
<PAGE> 26
liabilities, and the current portion of any long term liabilities,
shown on the Financial Statements or the Interim Balance Sheet (or not
required as of the date thereof to be shown thereon in accordance with
GAAP) or incurred since the date of the Interim Balance Sheet in the
ordinary course of business consistent with past practice;
(xii) sold, transferred, leased to others or otherwise
disposed of any material asset except in the ordinary course of
business consistent with past practice;
(xiii) cancelled or compromised any material debt or claim;
(xiv) suffered any damage or destruction to or loss of any of
its tangible assets (whether or not covered by insurance) which has had
or is reasonably likely to result in a Material Adverse Effect;
(xv) lost the employment services of any key employee;
(xvi) made any loan or advance to any Person other than travel
and other similar routine advances in the ordinary course of business
consistent with past practice, or acquired any capital stock or other
securities of any other corporation or any ownership interest in any
other business enterprise;
(xvii) made any capital expenditures or capital additions or
betterments in amounts which exceeded $50,000 in the aggregate, except
as contemplated in capital budgets in effect on the date of this
Agreement;
(xviii) changed its method of accounting or the accounting
principles or practices utilized in the preparation of the Financial
Statements, other than as required by GAAP;
(xix) instituted or settled any litigation or any legal,
administrative or arbitration action or proceeding before any court or
governmental body relating to it or its property;
(xx) suffered any incident or event which, individually or in
the aggregate, has had or is reasonably likely to result in a Material
Adverse Effect;
(xxi) committed to provide services for an indefinite period
or a period of more than two (2) months; or
(xxii) entered into any commitment to do any of the foregoing.
4.22 Books and Records. All accounts, books, ledgers and
official and other records prepared and kept by Company have been truthfully and
properly kept and completed in all respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein.
21
<PAGE> 27
4.23 Absence of Certain Business Practices. Neither Company
nor any of its officers, employees or authorized agents, or any other Person
acting on behalf of any of them has, directly or indirectly, since July 1, 1990,
given or agreed to give any gift or similar benefit to any governmental
employee, domestic or foreign, who is or may be in a position to help or hinder
the business of Company (or assist it in connection with any actual or proposed
transaction) which could (i) subject Company to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, domestic or foreign,
or (ii) if not continued in the future, result in a Material Adverse Effect.
4.24 Customer Relationships. Company's major customers in the
first nine months of 1996 and in 1995, 1994 and 1993 are listed on Exhibit G
(collectively, the "Major Customers"). Company has no reason to believe that its
relations with the Major Customers will be reduced in the future.
4.25 No Broker or Finder. No broker or finder has been engaged
by either Seller or Company in connection with the transactions contemplated by
this Agreement, and no commission, finder's fees or other similar compensation
or remuneration is payable to any Person as a result of either Seller's or
Company's actions in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4.26 Securities Laws.
(a) Each Seller understands that (i) the Buyer's Shares he or
she may acquire pursuant to this Agreement and the Parent Common Stock he or she
may acquire in accordance with the share provisions attaching to the Buyer's
Shares or in accordance with the provisions of the Share Exchange Agreement will
not be registered under the Act and may not be sold or otherwise disposed of
unless they are so registered or are sold or otherwise disposed of in a
transaction that is exempt from such registration, (ii) such securities may have
to be held for at least two years before any of them may be sold and at least
three years before they may be sold without significant restrictions, and (iii)
the certificates representing such Buyer's Shares and such shares of Parent
Common Stock will bear legends identical with or similar to the following:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THEY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION (OR IN COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION) UNDER
SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS."
(b) Each Seller acknowledges that (i) he or she has received
and read carefully the Registration Statement, including 3-D's preliminary
prospectus dated October 8, 1996 forming a part thereof that describes 3-D, the
Parent Common Stock and containing certain other relevant information (the
"Prospectus"); (ii) he or she has been given the opportunity to ask questions of
and obtain relevant documents from 3-D concerning 3-D and
22
<PAGE> 28
Buyer; and (iii) all of their questions and requests for information and
documents have been answered to such Seller's complete satisfaction.
(c) Each Seller has evaluated the merits and risks of an
investment in the Buyer's Shares to be issued at the Closing hereunder and the
shares of Parent Common Stock issuable in accordance with the share provisions
attaching to the Buyer's Shares or in accordance with the provisions of the
Share Exchange Agreement, and has affirmatively decided to make such investment
based solely on such evaluation, the representations, warranties and covenants
of 3-D and Buyer contained in this Agreement (or in any schedule, certificate or
other document delivered by 3-D or Buyer pursuant hereto) and the information
contained in the Prospectus and Registration Statement.
(d) Sellers are not affiliated, directly or indirectly, with a
member broker-dealer firm of the National Association of Securities Dealers,
Inc. ("NASD") as employees, officers, directors, partners or shareholders or as
relatives or members of the same household of an employee, director, partner or
shareholder of an NASD member broker-dealer firm.
(e) Any Buyer's Shares a Seller acquires pursuant to this
Agreement and any shares of Parent Common Stock a Seller acquires in accordance
with the share provisions attaching to the Buyer's Shares or in accordance with
the provisions of the Share Exchange Agreement will be for his or her own
account for investment and not with any view to the distribution thereof, and no
Seller will sell, assign, transfer or otherwise dispose of any of such
securities, or any interest therein, in violation of the registration
requirements of the Act, or the state securities or blue sky law of any State of
the United States, or in violation of the prospectus or registration
requirements of the securities legislation of any province or territory of
Canada, and no Seller has any present plan or intention to sell, exchange or
otherwise dispose of any of such securities, or any interest therein, in
violation of such registration requirements.
(f) Sellers acknowledge to 3-D and Buyer that Garrett Power,
an independent firm of chartered accountants, is acting on behalf of Sellers as
Seller's representative in connection with evaluating the merits and risks of
the Sellers receiving Buyer's Shares and Parent Common Stock pursuant hereto.
Sellers also acknowledge that 3-D and Buyer will rely on this acknowledgement in
establishing that the transactions contemplated by this Agreement are exempt
from the registration requirements of the Act.
4.27 Disclosure Schedule. Each of the statements contained in
the Disclosure Schedule is true and complete.
4.28 Residency. Each Seller is a resident of Canada for
purposes of the Income Tax Act (Canada). PS is a citizen of Canada and DS is a
citizen of the United States and Canada.
23
<PAGE> 29
ARTICLE V
Representations and Warranties of 3-D and Buyer
3-D and Buyer each represents and warrants to Sellers as follows:
5.1 Organization and Good Standing. 3-D is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to enter into and carry out
its obligations under this Agreement, the Support Agreement and the Share
Exchange Agreement. Buyer is a corporation duly organized, validly existing and
in good standing under the laws of Canada and has full corporate power and
authority to enter into and carry out its obligations under this Agreement, the
Escrow Agreement, the Support Agreement and the Share Exchange Agreement.
5.2 Capitalization. As of the date of this Agreement, 3-D's
authorized capital stock consists solely of 25,000,000 shares of Common Stock,
par value $.01 per share ("Common Stock"), of which 7,600,000 shares are issued
and outstanding, and 1,000,000 shares of preferred stock, par value $.01 per
share, issuable in series, of which none is issued and outstanding. Buyer's
authorized capital stock consists solely of an unlimited number of common
shares, of which 100 shares are issued and outstanding and owned by 3-D. All of
the issued and outstanding common shares of Buyer and all of the issued and
outstanding shares of Parent Common Stock have been duly authorized and are
validly issued and outstanding, fully paid and non-assessable. At or prior to
the Closing, Buyer shall amend its share capital to create a new class of
exchangeable non-voting shares having substantially the rights, privileges,
restrictions and conditions set forth on Exhibit A attached hereto so that
Buyer's authorized capital stock at the Closing shall be an unlimited number of
common shares and an unlimited number of exchangeable non-voting shares. At the
Closing, Buyer shall issue the Buyer's Shares to Sellers pursuant to Section
2.1.
5.3 Ownership of Shares. All of the Buyer's Shares issuable by
Buyer pursuant to Section 2.1 shall be, upon issuance, (a) duly authorized,
validly issued, fully paid and non-assessable, and (b) free and clear of all
Encumbrances placed thereon by Buyer (other than any Encumbrances arising under
this Agreement), and shall have substantially the rights, privileges,
restrictions and conditions described in Exhibit A attached hereto. All shares
of Parent Common Stock issuable in accordance with the share provisions of
Buyer's Shares shall be, upon issuance in accordance with the share provisions
of Buyer's Shares, (a) duly authorized, validly issued, fully paid and
non-assessable, and (b) free and clear of all Encumbrances placed thereon by 3-D
or Buyer (other than any Encumbrances arising under this Agreement).
5.4 Authorization. The execution and delivery of this
Agreement, the Support Agreement and the Share Exchange Agreement by 3-D and by
Buyer have been duly authorized by all necessary corporate action required on
the part of 3-D and Buyer. This Agreement has been duly executed and delivered
by 3-D and Buyer and constitutes a legal, valid and binding obligation of 3-D
and Buyer, enforceable against 3-D and Buyer in
24
<PAGE> 30
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other laws affecting the rights
of creditors generally and by general principles of equity. At the Closing, 3-D
and Buyer will duly execute and deliver the Support Agreement and the Share
Exchange Agreement and each such agreement will constitute a legal, valid and
binding obligation of 3-D and Buyer, enforceable against 3-D and Buyer in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other laws affecting the rights
of creditors generally and by general principles of equity. At the Closing, the
Employment Agreement shall be duly executed and delivered by J.R.S. and will
constitute a legal, valid and binding obligation of J.R.S., enforceable against
J.R.S. in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other laws affecting
the rights of creditors generally and by general principles of equity.
5.5 No Conflicts. Neither the execution and delivery by 3-D or
Buyer of this Agreement, the Support Agreement or the Share Exchange Agreement
nor the consummation by 3-D or Buyer of the transactions contemplated hereby or
thereby will (i) conflict with or violate the certificate of incorporation or
by-laws (or other organizational document) of 3-D or Buyer, or (ii) conflict
with, violate, result in the breach of any term of, constitute a default under
or require the consent of or any notice to or filing with any Person under, any
note, mortgage, deed of trust or other agreement or instrument to which 3-D or
Buyer is a party or by which 3-D or Buyer is bound, or any law, order, rule,
regulation, decree, writ or injunction of any governmental body having
jurisdiction over 3-D or Buyer or their respective properties (except where such
conflict, violation, breach or default, or the failure to obtain such consent,
give such notice or make such filing, would not impair the ability of 3-D or
Buyer to consummate the transactions contemplated hereby), except for any
filings with, and exemption orders required to be obtained from, the applicable
provincial securities regulatory authorities in connection with the issuance of
either Buyer's Shares or Parent Common Stock to either Seller.
5.6 Financial Condition; Etc. 3-D has delivered to each Seller
a true, correct and complete copy of the Registration Statement, including the
Prospectus. The financial statements of 3-D contained in the Prospectus, as
described therein, fairly present the financial condition of 3-D as of their
respective dates and the results of operations and cash flows of 3-D for the
periods covered thereby. Such financial statements have been prepared from the
books and records of 3-D and its subsidiaries in accordance with United States
generally accepted accounting principles applied on a consistent basis
throughout the periods covered thereby. Since June 30, 1996, there has been no
material adverse change in the business or financial condition of 3-D and its
subsidiaries, taken as a whole. As of its date, the Registration Statement,
including the Prospectus, complied as to form in all material respects with all
applicable requirements of the Act and the rules and regulations of the SEC
thereunder, and the Prospectus did not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Buyer was incorporated on November 27, 1996, has conducted no
business or operations and has no material assets or liabilities. Each amendment
or supplement to the Registration Statement and Prospectus delivered to Sellers
pursuant to Section 7.3 will, as of its respective date, comply as to form
25
<PAGE> 31
in all material respects with all applicable requirements of the Act and the
rules and regulations of the SEC thereunder, and no amended or supplemented
prospectus included therein will include an untrue statement of a material fact
or will omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5.7 Litigation. No lawsuit, governmental investigation or
legal, administrative or arbitration action or proceeding is pending or, to the
best knowledge of 3-D or Buyer, threatened against 3-D or Buyer, or any
director, officer or employee of 3-D or Buyer
5.8 No Broker or Finder. No broker or finder has been engaged
by 3-D or Buyer in connection with the transactions contemplated by this
Agreement, and no commission, finder's fees or other similar compensation or
remuneration is payable to any Person as a result of 3-D's or Buyer's actions in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for remuneration that will be
paid by 3-D.
ARTICLE VI
Covenants of Sellers
Sellers, jointly and severally, hereby covenant and agree as
follows:
6.1 Normal Course. From the date hereof until the Closing,
Company will: (i) maintain its corporate existence in good standing; (ii)
maintain or cause to be maintained the Equipment in good operation and repair
and maintain the general character of its business; (iii) use all reasonable
efforts to maintain in effect all of its presently existing insurance coverage
(or substantially equivalent insurance coverage), preserve its business
organization substantially intact, keep the services of its present principal
employees and preserve its present business relationships with its material
suppliers and customers; (iv) permit 3-D, its accountants, its legal counsel and
its other representatives full access to its management, minute books, share
certificate book and stock transfer records, books of account, accounting
records and other books and records, contracts, agreements, properties and
operations at all reasonable times and upon reasonable notice; and (v) in all
respects conduct its business in the usual and ordinary manner consistent with
past practice and perform in all material respects all agreements or other
obligations with banks, customers, suppliers, employees and others.
6.2 Negative Covenants. From the date of this Agreement until
the Closing, Company will not (without the prior written consent of 3-D) (i)
take any action or suffer any situation to exist that would be required to be
disclosed pursuant to Section 4.21
26
<PAGE> 32
had such action been taken or such situation existed between November 30, 1995
and the date of this Agreement, or (ii) make any election with respect to Taxes.
6.3 Certain Filings. Each Seller agrees to make or cause to be
made all filings with regulatory authorities that are required to be made,
respectively, by either Seller or by Company to carry out the transactions
contemplated by this Agreement. Each Seller agrees to assist and to cause
Company to assist 3-D and Buyer in making all such filings, applications and
notices as may be necessary or desirable in order to obtain the authorization,
approval or consent of any governmental entity which may be reasonably required
or which 3-D or Buyer may reasonably request in connection with the consummation
of the transactions contemplated hereby including, without limitation, as may be
required under the Investment Canada Act, the Competition Act (Canada) and any
applicable Canadian securities legislation.
6.4 Best Efforts to Satisfy Conditions. Each Seller agrees to
use his best efforts to satisfy the conditions set forth in Articles VIII and IX
that are within the control of such Seller. The Employee agrees to enter into
the Employment Agreement at or prior to the Closing.
6.5 Delivery of Financial Statements. Sellers shall cause
Company to deliver to Buyer at least five (5) days prior to the Closing
financial statements for the three fiscal years ended December 31, 1995
certified by independent accountants reasonably acceptable to 3-D.
6.6 Resignation of Officers and Directors. At the Closing,
Sellers shall (a) cause each of the officers and directors of Company to deliver
written resignations and general releases, (b) cause to be duly elected as
officers and directors of Company the individuals listed in Part I of Exhibit H
attached hereto, and (c) cause to be designated as authorized signatories of
Company's bank accounts the individuals listed in Part II of said Exhibit H.
6.7 Further Assurances. Each Seller agrees to execute and
deliver, and to cause Company to execute and deliver, such additional documents
and instruments, and to perform such additional acts, as 3-D or Buyer may
reasonably request to effectuate or carry out and perform all the terms,
provisions and conditions of this Agreement and the transactions contemplated
hereby and to effectuate the intent and purposes hereof and to put Buyer and 3-D
in full operating control of Company.
27
<PAGE> 33
ARTICLE VII
Covenants of 3-D and Buyer
3-D and Buyer hereby covenant and agree as follows:
7.1 Certain Filings. 3-D and Buyer agree to make or cause to
be made all filings with regulatory authorities that are required to be made by
3-D and Buyer or their respective affiliates to carry out the transactions
contemplated by this Agreement, the Support Agreement and the Share Exchange
Agreement.
7.2 Best Efforts to Satisfy Conditions. 3-D and Buyer agree to
use their respective best efforts to satisfy the conditions set forth in
Articles VIII and IX hereof that are within their control. Buyer shall cause
J.R.S. to enter into the Employment Agreement at the Closing.
7.3 Amendments to Registration Statement. 3-D will as promptly
as practicable after the filing thereof with the SEC provide to each Seller each
amendment or supplement to the Registration Statement and Prospectus filed by
3-D with the SEC.
7.4 Further Assurances. 3-D and Buyer agree to execute and
deliver such additional documents and instruments, and to perform such
additional acts, as Sellers may reasonably request to effectuate or carry out
and perform all the terms, provisions and conditions of this Agreement, the
Support Agreement and the Share Exchange Agreement and the transactions
contemplated hereby and thereby, and to effectuate the intent and purposes
hereof and thereof.
ARTICLE VIII
Conditions Precedent to Obligations of 3-D and Buyer
The obligations of 3-D and Buyer under Article II shall be
subject to the consummation of the Public Offering and to the satisfaction at or
prior to the Closing of the following additional conditions, any one or more of
which may be waived by 3-D and Buyer:
8.1 Representations and Warranties. Each and every
representation and warranty of Sellers contained in this Agreement, any Schedule
or any certificate delivered pursuant hereto shall be true and accurate as of
the date when made, shall be deemed repeated at the time of the Closing and
shall then be true and accurate in all material respects.
8.2 Compliance with Covenants. Sellers shall have performed
and observed in all material respects all covenants and agreements to be
performed or observed by Sellers under this Agreement at or before the Closing.
28
<PAGE> 34
8.3 Lack of Adverse Change. Since the date of the Interim
Balance Sheet, there shall not have occurred any incident or event which,
individually or in the aggregate, has had or is reasonably likely to result in a
Material Adverse Effect.
8.4 Update Certificate. Buyer shall have received a favorable
certificate, dated the Closing Date, signed by Sellers as to the matters set
forth in Sections 8.1, 8.2 and 8.3.
8.5 Legal Opinion. Buyer shall have received the opinion of
Beaumont Church, counsel to Sellers, dated the Closing Date, substantially in
the form attached hereto as Exhibit I.
8.6 Regulatory Approvals. All material approvals and consents
of regulatory authorities required to carry out the transactions contemplated by
this Agreement shall have been received. Without limiting the generality of the
foregoing,
(a) all necessary orders shall have been obtained from all
Canadian securities regulatory authorities in connection with the issuance by
Buyer of the Buyer's Shares and all shares of Parent Common Stock issuable in
accordance with the share provisions of the Buyer's Shares or in accordance with
the Share Exchange Agreement,
(b) all parties hereto shall have filed all such notices and
information (if any) required under the Competition Act (Canada) and the
applicable waiting periods and any extensions thereof shall have expired or the
parties shall have received an Advance Ruling Certificate pursuant thereto
setting out that the Director is satisfied he would not have sufficient grounds
on which to apply for an order under section 92 of such Act in respect of the
transactions contemplated hereby, or the Director or his representative shall
have advised the Buyer (on terms and in a form satisfactory to Buyer and 3-D)
that the Director does not currently intend to make an application under section
92 of such Act in respect of the transactions contemplated hereby and neither
the Director nor any of his representatives shall have rescinded or amended such
advice, and
(c) the transactions contemplated hereby shall have received
the allowance or approval or deemed allowance or approval by the responsible
Minister under the Investment Canada Act in respect of the transactions
contemplated hereby, to the extent such allowance or approval is required, on
terms and conditions satisfactory to Buyer and 3-D.
8.7 Consents of Third Parties to Contracts. All consents from
third parties to any Contracts or from any governmental authority with respect
to any license, approval, authorization, franchise or permit that are required
to be listed in the Disclosure Schedule in order to avoid a misrepresentation
under Section 4.5(a) shall have been obtained in writing.
8.8 No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or governmental or regulatory
authority, nor any statute, rule, regulation, decree or executive order
promulgated or enacted by any governmental or regulatory authority that declares
this Agreement invalid or unenforceable in any material
29
<PAGE> 35
respect or that prevents the consummation of the transactions contemplated
hereby or which imposes restrictions on 3-D's or Buyer's right or ability to
operate the business of Company shall be in effect; and no action or proceeding
before any court or regulatory authority shall have been instituted or
threatened in writing by any governmental or regulatory authority, or by any
other Person (other than 3-D, Buyer or any of their respective affiliates),
which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement or which seeks to impose restrictions on 3-D's
or Buyer's right or ability to operate the business of Company, and which in any
such case has a reasonable likelihood of success in the reasonable opinion of
counsel to 3-D.
8.9 Employment Agreement. The Employee shall have entered into
the Employment Agreement.
8.10 Acquisition of J.R.S. The acquisition of J.R.S. shall be
consummated.
8.11 Other Closing Matters. 3-D and Buyer shall have received
such other supporting information in confirmation of the representations,
warranties, covenants and agreements of Sellers and the satisfaction of the
conditions to 3-D's and Buyer's obligation to close hereunder as 3-D or Buyer or
their counsel may reasonably request.
ARTICLE IX
Conditions Precedent to Obligations of Sellers
The obligations of Sellers under Article II shall be subject
to the satisfaction at or prior to the Closing of the following conditions, any
one or more of which may be waived by a majority in interest of the Sellers:
9.1 Representations and Warranties. Each and every
representation and warranty of 3-D and Buyer contained in this Agreement, any
Schedule or any certificate delivered pursuant hereto shall be true and accurate
as of the date when made, shall be deemed repeated at the time of the Closing
and shall then be true and accurate in all material respects.
9.2 Compliance with Covenants. 3-D and Buyer shall have
performed and observed in all material respects all covenants and agreements to
be performed or observed by them under this Agreement at or before the Closing.
9.3 Update Certificate. Sellers shall have received a
favorable certificate, dated the Closing Date, signed by Buyer as to the matters
set forth in Sections 9.1 and 9.2.
9.4 Legal Opinion. Sellers shall have received the favorable
opinion of Kramer, Levin, Naftalis & Frankel, United States counsel to 3-D and
Buyer, dated the Closing Date, substantially in the form attached hereto as
Exhibit J-1 and of Davies, Ward &
30
<PAGE> 36
Beck, Canadian counsel to 3-D and Buyer, dated the Closing Date, substantially
in the form attached hereto as Exhibit J-2.
9.5 Regulatory Approvals. All material approvals and consents
of regulatory authorities required to carry out the transactions contemplated by
this Agreement, the Escrow Agreement, the Support Agreement and the Share
Exchange Agreement shall have been received.
9.6 No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or governmental or regulatory
authority, nor any statute, rule, regulation, decree or executive order
promulgated or enacted by any governmental or regulatory authority, that
declares this Agreement invalid or unenforceable in any material respect or that
prevents the consummation of the transactions contemplated hereby shall be in
effect.
9.7 Other Agreements. 3-D and Buyer shall have entered into
the Support Agreement and the Share Exchange Agreement. Buyer shall have amended
its share capital to create a new class of exchangeable non-voting shares having
substantially the rights, privileges, restrictions and conditions set forth on
Exhibit A attached hereto, and Buyer shall have issued the Buyer's Shares to
Sellers pursuant to Section 2.1. J.R.S. shall have entered into the Employment
Agreement.
ARTICLE X
Termination of Agreement
This Agreement may be terminated:
10.1 Mutual Consent. At any time prior to the Closing, by
mutual consent of 3-D, Buyer and Sellers.
10.2 Transaction Date. By 3-D, Buyer or Sellers if the Closing
shall not have been consummated by January 31, 1997 unless such failure of
consummation shall be due to a material breach of any representation or
warranty, or the nonfulfillment in a material respect, and failure to cure such
nonfulfillment, of any covenant or agreement contained herein on the part of the
party or parties seeking to terminate.
31
<PAGE> 37
ARTICLE XI
Indemnification
11.1 Survival of Representations, Warranties and Covenants.
The representations, warranties and covenants of the parties contained in this
Agreement, any Schedule or any certificate delivered pursuant hereto shall
survive the Closing. Each party hereto shall be entitled to rely on any such
representation or warranty regardless of any inquiry or investigation made by on
behalf of such party.
11.2 Indemnification by Sellers. Sellers shall jointly and
severally indemnify and hold harmless 3-D, Buyer, Company, J.R.S. and their
respective directors, officers and employees from and against any Loss incurred
or suffered by such Person as a result of, arising from or in connection with:
(i) a breach by a Seller of any representation or warranty
made by such Seller in this Agreement or in any Schedule or certificate
delivered pursuant hereto;
(ii) a failure by a Seller to perform or comply with any
covenant or agreement on the part of such Seller contained herein,
including any covenant contained in Article VI; and
(iii) any claim by or on behalf of Jill Ann Siegfried or Kari
Lee Siegfried with respect to or arising out of the ownership,
transfer, exchange of or subscription for shares of Class B Non-Voting
Common Stock of the Company.
The amount paid pursuant to the preceding sentence shall be paid to Buyer or, at
Buyer's election, to Company and shall be the amount required to put Buyer,
Company or J.R.S., as the case may be, in the after tax position it would have
been in had such representation, warranty, covenant or agreement not been
breached. Any payment made by a Seller to Buyer under this Section 11.2 shall be
treated as a reduction in the aggregate consideration received by such Seller
from Buyer pursuant to this Agreement. Any such payment made by a Seller to
Company shall be treated as a capital contribution to Company.
11.3 Indemnification by 3-D and Buyer. 3-D and Buyer shall
jointly and severally indemnify and hold harmless each Seller from and against
any Loss incurred or suffered by such Seller as a result of, arising from or in
connection with:
(i) a breach by 3-D or Buyer of any representation or warranty
made by 3- D or Buyer in this Agreement or in any Schedule or
certificate delivered pursuant hereto or in the Support Agreement or
the Share Exchange Agreement; and
(ii) a failure by 3-D or Buyer to perform or comply with any
covenant or agreement on the part of 3-D or Buyer contained herein,
including any covenant
32
<PAGE> 38
contained in Article VII, or in the Support Agreement or the Share
Exchange Agreement.
11.4 Assumption of Defense. An indemnified party shall
promptly give notice to each indemnifying party after obtaining knowledge of any
matter as to which recovery may be sought against such indemnifying party
because of the indemnity set forth above, and, if such indemnity shall arise
from the claim of a third party, shall permit such indemnifying party to assume
the defense of any such claim or any litigation resulting from such claim;
provided, however, that failure promptly to give any such notice shall not
affect the indemnification provided under this Article XI except to the extent
such indemnifying party shall have been prejudiced as a result of such failure.
Notwithstanding the foregoing, an indemnifying party may not assume the defense
of any such third-party claim if it does not demonstrate to the reasonable
satisfaction of the indemnified party that it has adequate financial resources
to defend such claim and pay any and all Losses that may result therefrom, or if
the claim (i) is reasonably likely to result in imprisonment of the indemnified
party, (ii) is reasonably likely to result in a criminal penalty or fine against
the indemnified party the consequences of which would be reasonably likely to
have a material adverse effect on the indemnified party unrelated to the size of
such penalty or fine, or (iii) is reasonably likely to result in an equitable
remedy which would materially impair the indemnified party's ability to exercise
its rights under this Agreement, or impair 3-D's or Buyer's right or ability to
operate Company. If an indemnifying party assumes the defense of such third
party claim, such indemnifying party shall agree prior thereto in writing that
it is liable under this Article XI to indemnify the indemnified party in
accordance with the terms contained herein in respect of such claim, shall
conduct such defense diligently, shall have full and complete control over the
conduct of such proceeding on behalf of the indemnified party and shall, in his
or her or its sole discretion, have the right to decide all matters of
procedure, strategy, substance and settlement relating to such proceeding;
provided, however, that any counsel chosen by such indemnifying party to conduct
such defense shall be reasonably satisfactory to the indemnified party. The
indemnified party may participate in such proceeding and retain separate co-
counsel at its sole cost and expense, and the indemnifying party will not
without the written consent of the indemnified party consent to the entry of any
judgment or enter into any settlement with respect to the matter which does not
include a provision whereby the plaintiff or the claimant in the matter releases
the indemnified party from all liability with respect thereto. Failure by an
indemnifying party to notify the indemnified party of its election to defend any
such claim or action by a third party within thirty (30) days after notice
thereof shall have been given to such indemnifying party by the indemnified
party shall be deemed a waiver by such indemnifying party of its right to defend
such claim or action.
11.5 Non-Assumption of Defense. If no indemnifying party is
permitted or elects to assume the defense of any such claim by a third party or
litigation resulting therefrom, the indemnified party shall diligently defend
against such claim or litigation in such manner as it may deem appropriate and,
in such event, the indemnifying party or parties shall promptly reimburse the
indemnified party for all reasonable out-of-pocket costs and expenses, legal or
otherwise, incurred by the indemnified party and its affiliates in connection
with the defense against such claim or litigation, as such costs and expenses
are
33
<PAGE> 39
incurred. Any counsel chosen by such indemnified party to conduct such defense
must be reasonably satisfactory to the indemnifying party or parties, and only
one counsel shall be retained to represent all indemnified parties in an action
(except that if litigation is pending in more than one jurisdiction with respect
to an action, one such counsel may be retained in each jurisdiction in which
such litigation is pending).
11.6 Indemnified Party's Cooperation as to Proceedings. The
indemnified party will cooperate in all reasonable respects with any
indemnifying party in the conduct of any proceeding as to which such
indemnifying party assumes the defense. For the cooperation of the indemnified
party pursuant to this Section 11.6, the indemnifying party or parties shall
promptly reimburse the indemnified party for all reasonable out-of-pocket costs
and expenses, legal or otherwise, incurred by the indemnified party or its
affiliates in connection therewith, as such costs and expenses are incurred.
11.7 General Limitations on Indemnification.
(a) An indemnifying party shall not be liable to nor required
to indemnify or hold an indemnified party harmless with respect to any Loss to
the extent such Loss is recoverable under insurance policies maintained by the
indemnified party or its affiliates.
(b) If any Loss indemnified against under this Article XI
shall result (after giving effect to any differences in the timing of
recognition, payment and deductibility) in a direct or indirect Tax savings to
the indemnified party or its affiliates, then the Indemnification Obligations to
which such indemnified party shall be entitled hereunder shall be reduced by the
amount of such Tax savings.
ARTICLE XII
Miscellaneous
12.1 Expenses. Whether or not the transactions contemplated
hereby are consummated, each party hereto shall pay all costs and expenses
incurred by such party in respect of the transactions contemplated hereby.
12.2 Entirety of Agreement. This Agreement (including the
Disclosure Schedule and all other Schedules and Exhibits hereto), together with
the other documents and certificates delivered hereunder, state the entire
agreement of the parties, merge all prior negotiations, agreements and
understandings, if any, and state in full all representations, warranties,
covenants and agreements which have induced this Agreement. Each party agrees
that in dealing with third parties no contrary representations will be made.
12.3 Notices. All notices and demands of any kind which any
party hereto may be required or desire to serve upon another party under the
terms of this Agreement shall be in writing and shall be served upon such other
party: (a) by personal service upon such other party at such other party's
address set forth on the signature pages of this
34
<PAGE> 40
Agreement; or (b) by mailing a copy thereof by certified or registered mail,
postage prepaid, with return receipt requested, addressed to such other party at
the address of such other party set forth on the signature pages of this
Agreement; or (c) by sending a copy thereof by Federal Express or equivalent
courier service, addressed to such other party at the address of such other
party set forth on the signature pages of this Agreement; or (d) by sending a
copy thereof by facsimile to such other party at the facsimile number, if any,
of such other party set forth on the signature pages of this Agreement.
In case of service by Federal Express or equivalent courier
service or by facsimile or by personal service, such service shall be deemed
complete upon receipt. In the case of service by mail, such service shall be
deemed complete on the fifth Business Day after mailing. The addresses and
facsimile numbers to which, and persons to whose attention, notices and demands
shall be delivered or sent may be changed from time to time by notice served, as
hereinabove provided, by any party upon the other party.
12.4 Amendment. This Agreement may be modified or amended only
by an instrument in writing, duly executed by all of the parties hereto.
12.5 Nonwaiver. No waiver by any party of any term, provision,
covenant, representation or warranty contained in this Agreement (or any breach
thereof) shall be effective unless it is in writing executed by the party
against which such waiver is to be enforced; no waiver shall be deemed or
construed as a further or continuing waiver of any such term, provision,
covenant, representation or warranty (or breach) on any other occasion or as a
waiver of any other term, provision, covenant, representation or warranty (or of
the breach of any other term, provision, covenant, representation or warranty)
contained in this Agreement on the same or any other occasion.
12.6 Counterparts. For the convenience of the parties, any
number of counterparts hereof may be executed, each such executed counterpart
shall be deemed an original and all such counterparts together shall constitute
one and the same instrument.
12.7 Assignment; Binding Nature; No Beneficiaries. This
Agreement may not be assigned by any party hereto without the written consent of
the other parties; provided, however, that Buyer may assign its rights hereunder
to any affiliate of 3-D which assumes the obligations of Buyer hereunder, but no
such assignment shall relieve Buyer or 3-D of any such obligations. Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by the parties hereto and their respective heirs,
personal representatives, legatees, successors and permitted assigns. Except as
otherwise expressly provided in Article XI, this Agreement shall not confer any
rights or remedies upon any Person other than the parties hereto and their
respective heirs, personal representatives, legatees, successors and permitted
assigns.
12.8 Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
35
<PAGE> 41
12.9 Governing Law; Consent to Jurisdiction.
(a) This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York applicable to
contracts made and to be entirely performed therein. In the event of any
controversy or claim arising out of or relating to this Agreement or the breach
or alleged breach hereof, each of the parties hereto irrevocably (i) submits to
the non-exclusive jurisdiction of the U.S. District Court for the Southern
District of New York (or, if such court does not have jurisdiction, the courts
of the State of New York), (ii) waives any objection which it may have at any
time to the laying of venue of any action or proceeding brought in any such
court, (iii) waives any claim that such action or proceeding has been brought in
an inconvenient forum, and (iv) agrees that service of process or of any other
papers upon such party by registered mail at the address to which notices are
required to be sent to such party under Section 12.3 shall be deemed good,
proper and effective service upon such party.
[(b) Each Seller hereby irrevocably appoints and designates
the law firm of Beaumont Church as his or her true and lawful agent and attorney
for receipt of service of process in any action or proceeding brought by 3-D or
Buyer arising out of or relating to this Agreement, or the breach or alleged
breach hereof. Such service may be effected in person on such firm or by
registered or certified mail addressed to Beaumont Church, 2200 AGT Tower 411
1st Street S.E. Calgary, Alberta T2G 5E7, Attention: James M.B. Clark, Esq.]
12.10 Specific Performance. Each of the parties hereto
acknowledges and agrees that the others would be damaged irreparably in the
event any of the covenants contained in this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Accordingly,
each of the parties hereto agrees that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the covenants contained in this
Agreement and to enforce specifically this Agreement and the covenants contained
herein, in addition to any other remedy to which such other parties may be
entitled at law or in equity.
12.11 Construction. In this Agreement (i) words denoting the
singular include the plural and vice versa, (ii) "it" or "its" or words denoting
any gender include all genders, (iii) the word "including" shall mean "including
without limitation", whether or not expressed, (iv) any reference to a statute
shall mean the statute and any regulations thereunder in force as of the date of
this Agreement or the Closing Date, as applicable, unless otherwise expressly
provided, (v) any reference herein to a Section, Article, Schedule or Exhibit
refers to a Section or Article of or a Schedule or Exhibit to this Agreement,
unless otherwise stated, (vi) when calculating the period of time within or
following which any act is to be done or steps taken, the date which is the
reference day in calculating such period shall be excluded and if the last day
of such period is not a Business Day, then the period shall end on the next day
which is a Business Day, (vii) any reference to a party's "best efforts" or
"reasonable efforts" shall not include any obligation of such party to pay, or
guarantee the payment of, money or other consideration to any third party or to
agree to the
36
<PAGE> 42
imposition on such party or its affiliates of any conditions reasonably
considered by such party to be materially burdensome to such party or its
affiliates, and (viii) except as otherwise expressly provided herein, all dollar
amounts are expressed in Canadian funds.
12.12 Public Announcements. Subject to the next succeeding
sentence, each of the parties agrees that after the signing of this Agreement
such party shall not make any press release or public announcement concerning
this Agreement or the transactions contemplated hereby without the prior written
approval of the parties hereto; provided, however, that 3-D may describe this
Agreement and the transactions contemplated hereby in the Registration Statement
and Prospectus and any press release it is required to make under applicable
United States securities laws.
12.13 Remedies Cumulative. The remedies provided for or
permitted by this Agreement shall be cumulative and the exercise by any party of
any remedy provided for herein shall not preclude the assertion or exercise by
such party of any other right or remedy provided for herein.
37
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
Address: 3-D GEOPHYSICAL, INC.
7076 South Alton Way
Building H /s/ RONALD L. KOONS
Englewood, Colorado 80112 By______________________
Attention: Ronald L. Koons, Name: Ronald L. Koons
Chief Financial Officer Title: Vice President
Facsimile No.: (303) 290-0447
with a copy to:
Peter S. Kolevzon, Esq. 3-D GEOPHYSICAL OF
Kramer, Levin, Naftalis CANADA, INC.
& Frankel
919 Third Avenue /s/ RONALD L. KOONS
New York, New York 10022 By______________________
Facsimile No.: (212) 715-8000
Ronald L. Koons
Name:___________________
Vice President
Title:________________
Address:
/s/ C. DAVID SIEGFRIED
with a copy to: ________________________
C. David Siegfried
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
/s/ PEGGY J. SIEGFRIED
Address: ________________________
Peggy J. Siegfried
38
<PAGE> 44
with a copy to:
James M.D. Clark, Esq.
Beaumont Church
2200 AGT Tower
411 1st Street S.E.
Calgary, Alberta T2G 5E7 CANADA
Facsimile No.: (403) 264-0478
39
<PAGE> 45
Exhibit B
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of [January __, 1997
]between J.R.S. Exploration Company Limited, an Alberta corporation (the
"Company"), and C.D. Siegfried (the "Employee").
WHEREAS, the Company desires to employ the Employee on the
terms and conditions provided in this Agreement; and
WHEREAS, the Employee desires to accept such employment and to render
services to the Company on the terms and conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the Company and the Employee hereby agree as follows:
Section 1. Engagement. The Company hereby employs the Employee as its
Sales Manager and Operations Supervisor, and the Employee hereby accepts such
employment, upon and subject to the terms and conditions hereinafter set forth.
Section 2. Term. Unless sooner terminated as provided in this
Agreement, the term of the Employee's employment under this Agreement shall
commence on the date (the "Effective Date") that the Company is sold to 3-D
Geophysical, Inc., a Delaware corporation ("3-D"), and shall end on the third
anniversary thereof (the "Term"). On or before the second anniversary of the
<PAGE> 46
Effective Date, 3-D will notify the Employee in writing whether or not 3-D
elects to extend the Term for one additional year. If 3-D so notifies the
Employee that it elects to extend the Term, the Term will end on the fourth
anniversary of the Effective Date.
Section 3. Duties and Services.
3.1 The Employee shall render services to the Company as its Sales
Manager and Operations Supervisor and shall perform such other duties and
responsibilities as may be assigned to the Employee from time to time by the
President of the Company or the Board of Directors of the Company (the
"Directors") and shall abide by the practices and policies of the Company
governing the conduct of employees. However, any assignments presented to the
Employee for continuous work outside of Canada for a duration of two weeks or
longer may be accepted or rejected in the discretion of the Employee.
3.2 During the Term, the Employee shall devote such energy and time
(exclusive of normal holidays and vacation periods and periods of sickness and
disability) as are reasonably necessary to perform the Employee's duties as
defined herein and shall promptly and faithfully perform all the duties which
pertain to the Employee's employment.
Section 4. Compensation.
4.1 Annual Compensation. In consideration of all of the services to be
rendered by the Employee hereunder and the
-2-
<PAGE> 47
covenants of Employee herein, the Company agrees to pay to the Employee, and the
Employee agrees to accept, a salary at the annual rate of $100,000.00
(Canadian).
4.2 Bonus Pool. 3-D intends to create a bonus plan based upon the
earnings of 3-D to provide incentives for certain employees of 3-D and its
subsidiaries, including the Company. The Employee shall be entitled to
participate in such plan on such terms as may be determined by the Compensation
Committee of the Board of Directors of 3-D, in its discretion. Nothing in this
Agreement shall require 3-D to pay any such bonus.
Section 5. Expenses and Reimbursement. The Employee shall be reimbursed
by the Company for reasonable and necessary out-of-pocket expenses incurred by
the Employee in performing his duties hereunder, provided such expenses are
approved in accordance with the procedures of the Company then in effect and are
presented for reimbursement in accordance with the Company's policies and
practices then in effect.
Section 6. Benefits. During the Term, the Company agrees to provide the
Employee, in addition to and not in limitation of the compensation set forth in
Section 4, the following benefits, which shall be determined in the sole
discretion of the Directors (or a duly constituted committee thereof):
(a) The Employee shall be entitled, subject to qualification
requirements, to participate in any and all group insurance plans, group health
or medical insurance plans and
-3-
<PAGE> 48
group accidental and disability insurance plans made generally available to the
senior executive employees of the Company.
(b) The Employee shall be entitled to participate in 3-D's pension,
profit-sharing, stock option, stock purchase and other employee benefit programs
made generally available to the senior executive employees of the Company.
(c) The Employee shall be entitled to four weeks annual paid vacation,
as well as sick leave and holidays in accordance with the Company's policies for
senior executive employees generally.
(d) During the term of employment under this Agreement, the Company
shall pay the Employee, on a monthly basis, an amount equal to $650 (Canadian)
per month as a non-accountable allowance for lease payments, insurance and other
expenses of an automobile leased by the Employee.
(e) As further consideration of the services to be rendered by the
Employee, on the Effective Date the Employee shall be granted an option (the
"Option"), pursuant to the 3-D's 1995 Long-Term Incentive Compensation Plan (the
"Plan"), to purchase 15,000 shares of the Common Stock, par value $.01 per
share, of 3-D (the "Common Stock") at a per share exercise price equal to the
closing price of one share of Common Stock on the NASDAQ National Market on the
Effective Date, as reported by The Wall Street Journal. The Option shall vest
in four cumulative annual installments of 3,750 shares each, commencing on the
first
-4-
<PAGE> 49
anniversary of the Effective Date. The terms of the Option shall be governed by
the Plan, as well as the terms of the option agreement entered into pursuant to
the terms of the Plan.
Section 7. Termination. Subject to the provisions of
Section 8, which shall survive the termination of this Agreement,
this Agreement shall terminate upon:
(a) The death of the Employee;
(b) Illness, disability or incapacity that prevents the Employee from
performing his duties hereunder for one hundred twenty (120) consecutive days,
or for any one hundred twenty (120) days within any twelve (12) month period,
and the provision of written notice to the Employee by the Company of such
election to terminate; or
(c) Upon written notice for Cause, which shall include, without
limitation, (i) the failure of the Employee to observe or perform any material
term of this Agreement for twenty (20) days after written notice thereof
specifying such failure; (ii) any act of illegality, dishonesty, moral turpitude
or fraud in connection with the Employee's employment; or (iii) the commission
by the Employee of any serious indictable offense.
Section 8. Restrictive Covenants. In consideration of the
undertakings of the Company set forth herein, the Employee agrees
as follows:
-5-
<PAGE> 50
8.1 Covenant Not to Compete. The Employee will not in any way, directly
or indirectly, as an agent, employee, officer, director, stockholder, partner or
otherwise of any corporation, partnership or other venture or enterprise compete
with the Company, 3-D or any of their respective subsidiaries in the provision
of seismic data acquisition or analysis services or any services related thereto
(a "Competing Business"), during the Term.
8.2 Non-Solicitation Covenant. During the Term and for a period of one
(1) year after the termination of this Agreement for any reason whatsoever, the
Employee shall not solicit, sell to or contract with, on behalf of the Employee
or on behalf of any Competing Business, any person or entity to which the
Company or any subsidiary of the Company shall have provided seismic data
acquisition or analysis services at any time during the Term.
8.3 Covenant Not to Solicit Employees of the Company. During the Term
and for a period of one (1) year after the termination of this Agreement for any
reason whatsoever, the Employee shall not solicit for employment any sales,
engineering or other technical or management employee who was employed by the
Company or any of its subsidiaries during the Term.
8.4 Non-Disclosure Covenant. The Employee recognizes and acknowledges
that, in the course of his employment, the Employee will have access to trade
secrets and other confidential or proprietary information of the Company, 3-D
and their respective
-6-
<PAGE> 51
subsidiaries, including, but not limited to, information concerning seismic
data, marketing strategy, technology, techniques and know-how, customer
specifications and customer lists, cost figures, budgets, sales forecasts and
business plans. The Employee agrees that the disclosure of any such trade
secrets or information could be harmful to the interests of the Company, 3-D or
such subsidiaries and that, during the Employee's employment by the Company or
its subsidiaries, the Employee will take appropriate caution to safeguard such
trade secrets and information, and will not during the Term or thereafter use,
disclose, divulge or publish any such trade secrets or information except as
required by law or as the Employee's duties during the Employee's employment by
the Company or its subsidiaries may require or as the Company may in writing
specifically consent.
8.5 Proprietary Information. The Employee recognizes and acknowledges
that all documents, manuals, letters, notebooks, reports, records, computer
programs or data banks and other evidences of trade secrets and other
confidential or proprietary information of the Company, 3-D and their respective
subsidiaries, including copies thereof, whether prepared by the Employee or
others, are the sole property of and belong exclusively to the Company, 3-D and
their respective subsidiaries, and agrees that, during the Employee's employment
by the Company or its subsidiaries, the Employee will under no circumstances
remove any such material for use outside of his offices except in connection
with the business of the Company
-7-
<PAGE> 52
during the course of the Employee's employment. In the event of the termination
of this Agreement for any reason whatsoever, the Employee shall immediately
return to the Company any and all documents, manuals, letters, notebooks,
records, computer programs or data banks or other evidence of trade secrets and
other confidential or proprietary information of the Company, 3-D and their
respective subsidiaries, including copies thereof, which are the property of the
Company, 3-D or any of their respective subsidiaries.
8.6 Remedies. The Employee further agrees that in the event of a breach
or threatened breach of any of the covenants contained in this Section 8, the
Company's remedy at law is likely to be inadequate and that accordingly the
Company will be entitled to obtain an injunction or other equitable relief with
regard thereto without proving damages or that damages would not constitute an
adequate remedy. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 8 is invalid or
unenforceable, the parties hereto agree that the court making the determination
of invalidity or unenforceability shall have the power to, and is hereby
directed to, reduce the scope, duration or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid and unenforceable
term or provision, and this Agreement shall be enforceable as so modified.
-8-
<PAGE> 53
8.7 Survival. The provisions of this Section 8 shall
survive the Term.
9. Miscellaneous Provisions.
9.1 Notices. All notices and demands of any kind which any party hereto
may be required or desire to serve upon another party under the terms of this
Agreement shall be in writing and shall be served upon such other party: (a) by
personal service upon such other party at such other party's address set forth
below in this Section 9.1; or (b) by mailing a copy thereof by certified or
registered mail, postage prepaid, with return receipt requested, addressed to
such other party at the address of such other party set forth below in this
Section 9.1; or (c) by sending a copy thereof by Federal Express or equivalent
courier service, addressed to such other party at the address of such other
party set forth below in this Section 9.1; or (d) by sending a copy thereof by
facsimile to such other party at the facsimile number, if any, of such other
party set forth below in this Section 9.1.
In case of service by Federal Express or equivalent courier
service or by facsimile or by personal service, such service shall be deemed
complete upon receipt. In the case of service by mail, such service shall be
deemed complete upon reasonable proof of receipt. The address and facsimile
number to which, and person to whose attention, notices and demands shall be
delivered or sent may be changed from time to time by notice
-9-
<PAGE> 54
served, as hereinabove provided, by any party upon the other party.
The current addresses and facsimile numbers of the parties are:
If to the Employee:
C.D. Siegfried
c/o J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B271
Telecopier No.: (403) 264-0478
If to the Company:
J.R.S. Exploration Company Limited
4750 30th Street S.E.
Calgary, Alberta T2B271
Telecopier No.: (403) 264-0478
Attention: Chief Financial Officer
with copies to:
3-D Geophysical, Inc.
599 Lexington Avenue
Suite 4102
New York, New York 10022
Telecopier No.: (212) 317-9230
Attention: Joel Friedman, Chairman
-and-
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Attention: Peter S. Kolevzon, Esq.
9.2 Entire Agreement; Amendment. This Agreement contains the entire
agreement between the parties, merges all prior negotiations, agreements and
understandings, if any, and states in full all representations, warranties and
agreements which have induced this Agreement. Each party agrees that in dealing
with
-10-
<PAGE> 55
third parties no contrary representations will be made. This Agreement may
not be amended, modified or otherwise changed orally but only by an agreement in
writing signed by the party against whom enforcement of any amendment,
modification or change is sought.
9.3 Assignment; Binding Nature; Assumption. This Agreement shall inure
to the benefit of and be enforceable by, and may be assigned by the Company to,
any purchaser of all or substantially all of the Company's business or assets,
any successor to the Company or any assignee thereof (whether direct or
indirect, by purchase, merger, consolidation or otherwise). The Company will
require any such purchaser, successor or assignee to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such purchase, succession or
assignment had taken place. This Agreement may not be assigned by the Employee
without the prior written consent of the Company.
9.4 Nonwaiver. No waiver by any party of any term, provision or
covenant contained in this Agreement (or any breach thereof) shall be effective
unless it is in writing executed by the party against which such waiver is to be
enforced; no waiver shall be deemed or construed as a further or continuing
waiver of any such term, provision or covenant (or breach) on any other
occasion or as a waiver of any other term, provision or covenant (or of the
breach of any other term, provision or covenant) contained in this Agreement on
the same or any other occasion.
-11-
<PAGE> 56
9.5 Remedies. The remedies provided for or permitted by this Agreement
shall be cumulative and the exercise by any party of any remedy provided for
herein or otherwise available shall not preclude the assertion or exercise by
such party of any other right or remedy provided for herein or otherwise
available.
9.6 Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
9.7 Construction. In this Agreement (i) words denoting the singular
include the plural and vice versa, (ii) "it" or "its" or words denoting any
gender include all genders, (iii) any reference herein to a Section refers to a
Section of the Agreement, unless otherwise stated, (iv) when calculating the
period of time within or following which any act is to be done or steps taken,
the date which is the reference day in calculating such period shall be excluded
and if the last day of such period is not a business day, then the period shall
end on the next day which is a business day, and (v) all dollar amounts are
expressed in Canadian funds.
9.8 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the Province of Alberta applicable
to contracts made and to be entirely performed therein.
9.9 Counterparts. For the convenience of the parties, any number of
counterparts hereof may be executed, each such executed
-12-
<PAGE> 57
counterpart shall be deemed an original and all such counterparts together shall
constitute one and the same instrument.
9.10 Termination of Existing Employment Agreement. On the Effective
Date, the employment agreement dated [__________ __, 19__] between the Company
and the Employee shall automatically terminate and be of no further force or
effect and the Employee shall not be entitled to any further payment pursuant
thereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date and year first written above.
J.R.S. EXPLORATION COMPANY LIMITED
By
----------------------------
Name:
Title:
EMPLOYEE:
------------------------------
C.D. Siegfried
-13-
<PAGE> 1
EXHIBIT 2.14
FORM OF DEED OF TRUST OF ADMINISTRATION AND GUARANTEE MADE BY 3-D GEOPHYSICAL,
INC. (HEREIN "3-D"), AS SETTLOR, REPRESENTED BY ITS ATTORNEY IN FACT MR. JOEL
FRIEDMAN; THE BANK NACIONAL FINANCIERA S.N.C., AS TRUSTEE, REPRESENTED BY ITS
FIDUCIARY DELEGATE ___________________, AND ___________________________, AS
BENEFICIARY, PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES:
DEFINITIONS
1. Shares The _______ (_______________ ____________
________) ordinary representative Shares of
the capital stock of 3-D, issued and owned
by the Settlor.
2. Non-Competition
Agreement: The Agreement named "NON-COMPETITION AGREEMENT"
signed between 3-D and __________ __________
dated as of October 20, 1995.
3. The Secured
Obligations: Beneficiary to not compete with the Settlor as
provided in section 2.2(a) of the Non
Competition Agreement.
For terms not defined in this trust agreement, the parties agree to use the
definitions provided in the Non-Competition Agreement and or in any other
agreement entered into between 3D and __________________________.
RECITALS
I. The Settlor hereby states that:
a) It is an entity of US nationality, organized under the laws
of the State of Delaware, United States of North America, and has the economic
and legal capacity necessary for making this Trust;
b) Its representative, pursuant to _____________________has
the necessary authority to bind it under the terms and conditions established
herein, which has not been revoked nor restricted in any manner.
<PAGE> 2
c) It is the sole and legitimate owner of________________
(__________________) Common Shares (herein the "Shares") which represent _____
( ______ percent of the capital of the 3D), issued and which subscription and
payment are subject to the terms hereof.
d) It is desirous of placing the Shares into Trust, for
purposes of guaranteeing that prior to the fulfillment of the obligations and
requirements set forth in the Non Competition Agreement, the Shares be
transferred in property to the Beneficiary, provided that before the
established term the right to reacquire the Shares in Trust reserved to the
Settlor has not been exercised.
II. The Beneficiary hereby states that:
a) He is an individual of Mexican nationality, with legal and
physical capacity for this deed.
b) He wishes to execute this Trust Deed for purposes of
securing the obligations arising out of section 2.2(a) of the Non-Competition
Agreement the Beneficiary executed with the Settlor.
III. The Settlor and the Beneficiary hereby state that:
a) On October 20, 1995 a Non-Competition Agreement, was executed,
whereby the parties agreed that provided the obligations set forth in section
2.2(a) of the Non Competition Agreement are satisfied in full, the Beneficiary
would obtain the right to receive in property, the paid Shares delivered by the
Settlor.
b) In section 2.2(a) of the Non-Competition Agreement the parties
agreed to place the Shares in Trust.
c) On February 6, 1996, the public offering of the Shares of 3-D
was carried out, wherefor the Beneficiary obtained the right to receive the
number of Shares set forth herein provided there exist no pending Secured
Obligations to pay the Settlor as of February __, 1998 and the right to
reacquire the Property in Trust reserved to the Settlor is not exercised.
d) They agreed that Beneficiary would pay all expenses
incurred in creating this Trust.
IV. Nacional Financiera, S.N.C. hereby states, through its fiduciary Delegate,
that:
a) It is a Commercial Banking Institution, duly authorized to
effect, among others, fiduciary transactions.
-2-
<PAGE> 3
b) Its Fiduciary Delegate is legally authorized to represent
Nacional Financiera, S.N.C., pursuant to public deed No. __________ dated
__________________, ________, granted before Attorney ___________________,
Notary Public _______ of the Federal District, which first official transcript
is recorded with the Public Registry of Commerce of the Federal District under
file No. ________.
c) It accepts the charge of Trustee conferred thereon, pursuant
to the following:
CLAUSES
FIRST. The following are parties hereto;
SETTLOR: 3-D GEOPHYSICAL, INC.
BENEFICIARY: _____________________________
TRUSTEE: NACIONAL FINANCIERA, S.N.C.,
TRUST DIVISION
SECOND. The Settlor hereby creates a revocable trust of guaranty and
administration, for the Shares, with all that is appurtenant thereto; as well
as any other Shares which may be issued or put into circulation by the Company
(which shall be assimilated to the Shares) which the Shares give the right to
acquire, derived from capital increases of the Company, as well as any other
preemptive right set forth in incorporating documents, by virtue of which the
Shares are transferred in fiduciary property to the Trustee.
THIRD. The Settlor encumbers the Shares into trust, endorsing in
fiduciary property Certificates No. ____ with what covers them, with all that is
appurtenant thereto, without any reservations nor limitations, obligating the
Settlor to perform all necessary procedures for noting this transfer in the
Shares Registry of the Company.
This Trust shall be recorded in the records of the Company, for purposes of the
same as well as for purposes of articles 128, 129 and other related articles of
the General Law of Commercial Companies.
The Trustee must carry precise records on the Shares, on those which are hereby
given in trust as well as those which are given in trust in the future and
under any title.
-3-
<PAGE> 4
FOURTH. For all necessary legal effects, the Settlor expressly
reserves the right to reacquire the Shares, equal to the damage, in Trust at a
value of $8.50 (eight dollars and 50/100 US currency), for the extent of any
damage from a contingency provided in the definition of Secured Obligations.
During the term hereof, the Settlor shall keep this right to reacquire the
Shares in Trust.
FIFTH. The following are purposes of the Trust, in relation to the
administration of the same:
5.1 a) The Trustee shall hold the fiduciary property of the Shares
during the term hereof, in order to secure the performance of each and every
one of the Secured Obligations of the Beneficiary.
b) The Trustee shall exercise, in accordance with instructions of
the Technical Committee, all the voting rights of the Shares, through the
representatives designated therefor pursuant hereto. The representatives
shall act at all times upon instructions of the Technical Committee.
c) The Trustee shall exercise all the corporate and economic
rights of the Shares, as well as the Shares necessary for the defense of the
same in the manner instructed by the Technical Committee, and in the absence of
said instructions, following the most adequate policies in order to preserve
and increase the patrimony of the Trust.
d) The Trustee shall administer the economic benefits which may
arise out of holding the Shares, following the instructions issued to such end
by the Technical Committee.
e) In the event no contigeny arises as from any Secured
Obligations by February 9, 1998, the Trustee shall then promptly transfer the
Shares to the Beneficiary.
5.2 The following are purposes of the Trust, in relation to the guaranty:
a) The Trustee shall, provided that as of February 9, 1998 an
event of contingency of the Secured Obligations has not occured, and the
Settlor has not exercised the right to reacquire the Shares, transfer the
subscribed and paid Shares to the Beneficiary.
b) The Trustee shall, in the event of failure to comply with the
Secured Obligations, upon the Settlor exercising the right to reacquire,
transfer the Shares, in accordance with the enforcement procedure set forth
herein to
-4-
<PAGE> 5
guarantee the payment of the amounts owed in accordance with Clause twentieth
hereof. The Trustee shall deliver to the Settlor the number of Shares valued
at $8.50 (eight dollars and 50/100 US currency), which value is sufficient to
cover the amount owed as a result of the Claim.
SIXTH. The Settlor is responsible for the authenticity and legality
of the certificate of the Shares and of the signatures of the persons who signed
the same, as well as for any encumbrances or limitations placed on the Shares by
the Settlor.
SEVENTH. The Settlor is responsible for the payment of damages in the
event of eviction before the Trustee and before the person or persons to whom
the Trustee transfers the Shares, authorizing the same to bind the Settlor
before the person or persons who acquire the Shares without the Trustee assuming
any liability whatsoever.
EIGHTH. The Beneficiary shall receive the rights arising out of the
Trust regarding all that is related to the Shares which from time to time may
form a part of the patrimony.
NINTH. In the event of capital increases, if the Beneficiary wishes to
exercise the preemptive right, if any, to subscribe the Shares, the Beneficiary
must deliver to the Trustee the amounts necessary to pay the amount related to
said subscription. The Beneficiary shall deliver said amounts to the Trustee
at least 5 (five) business days before the date on which the term expires to
pay the increase.
Until the amounts delivered by the Beneficiary are used for the subscription,
the Trustee must invest said amounts in fixed income and high yield
instruments, among those approved by the Bank of Mexico or the National Banking
and Securities Commission for investments in trust, evidencing the proceeds to
the Beneficiary.
Any new Shares issued or placed in circulation by reason of the capital
increase shall remain encumbered into trust in favor of the Beneficiary.
TENTH. The Shares given in Trust shall not be sold.
ELEVENTH. The Trustee shall have the following authority and obligations:
a) Keep the Shares, exercising through the attorney in fact
designated for such purposes all the corporate and economic rights conferred
thereon, with the authority and
-5-
<PAGE> 6
obligations established in articles 278 and 356 of the General Law of
Negotiable Instruments and Credit Transactions.
The rights shall be exercised in accordance with this Trust, the
bylaws of the Settlor, and the instructions received from the Technical
Committee of this Trust.
b) Grant power of attorney to the person or persons indicated by
the Technical Committee expressly in writing, to vote the Shares in Ordinary
and Extraordinary Meetings of the Company.
The Trustee shall grant the power or powers and deliver the
corresponding receipts or certificates of deposit, at least 72 (seventy-two)
hours prior to the date set for the meeting.
The Trustee shall not be responsible for the manner and terms in which
the corresponding voting right is exercised, as the responsibility of the
Trustee is limited to delivering the receipts or certificates and powers.
The Shares shall be voted by the individual or entity to whom said
power is conferred, jointly under the terms and conditions indicated by the
Technical Committee in writing to the Trustee.
c) Subscribe and pay the Shares issued or placed in circulation
by the Company as a result of increases to the paid-in capital stock, with
respect to which the Beneficiary shall provide the necessary funds.
d) Perform any acts which may correspond thereto in order to
receive from the Settlor the provisional and permanent stock certificates for
the Shares issued or placed in circulation as a result of increases to the
paid-in capital. Said Shares shall remain in trust.
e) Collect the amounts from dividends, amortizations of Shares or
reimbursements of capital resolved by 3- D and using the proceeds of the same
to purposes indicated by the Techinical Committee.
f) Grant in favor of the person or persons indicated by the
Technical Committee, the powers and authority the Technical Committee deems
convenient or necessary for purposes of this Trust, as well as revoke such
powers and authority, also upon prior instruction of the Technical Committee.
g) In the event the Trustee receives a Notice of Claim, the
Notice shall be given pursuant to this clause and to clause 20_below.
-6-
<PAGE> 7
In the event the Secured Obligations are untrue or liability arises
from the Capilano Matter, the Settlor may report said failure to the Technical
Committee.
h) In the event no contingency arises as from any Secured
Obligations by February 9, 1998,the Trustee shall then promptly deliver the
Shares to the Beneficiary.
TWELFTH. The Trustee shall give annual reports to the Technical
Committee, regarding the participation of the Trustee in the custody and
administration of the Shares.
Without prejudice to the above, the Technical Committee may request, with the
periodicity the Technical Committee may deem convenient, additional information
regarding the performance of obligations in accordance with the Trust from the
Trustee, for which there shall be a written agreement between the Beneficiary
and the Trustee to determine the fees to be paid to the Trustee for the
additional information.
For purposes of the information the Trustee shall provide to the Technical
Committee, the Trustee shall make available to the Technical Committee all
accounting records of the Trust, in order that the Technical Committee may
verify the information entered in such records.
The Technical Committee shall have a term of 15 days following the receipt of
the information delivered by the Trustee in order to examine said information
and make any comments deemed convenient; upon termination of said term, the
reports shall be deemed approved.
THIRTEENTH. In accordance with what is set forth in article 80, third
paragraph, of the Law of Credit Institutions, a Technical Committee shall act
in the Trust as follows:
1. The Technical Committee shall have three proprietary members, one
designated by the Settlor, another by the Beneficiary, each of the members may
have alternates designated by the corresponding member.
2. The Beneficiary and the Settlor shall be entitled at all times to
remove or substitute the member of the Technical Committee designated thereby;
the Trustee shall be notified in writing of said removal or substitution by the
party making the removal or substitution, said written notice shall contain the
name and signature of the new member.
3. The first Technical Committee shall have the following propietary
members;
-7-
<PAGE> 8
PROPIETARY POSITION
Richard Davis President
Luis Ferran Arroyo Secretary
Bardomiano Gonzalez Linares Director
4. The President of the Technical Committee shall have the following
authority and obligations:
a) Inform the Trustee of any resolutions adopted by the Technical
Committee regarding this Trust;
b) Call meetings of the Technical Committee when deemed
convenient; and
c) Represent the Technical Committee before the Trustee and third
parties.
5. In absences of the President, calls to meetings of the Technical
Committee shall be made by the other member.
6. Calls shall contain the agenda and set forth the place, the date and
time of the meetings; and sent by certified mail or by any other means to
ensure the call is effectively received.
7. Meetings of the Technical Committee shall be considered legally held
with the presence of two of its members, and resolutions shall be valid when
adopted by a majority of votes of the members present.
8. Resolutions of the Technical Committee shall be communicated to the
Trustee in writing and signed by the President and Secretary of the Committee.
9. Minutes shall be prepared of every meeting, and shall contain the
resolutions adopted and signed by the President and Secretary of the Committee.
10. Members of the Technical Committee shall not receive any compensation
for the services they provide as members of said Committee.
FOURTEENTH. The Technical Committee is authorized to instruct the Trustee
on the manner and terms of the administration of the property in trust, with
authority to:
1. Instruct the Trustee on all the actions, obligations and rights which
correspond thereto in accordance with this Trust.
-8-
<PAGE> 9
2. Any other rights expressly confered by this Trust.
When the Trustee acts under instructions of the Technical Committee, the
Trustee shall be released from all liability if the Trustee acts pursuant to
this deed.
FIFTEENTH. This trust shall be in effect until February 9, 1998, in the
understanding that if the process which begins with the Notification of Claim
begins, the Trustee shall execute a new agreement under the same terms and
conditions contained herein.
This Deed of Trust shall end prematurely for any of the causes set forth in
article 357 of the General Law of Negotiable Instruments and Credit
Transactions.
SIXTEENTH. The Trustee shall collect as fees, which shall be charged to
the property in trust, the amounts which are set forth on Exhibit "___"
attached hereto.
SEVENTEENTH. The Trustee shall not be responsible for facts, acts or
omissions on the part of the Settlor, the Beneficiary or third parties, which
may prevent or restrict the achievement of the purposes hereof.
In the event of defense of the assets of the Trust before any authority or of
the undertaking of actions for the achievement of the purposes of the Trust,
the Trustee shall only be obligated to grant a specific power of attorney to
the person designated in writing by the Technical Committee, without assuming
any responsibility for the acts performed by the designated attorney in fact,
which shall be set forth on the document containing the power of attorney and
provided the attorney in fact accepts that the expenses and fees incurred shall
be paid directly by the Beneficiary or, as the case may be, charged to the
property in trust, without any responsibility on the part of the Trustee
therefor.
EIGHTEENTH. Pursuant to paragraph b) of section XIX of article 106 of the
Law of Credit Institutions, the Trustee states that the Trustee explained
unequivocably to the Settlor the legal range and consequences which said
provision sets forth as follows:
"Article 106. Credit institutions are prohibited from the following:
Section XIX. In the performance of operations set forth in section XV of
article 46 of this Law:
-9-
<PAGE> 10
b) To hold Settlors, agents or principals harmless in the event of breach
on the part of debtors, for credits granted or on the part of issuers, for
securities acquired, except when there is fault, according to the last part of
article 356 of the General Law of Negotiable Instruments and Credit
Transactions, or guarantee the receipt of returns for funds which investment is
entrusted thereto.
If upon termination of the trust, agent or commission created for the granting
of credits, said credits are not liquidated by the debtors, the institution
shall transfer to the Settlor or Beneficiary, as the case may be, or to the
agent or principal, abstaining from paying the amount.
Any agreement on the contrary to what is set forth in the two preceding
paragraphs, shall not be effective."
NINETEENTH. For purposes hereof, the parties set forth the following
addresses:
Settlor:
200 Madison Avenue
New York, New York 10016
Attention: Joel Friedman,
Chairman of the Board
Beneficiary:
-------------------------------
-------------------------------
-------------------------------
Trustee:
Any change in address of the parties hereof, shall be communicated to the
Trustee in writing, by certified mail or by notarial notice, and any other form
of communication shall not be effective.
TWENTIETH. CONTRACTUAL PROCEDURE OF ENFORCEMENT.
In the event the Settlor presents to the Technical Committee either a
judgment of a court or a ruling from an arbitrator, or presents a notice signed
by the Settlor and the Beneficiary that the Settlor is entitled to recover for
a Loss relating to the Secured Obligations, the Technical Committee shall
enforce the Shares by giving written notice to the
-10-
<PAGE> 11
Trustee and the Trustee shall deliver the Shares to the Settlor in accordance
with clause 5.2(b).
Based on the foregoing, the Settlor instructs the Trustee that in the event no
contingency of the Secured Obligations occurred, the Shares shall be transfer
to the Beneficiary on February 9, 1998.
TWENTY-FIRST. ENFORCEMENT OF THE GUARANTEE
The Trustee, and by instructions of the Technical Committee pursuant
to clause twentieth above, shall transfer the Shares in trust following the
procedure set forth in this clause, in the event of Non-performance.
The Trustee shall assure the immediate transfer of the Shares to the
Settlor.
TWENTY-SECOND. APPLICATION OF THE SHARES.
Without the need for a judicial resolution, the Trustee shall apply
the Shares as follows:
a) Firstly, to the Beneficiary, at the date this trusts
expires.
b) Secondly, to the Settlor in case any contingency due to any
of the Secured Obligations, and as established in clause twentieth above.
c) Thirdly, to whoever a court decision adjudicates such
Shares.
TWENTY-THIRD. EVENT OF CLAIM
For purposes hereof, Claim of the Secured Obligations shall be
considered "Events of Claim".
In an Event of Claim, the Guarantee shall be demandable.
TWENTY-FOURTH. TAX OBLIGATIONS.
Taxes and expenses incurred or arising out of this Deed shall be
exclusively on the account of the Beneficiary, and the Trustee shall not have
any obligation to pay with own funds the expenses incurred therefor.
-11-
<PAGE> 12
TWENTY-FIFTH. SUBSTITUTION.
The Settlor and Beneficiary may request the substitution of the
Trustee upon prior agreement, which may proceed with just cause.
TWENTY-SIXTH. For the interpretation and execution hereof, the parties
expressly submit to the laws and courts of the city of Mexico, Federal
District, expressly any other forum which by reason of their domiciles may
correspond thereto.
This deed after being read and ratified by the parties hereof, was signed in
the City of Mexico, Federal District, this 9th day of February of nineteen
hundred and ninety six.
Settlor Trustee Beneficiary
3D Geophysical, Nacional Financiera, S.N.C.,
Inc. Division Fiduciaria
By: By: ______________________
Position: Position: ______________________
Joel Friedman,
Chairman
-12-
<PAGE> 1
EXHIBIT 2.15
FORM OF DEED OF TRUST OF ADMINISTRATION AND GUARANTEE MADE BY 3-D GEOPHYSICAL,
INC. (HEREIN "3-D"), AS SETTLOR, REPRESENTED BY ITS ATTORNEY IN FACT MR. JOEL
FRIEDMAN; THE BANK NACIONAL FINANCIERA S.N.C., AS TRUSTEE, REPRESENTED BY ITS
FIDUCIARY DELEGATE ___________________, __________________________, AS
BENEFICIARY, PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES:
DEFINITIONS
1. Shares _______(_______________________________
_______) ordinary representative Shares of
the capital stock of 3-D, issued and owned
by the Settlor.
2. Non-Competition
Agreement: The Agreement named "NON-COMPETITION
AGREEMENT" signed between 3-D and ___________
__________ dated as of October 20, 1995.
3. Capilano Matter: Any dispute in which Capilano, Inc. or an
affiliate of Capilano International, Inc.
("Capilano"), asserts any claim or any legal,
arbitration or settlement action to collect
on certain invoices derived from, or relating
to, a certain supply and technical assistance
agreement executed by and between
Geoevaluaciones, S.A. de C.V. and Capilano,
dated June 1, 1992.
4. Secured Obligations: Any liability or economic damage in prejudice
of 3-D or of Geoevaluciones, S.A. de C.V.
("Companies") caused to the Settlor for (A)
any liabilities of Companies as of the date
of the Interim Balance Sheet that were not
disclosed thereon, (B) any liabilities
incurred by Companies since the date of the
Interim Balance Sheet and prior to the
Effective Date, in violation of the
representations, warranties
<PAGE> 2
and covenants of Promisor contained in the
Non-Competition Agreement or contained in any
other agreement entered into between 3-D and
Promisor or contained in any disclosure
schedule or in any schedule or certificate
delivered pursuant thereto, and (C) any Loss
arising out of the Capilano Matter.
For terms not defined in this trust agreement, the parties agree to use the
definitions provided in the Non-Competition Agreement and or in any other
agreement entered into between 3D and __________________________.
RECITALS
I. The Settlor hereby states that:
a) It is an entity of US nationality, organized under the laws
of the State of Delaware, United States of North America, and has the economic
and legal capacity necessary for making this Trust;
b) Its representative, pursuant to _____________________has
the necessary authority to bind it under the terms and conditions established
herein, which has not been revoked nor restricted in any manner.
c) It is the sole and legitimate owner of ________________
(__________________) Common Shares (herein the "Shares") which represent _____
( ______ percent of the capital of the 3D), issued and which subscription and
payment are subject to the terms hereof.
d) It is desirous of placing the Shares into Trust, for
purposes of guaranteeing that prior to the fulfillment of the obligations and
requirements set forth in the Non Competition Agreement, the Shares be
transferred in property to the Beneficiary, provided that before the
established term the right to reacquire the Shares in Trust reserved to the
Settlor has not been exercised.
II. The Beneficiary hereby states that:
a) He is an individual of Mexican nationality, with legal and
physical capacity for this deed.
<PAGE> 3
b) He wishes to execute this Trust Deed for purposes of
securing the obligations arising out of section 2.2 (b) of the Non-Competition
Agreement the Beneficiary executed with the Settlor.
III. The Settlor and the Beneficiary hereby state that:
a) On October 20, 1995 a Non-Competition Agreement, was
executed, whereby the parties agreed that provided the obligations set forth in
section 2.2 (b) of the Non Competition Agreement are satisfied in full, the
Beneficiary would obtain the right to receive in property, the paid Shares
delivered by the Settlor.
b) In section 2.2 (b) of the Non-Competition Agreement the
parties agreed to place the Shares in Trust.
c) On February 6, 1996, the public offering of the Shares of
3-D was carried out, wherefor the Beneficiary obtained the right to receive the
number of Shares set forth herein provided there exist no pending Secured
Obligations to pay the Settlor as of June 30, 1997 and the right to reacquire
the Property in Trust reserved to the Settlor is not exercised.
d) They agreed that the Beneficiary would pay all expenses
incurred in creating this Trust.
IV. ______________________ hereby states, through its fiduciary Delegate,
that:
a) It is a Commercial Banking Institution, duly authorized to
effect, among others, fiduciary transactions.
b) Its Fiduciary Delegate is legally authorized to represent
Nacional Financiera, S.N.C. Division Fiduciaria, pursuant to public deed No.
__________ dated __________________, ________, granted before Attorney
___________________, Notary Public _______ of the Federal District, which first
official transcript is recorded with the Public Registry of Commerce of the
Federal District under file No. ________.
c) It accepts the charge of Trustee conferred thereon,
pursuant to the following:
CLAUSES
FIRST. The following are parties hereto;
SETTLOR: 3-D GEOPHYSICAL, INC.
BENEFICIARY: _________________________
<PAGE> 4
TRUSTEE: NACIONAL FINANCIERA, S.N.C., TRUST DIVISION
SECOND. The Settlor hereby creates a revocable trust of guaranty
and administration, for the Shares, with all that is appurtenant thereto; as
well as any other Shares which may be issued or put into circulation by the
Company (which shall be assimilated to the Shares) which the Shares give the
right to acquire, derived from capital increases of the Company, as well as any
other preemptive right set forth in incorporating documents, by virtue of which
the Shares are transferred in fiduciary property to the Trustee.
THIRD. The Settlor encumbers the Shares into trust, endorsing in
fiduciary property Certificates No. ____ with what covers them, with all that
is appurtenant thereto, without any reservations nor limitations, obligating
the Settlor to perform all necessary procedures for noting this transfer in the
Shares Registry of the Company.
This Trust shall be recorded in the records of the Company, for purposes of the
same as well as for purposes of articles 128, 129 and other related articles of
the General Law of Commercial Companies.
The Trustee must carry precise records on the Shares, on those which are hereby
given in trust as well as those which are given in trust in the future and
under any title.
FOURTH. For all necessary legal effects, the Settlor expressly
reserves the right to reacquire the Shares, equal to the damage, in Trust at a
value of $8.50 (eight dollars and 50/100 US currency), for the extent of any
damage from a contingency provided in the definition of Secured Obligations.
During the term hereof, the Settlor shall keep this right to reacquire the
Shares in Trust.
FIFTH. The following are purposes of the Trust, in relation to the
administration of the same:
5.1 a) The Trustee shall hold the fiduciary property of the Shares
during the term hereof, in order to secure the performance of each and every
one of the Secured Obligations of the Beneficiary.
b) The Trustee shall exercise, in accordance with instructions
of the Technical Committee, all the voting rights of the Shares, through the
representatives designated therefor pursuant hereto. The representatives
shall act at all times upon instructions of the Technical Committee.
c) The Trustee shall exercise all the corporate and economic
rights of the Shares, as well as the Shares necessary
<PAGE> 5
for the defense of the same in the manner instructed by the Technical
Committee, and in the absence of said instructions, following the most adequate
policies in order to preserve and increase the patrimony of the Trust.
d) The Trustee shall administer the economic benefits which
may arise out of holding the Shares, following the instructions issued to such
end by the Technical Committee.
e) In the event no contigeny arises as from any Secured
Obligations by June 30, 1997, the Trustee shall then promptly transfer the
Shares to the Beneficiary.
5.2 The following are purposes of the Trust, in relation to the guaranty:
a) The Trustee shall, provided that as of June 30, 1997 an
event of contingency of the Secured Obligations has not occured, and the
Settlor has not exercised the right to reacquire the Shares, transfer the
subscribed and paid Shares to the Beneficiary.
b) The Trustee shall, in the event of failure to comply with
the Secured Obligations, upon the Settlor exercising the right to reacquire,
transfer the Shares, in accordance with the enforcement procedure set forth
herein to guarantee the payment of the amounts owed in accordance with Clause
twentieth hereof. The Trustee shall deliver to the Settlor the number of
Shares valued at $8.50 (eight dollars and 50/100 US currency), which value is
sufficient to cover the amount owed as a result of the Claim.
SIXTH. The Settlor is responsible for the authenticity and
legality of the certificate of the Shares and of the signatures of the persons
who signed the same, as well as for any encumbrances or limitations placed on
the Shares by the Settlor.
SEVENTH. The Settlor is responsible for the payment of damages in
the event of eviction before the Trustee and before the person or persons to
whom the Trustee transfers the Shares, authorizing the same to bind the Settlor
before the person or persons who acquire the Shares without the Trustee
assuming any liability whatsoever.
EIGHTH. The Beneficiary shall receive the rights arising out of the
Trust regarding all that is related to the Shares which from time to time may
form a part of the patrimony.
NINTH. In the event of capital increases, if the Beneficiary
wishes to exercise the preemptive right, if any, to subscribe the Shares, the
Beneficiary must deliver to the Trustee the amounts necessary to pay the amount
related to said subscription. The Beneficiary shall deliver said amounts to
<PAGE> 6
the Trustee at least 5 (five) business days before the date on which the term
expires to pay the increase.
Until the amounts delivered by the Beneficiary are used for the subscription,
the Trustee must invest said amounts in fixed income and high yield
instruments, among those approved by the Bank of Mexico or the National Banking
and Securities Commission for investments in trust, evidencing the proceeds to
the Beneficiary.
Any new Shares issued or placed in circulation by reason of the capital
increase shall remain encumbered into trust in favor of the Beneficiary.
TENTH. The Shares given in Trust shall not be sold.
ELEVENTH. The Trustee shall have the following authority and
obligations:
a) Keep the Shares, exercising through the attorney in fact
designated for such purposes all the corporate and economic rights conferred
thereon, with the authority and obligations established in articles 278 and 356
of the General Law of Negotiable Instruments and Credit Transactions.
The rights shall be exercised in accordance with this Trust, the
bylaws of the Settlor, and the instructions received from the Technical
Committee of this Trust.
b) Grant power of attorney to the person or persons indicated
by the Technical Committee expressly in writing, to vote the Shares in Ordinary
and Extraordinary Meetings of the Company.
The Trustee shall grant the power or powers and deliver the
corresponding receipts or certificates of deposit, at least 72 (seventy-two)
hours prior to the date set for the meeting.
The Trustee shall not be responsible for the manner and terms in
which the corresponding voting right is exercised, as the responsibility of the
Trustee is limited to delivering the receipts or certificates and powers.
The Shares shall be voted by the individual or entity to whom said
power is conferred, jointly under the terms and conditions indicated by the
Technical Committee in writing to the Trustee.
c) Subscribe and pay the Shares issued or placed in
circulation by the Company as a result of increases to the paid-in capital
stock, with respect to which the Beneficiary shall provide the necessary funds.
<PAGE> 7
d) Perform any acts which may correspond thereto in order to
receive from the Settlor the provisional and permanent stock certificates for
the Shares issued or placed in circulation as a result of increases to the
paid-in capital. Said Shares shall remain in trust.
e) Collect the amounts from dividends, amortizations of Shares
or reimbursements of capital resolved by 3-D and using the proceeds of the same
to purposes indicated by the Techinical Committee.
f) Grant in favor of the person or persons indicated by the
Technical Committee, the powers and authority the Technical Committee deems
convenient or necessary for purposes of this Trust, as well as revoke such
powers and authority, also upon prior instruction of the Technical Committee.
g) In the event the Trustee receives a Notice of Claim, the
Notice shall be given pursuant to this clause and to clause 20 below.
In the event the Secured Obligations are untrue or liability arises
from the Capilano Matter, the Settlor may report said failure to the Technical
Committee.
h) In the event no contingency arises as from any Secured
Obligations by June 30, 1997,the Trustee shall then promptly deliver the Shares
to the Beneficiary.
TWELFTH. The Trustee shall give annual reports to the Technical
Committee, regarding the participation of the Trustee in the custody and
administration of the Shares.
Without prejudice to the above, the Technical Committee may request, with the
periodicity the Technical Committee may deem convenient, additional information
regarding the performance of obligations in accordance with the Trust from the
Trustee, for which there shall be a written agreement between the Beneficiary
and the Trustee to determine the fees to be paid to the Trustee for the
additional information.
For purposes of the information the Trustee shall provide to the Technical
Committee, the Trustee shall make available to the Technical Committee all
accounting records of the Trust, in order that the Technical Committee may
verify the information entered in such records.
The Technical Committee shall have a term of 15 days following the receipt of
the information delivered by the Trustee in order to examine said information
and make any comments deemed convenient; upon termination of said term, the
reports shall be deemed approved.
<PAGE> 8
THIRTEENTH. In accordance with what is set forth in article 80, third
paragraph, of the Law of Credit Institutions, a Technical Committee shall act
in the Trust as follows:
1. The Technical Committee shall have two proprietary members, one
designated by the Settlor, another by the Beneficiary, each of the members may
have alternates designated by the corresponding member.
2. The Beneficiary and the Settlor shall be entitled at all times to
remove or substitute the member of the Technical Committee designated thereby;
the Trustee shall be notified in writing of said removal or substitution by the
party making the removal or substitution, said written notice shall contain the
name and signature of the new member.
3. The first Technical Committee shall have the following propietary
members;
PROPIETARY POSITION
Bardomiano Gonzalez Linare President
Joel Friedman Secretary
4. The President of the Technical Committee shall have the following
authority and obligations:
a) Inform the Trustee of any resolutions adopted by the
Technical Committee regarding this Trust;
b) Call meetings of the Technical Committee when deemed
convenient; and
c) Represent the Technical Committee before the Trustee and
third parties.
5. In absences of the President, calls to meetings of the Technical
Committee shall be made by the other member.
6. Calls shall contain the agenda and set forth the place, the date and
time of the meetings; and sent by certified mail or by any other means to
ensure the call is effectively received.
7. Meetings of the Technical Committee shall be considered legally held
with the presence of all of its members, and resolutions shall be valid when
adopted by a unanimous vote of the members present.
8. Resolutions of the Technical Committee shall be communicated to the
Trustee in writing and signed by the President and Secretary of the Committee.
<PAGE> 9
9. Minutes shall be prepared of every meeting, and shall contain the
resolutions adopted and signed by the President and Secretary of the Committee.
10. Members of the Technical Committee shall not receive any compensation
for the services they provide as members of said Committee.
FOURTEENTH. The Technical Committee is authorized to instruct the
Trustee on the manner and terms of the administration of the property in trust,
with authority to:
1. Instruct the Trustee on all the actions, obligations and rights which
correspond thereto in accordance with this Trust.
2. Any other rights expressly confered by this Trust.
When the Trustee acts under instructions of the Technical Committee, the
Trustee shall be released from all liability if the Trustee acts pursuant to
this deed.
FIFTEENTH. This trust shall be in effect until June 30, 1997, in the
understanding that if the process which begins with the Notification of Claim
begins, the Trustee shall execute a new agreement under the same terms and
conditions contained herein.
This Deed of Trust shall end prematurely for any of the causes set forth in
article 357 of the General Law of Negotiable Instruments and Credit
Transactions.
SIXTEENTH. The Trustee shall collect as fees, which shall be charged
to the property in trust, the amounts which are set forth on Exhibit "___"
attached hereto.
SEVENTEENTH. The Trustee shall not be responsible for facts, acts or
omissions on the part of the Settlor, the Beneficiary or third parties, which
may prevent or restrict the achievement of the purposes hereof.
In the event of defense of the assets of the Trust before any authority or of
the undertaking of actions for the achievement of the purposes of the Trust,
the Trustee shall only be obligated to grant a specific power of attorney to
the person designated in writing by the Technical Committee, without assuming
any responsibility for the acts performed by the designated attorney in fact,
which shall be set forth on the document containing the power of attorney and
provided the attorney in fact accepts that the expenses and fees incurred shall
be paid directly by the Beneficiary or, as the case may be, charged to the
property in trust, without any responsibility on the part of the Trustee
therefor.
EIGHTEENTH. Pursuant to paragraph b) of section XIX of article 106 of
the Law of Credit Institutions, the Trustee
<PAGE> 10
states that the Trustee explained unequivocably to the Settlor the legal range
and consequences which said provision sets forth as follows:
"Article 106.- Credit institutions are prohibited from the following:
Section XIX. In the performance of operations set forth in section XV of
article 46 of this Law:
b) To hold Settlors, agents or principals harmless in the event of
breach on the part of debtors, for credits granted or on the part of issuers,
for securities acquired, except when there is fault, according to the last part
of article 356 of the General Law of Negotiable Instruments and Credit
Transactions, or guarantee the receipt of returns for funds which investment is
entrusted thereto.
If upon termination of the trust, agent or commission created for the granting
of credits, said credits are not liquidated by the debtors, the institution
shall transfer to the Settlor or Beneficiary, as the case may be, or to the
agent or principal, abstaining from paying the amount.
Any agreement on the contrary to what is set forth in the two preceding
paragraphs, shall not be effective."
NINETEENTH. For purposes hereof, the parties set forth the following
addresses:
Settlor:
200 Madison Avenue
New York, New York 10016
Attention: Joel Friedman,
Chairman of the Board
Beneficiary:
- ---------------------------------
- ---------------------------------
- ---------------------------------
Trustee:
Any change in address of the parties hereof, shall be communicated to the
Trustee in writing, by certified mail or by notarial notice, and any other form
of communication shall not be effective.
TWENTIETH. CONTRACTUAL PROCEDURE OF ENFORCEMENT.
<PAGE> 11
In the event the Settlor presents to the Technical Committee either a
judgment of a court or a ruling from an arbitrator, or presents a notice signed
by the Settlor and the Beneficiary that the Settlor is entitled to recover for
a Loss relating to the Secured Obligations, the Technical Committee shall
enforce the Shares by giving written notice to the Trustee and the Trustee
shall deliver the Shares to the Settlor in accordance with clause 5.2(b).
Based on the foregoing, the Settlor instructs the Trustee that in the event no
contingency of the Secured Obligations occurred, the Shares shall be transfer
to the Beneficiary on June 30, 1997.
TWENTY-FIRST. ENFORCEMENT OF THE GUARANTEE
The Trustee, and by instructions of the Technical Committee pursuant
to clause twentieth above, shall transfer the Shares in trust following the
procedure set forth in this clause, in the event of Non-performance.
The Trustee shall assure the immediate transfer of the Shares to the
Settlor.
TWENTY-SECOND. APPLICATION OF THE SHARES.
Without the need for a judicial resolution, the Trustee shall apply
the Shares as follows:
a) Firstly, to the Beneficiary, at the date this trusts
expires.
b) Secondly, to the Settlor in case any contingency due to any
of the Secured Obligations, and as established in clause twentieth above.
c) Thirdly, to whoever a court decision adjudicates such
Shares.
TWENTY-THIRD. EVENT OF CLAIM
For purposes hereof, Claim of the Secured Obligations shall be
considered "Events of Claim".
In an Event of Claim, the Guarantee shall be demandable.
TWENTY-FOURTH. TAX OBLIGATIONS.
Taxes and expenses incurred or arising out of this Deed shall be
exclusively on the account of the Beneficiary, and the Trustee shall not have
any obligation to pay with own funds the expenses incurred therefor.
<PAGE> 12
TWENTY-FIFTH. SUBSTITUTION.
The Settlor and Beneficiary may request the substitution of the
Trustee upon prior agreement, which may proceed with just cause.
TWENTY-SIXTH. For the interpretation and execution hereof, the parties
expressly submit to the laws and courts of the city of Mexico, Federal
District, expressly any other forum which by reason of their domiciles may
correspond thereto.
This deed after being read and ratified by the parties hereof, was signed in
the City of Mexico, Federal District, this 9th day of February of nineteen
hundred and ninety six.
Settlor Trustee Beneficiary
3D Geophysical, Nacional __________________
Inc. Financiera, S.N.C.,
Division Fiduciaria
By: By:
Position: Position:
Joel Friedman,
Chairman
<PAGE> 1
[KRAMER, LEVIN, NAFTALIS & FRANKEL LETTERHEAD]
December 11, 1996
3-D Geophysical, Inc.
599 Lexington Avenue, Suite 4102
New York, New York 10022
Re: 3-D Geophysical, Inc.: Registration Statement on
Form S-1 (Registration No. 333-13665)
Dear Sirs and Mesdames:
We have acted as counsel to 3-D Geophysical, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of
the above-captioned Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), covering 4,945,000 shares of common stock, par value $.01 per share, of
the Company (the "Shares"), including up to 645,000 shares of common stock to
be sold upon exercise of an over-allotment option granted by the Company to
Smith Barney Inc., Rauscher Pierce Refsnes, Inc. and Simmons & Company
International, as representatives of the several underwriters (the
"Representatives"). The Shares are to be sold pursuant to an underwriting
agreement to be entered into by and among the Company and the Representatives
(the "Underwriting Agreement").
<PAGE> 2
KRAMER, LEVIN, NAFTALIS & FRANKEL
3-D Geophysical, Inc.
December 11, 1996
As such counsel, we have examined such corporate records, certificates
and other documents as we have considered necessary or appropriate for the
purposes of this opinion. In rendering this opinion, we have assumed (i) the
genuineness of all signatures on documents examined by us, (ii) the
authenticity of all documents submitted to us as originals, and (iii) the
conformity to original documents of all documents submitted to us as
photostatic or conformed copies and the authenticity of the originals of such
copies. We have also relied on certificates of public officials and, as to
matters of fact, statements and certificates of officers of the Company.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and sold in accordance with the terms of the Underwriting Agreement and
as described in the prospectus forming a part of the Registration Statement
(the "Prospectus"), will be validly issued, fully-paid and non-assessable
shares of common stock of the Company.
We are attorneys admitted to the Bar of the State of New York, and we
express no opinion as to the laws of any other jurisdiction other than the laws
of the United States of America and the General Corporation Law of the State of
Delaware.
Arthur D. Emil, Esq., a director of the Company, is of counsel to this
firm. Mr. Emil has been granted ten-year options to purchase an aggregate of
16,667 shares of Common Stock and owns 5,789 shares of Common Stock.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving such consent we do not thereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations promulgated
thereunder.
We are delivering this opinion to the Company, and no person other than
the Company is entitled to rely upon it without our prior written consent.
Very truly yours,
KRAMER, LEVIN, NAFTALIS & FRANKEL
<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED TERMINATION AGREEMENT
AMENDED AND RESTATED AGREEMENT (this "Agreement"), dated as of October
1, 1996, between 3-D Geophysical, Inc., a Delaware corporation (the "Company"),
and John D. White, Jr. ("JD").
WHEREAS, JD has resigned as an officer of the Company and the Company
and JD wish to terminate the Employment Agreement dated February 1996 between
them and to provide for JD's advice and assistance in connection with the
Company's presently proposed underwritten public offering of Common Stock (the
"Offering") and the proposed acquisition of J.R.S. Exploration Company Limited
("J.R.S.");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Termination. The Employment Agreement between the Company and
JD dated February, 1996, and all rights and obligations thereunder, is hereby
terminated as of October 1, 1996 (the "Effective Date").
2. Consideration.
2.1 On January 3, 1997, the Company shall pay to JD
$200,000 in a lump sum, in cash, in consideration of JD's advice and assistance
in connection with the proposed acquisition of J.R.S.
2.2 From the Effective Date until December 31, 1998, the
Company shall pay to JD $5,000 a month on the first day of each month in
consideration of JD's advice and assistance in connection with the Offering and
other financial advisory services to be rendered in the future.
2.3 The Company will, to the extent it is entitled to do
so under the relevant plan, provide to JD, through December 31, 1998,
participation, on the same basis as senior executives of the Company, in
accordance with and subject to the respective terms and conditions thereof as
to eligibility and otherwise, in the Company's medical, dental, long-term
disability and standard life insurance programs (subject to insurability at
standard rates, it being understood and agreed that if insurance becomes
unavailable at standard rates, the Company shall maintain the insurance
provided that the difference in premiums between standard and actual rates is
paid by JD).
<PAGE> 2
2.4 The Company shall make available to JD an office at
the Company's New York offices, and such secretarial assistance and general
office support as JD may reasonably require, until December 31, 1997, provided
that JD shall not, as an officer, engage or participate in any business
enterprise that is in whole or substantial part in competition with the Company
or any of its subsidiaries during such period.
2.5 JD will provide to the Company financial and
advisory services in connection with the Offering and the proposed acquisition
of J.R.S.
3. Confidential Information.
3.1 JD agrees that he will not disclose to any person,
corporation, firm, partnership or other entity whatsoever (except the Company
or any of its subsidiaries or affiliates), or use for his own benefit, any
confidential or proprietary information with respect to the Company's trade
secrets, financial condition, marketing programs or otherwise related to the
Company's business and affairs that JD learned of or had access to as a result
of his employment by the Company ("Confidential Information"), which
Confidential Information is not in the public domain through no fault of JD's.
Notwithstanding anything hereinabove to the contrary, the Company authorizes JD
to make disclosure of Confidential Information (x) pursuant to a court order by
a court of competent jurisdiction, or (y) to any authority exercising
executive, legislative, regulatory or administrative functions of or pertaining
to a government having jurisdiction with respect to the Company or JD.
3.2 The Company shall be entitled, in addition to any
other right and remedy it may have, at law or in equity, to an injunction,
without the posting of any bond or other security and without proving that
damages would not be an adequate remedy, enjoining or restraining JD from any
material violation or threatened material violation of Section 3.1 and JD
hereby consents to the issuance of such injunction. If any of the restrictions
contained herein shall be deemed to be unenforceable by reason of the extent,
duration or scope thereof or otherwise, then the parties hereto contemplate
that the court shall reduce such extent, duration, scope or other provision
hereof and enforce this Section 3 in its reduced form for all purposes in the
manner contemplated hereby. This Section 3.2 and Section 3.1 shall survive the
payment of the consideration to JD under this Agreement.
-2-
<PAGE> 3
4. Miscellaneous Provisions.
4.1 Notices. All notices and demands of any kind which
any party hereto may be required or desire to serve upon another party under
the terms of this Agreement shall be in writing and shall be served upon such
other party: (a) by personal service upon such other party at such other
party's address set forth below in this Section 4.1; or (b) by mailing a copy
thereof by certified or registered mail, postage prepaid, with return receipt
requested, addressed to such other party at the address of such other party set
forth below in this Section 4.1; or (c) by sending a copy thereof by Federal
Express or equivalent courier service, addressed to such other party at the
address of such other party set forth below in this Section 4.1; or (d) by
sending a copy thereof by facsimile to such other party at the facsimile
number, if any, of such other party set forth below in this Section 4.1.
In case of service by Federal Express or equivalent courier
service or by facsimile or by personal service, such service shall be deemed
complete upon receipt. In the case of service by mail, such service shall be
deemed complete upon reasonable proof of receipt. The address and facsimile
number to which, and person to whose attention, notices and demands shall be
delivered or sent may be changed from time to time by notice served, as
hereinabove provided, by any party upon the other party.
The current addresses and facsimile numbers of the parties
are:
If to JD:
599 Lexington Avenue
Suite 4102
New York, New York 10022
Telecopier No.: (212) 317-9230
If to the Company:
3-D Geophysical, Inc.
599 Lexington Avenue
Suite 4102
New York, New York 10022
Telecopier No.: (212) 317-9230
Attention: Joel Friedman, Chairman
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Attention: Peter S. Kolevzon, Esq.
-3-
<PAGE> 4
4.2 Entire Agreement; Amendment; Amendment of Prior
Agreements. This Agreement contains the entire agreement between the parties,
merges all prior negotiations, agreements and understandings, if any, and
states in full all representations, warranties and agreements which have
induced this Agreement. Each party agrees that in dealing with third parties
no contrary representations will be made. This Agreement may not be amended,
modified or otherwise changed orally but only by an agreement in writing signed
by the party against which enforcement of any amendment, modification or change
is sought. This Agreement amends and restates in its entirety that certain
Termination Agreement dated as of October 1, 1996 between the Company and JD.
The consulting agreement between the Company and Megansett Capital, Inc.
("Megansett") dated February 1996 pursuant to which the Company is obligated to
pay to Megansett $125,000 in February 1997 is hereby amended to provide that
such payment shall be made on January 3, 1997.
4.3 Assignment; Binding Nature; Assumption. This
Agreement shall inure to the benefit of and be enforceable by JD and his
personal representatives, heirs, successors and assigns and shall be binding
upon the Company, any purchaser of all or substantially all of the Company's
business or assets, any successor to the Company or any assignee thereof
(whether direct or indirect, by purchase, merger, consolidation or otherwise).
The Company will require any such purchaser, successor or assignee expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such purchase,
succession or assignment had taken place. This Agreement may not be assigned
by the JD without the prior written consent of the Company, except that JD may
assign this Agreement to Megansett, provided that no such assignment shall
relieve JD of his obligations under this Agreement and notwithstanding any such
assignment, JD shall personally perform the services provided for in Section
2.5.
4.4 Nonwaiver. No waiver by any party of any term,
provision or covenant contained in this Agreement (or any breach hereof) shall
be effective unless it is in writing executed by the party against which such
waiver is to be enforced; no waiver shall be deemed or construed as a further
or continuing waiver of any such term, provision or covenant (or breach) on any
other occasion or as a waiver of any other term, provision or covenant (or of
the breach of any other term, provision or covenant) contained in this
Agreement on the same or any other occasion.
4.5 Remedies. The remedies provided for or permitted by
this Agreement shall be cumulative and the exercise by any party of any remedy
provided for herein or otherwise available shall not preclude the assertion or
exercise by such party of any other right or remedy provided for herein or
otherwise available. In the event the Company breaches this Agreement, JD
shall be entitled to recover reasonable attorneys fees incurred in connection
with enforcing this Agreement.
-4-
<PAGE> 5
4.6 Headings; Construction. The headings in this
Agreement are inserted for convenience only and shall not constitute a part
hereof. In this Agreement (i) words denoting the singular include the plural
and vice versa, (ii) "it" or "its" or words denoting any gender include all
genders, (iii) any reference herein to a Section refers to a Section of this
Agreement, unless otherwise expressly stated, (iv) when calculating the period
of time within or following which any act is to be done or steps taken, the
date which is the reference day in calculating such period shall be excluded
and if the last day of such period is not a business day, then the period shall
end on the next day which is a business day, and (v) all dollar amounts are
expressed in United States funds.
4.7 Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of New
York applicable to contracts made and to be entirely performed therein.
4.8 Counterparts. For the convenience of the parties,
any number of counterparts hereof may be executed, each such executed
counterpart shall be deemed an original and all such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
3-D GEOPHYSICAL, INC.
By: /s/ JOEL FRIEDMAN
-----------------------------------
Name: Joel Friedman
Title: Chairman
/s/ JOHN D. WHITE, JR.
-----------------------------------
John D. White, Jr.
-5-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our reports on our audits of the financial statements of 3-D Geophysical, Inc.,
Northern Geophysical of America, Inc. (Land-Based Seismic Data Operations) and
Paragon Geophysical, Inc. dated May 1, 1996, December 19, 1995 and December 6,
1995, respectively. We also consent to the reference to our firm under the
caption "Experts".
COOPERS & LYBRAND L.L.P.
Denver, Colorado
December 11, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report on our audit of the financial statements, at November 30, 1995, of
J.R.S. Exploration Company Limited, dated July 31, 1996. We also consent to the
reference to our firm under the caption "Experts".
/s/ GARRETT POWER,
Chartered Accountants
Calgary, Alberta
December 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,206
<SECURITIES> 0
<RECEIVABLES> 17,786
<ALLOWANCES> 49
<INVENTORY> 0
<CURRENT-ASSETS> 20,923
<PP&E> 31,112
<DEPRECIATION> 4,181
<TOTAL-ASSETS> 54,396
<CURRENT-LIABILITIES> 18,074
<BONDS> 8,682
0
0
<COMMON> 76
<OTHER-SE> 26,911
<TOTAL-LIABILITY-AND-EQUITY> 54,396
<SALES> 0
<TOTAL-REVENUES> 36,151
<CGS> 26,563
<TOTAL-COSTS> 33,258
<OTHER-EXPENSES> 6,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 668
<INCOME-PRETAX> 2,670
<INCOME-TAX> 645
<INCOME-CONTINUING> 2,025
<DISCONTINUED> 0
<EXTRAORDINARY> 57
<CHANGES> 0
<NET-INCOME> 2,082
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
